Makeover of KFC hurts Restaurant Brands

Restaurant Brands' efforts to make over its key KFC business and the
strong dollar took some of the steam out of its first-quarter sales,
but its battle to rebuild profitability remains on track.

Restaurant
Brands, which operates KFC, Pizza Hut and Starbucks chains in New
Zealand and Pizza Hut in Victoria, said its total sales for the three
months to May 23 were little changed at $72.37 million but same-store
sales eased by 1.5 per cent to $69.86 million.

Macquarie Equities analyst Warren Doak said there was little in the figures to surprise either way.

"They
continue to be a leading player in the industry and KFC really holds
the key to a significant re-rating of their share price. While the
commentary on their plans is good, the market's taking a wait-and-see
approach at the moment."

Restaurant Brands shares closed a
cent lower at $1.12, in the middle of their $1.15 to $1.40 trading
range for the past 12 months and still well down from $2.14 in March
2002 before the company's profitability was hit, largely by sluggish
sales at fried chicken chain KFC.

In this year's May quarter,
KFC's same-store sales fell 1.4 per cent and total sales at $38.8
million for the period were down 3 per cent on the previous same
period.

Restaurant Brands said it had anticipated KFC sales
would suffer during the quarter due to brand refurbishment which saw
some of its 85 stores temporarily shut and one closed for good.

Doak said there was nothing either brilliant or alarming about the KFC numbers.

"KFC
are facing a challenge to become relevant in the modern market and in
order to do that they've decided they need to do a total refurbishment.


"The positive comments out the result were that early trading
for the couple of stores they have refurbished has met or bettered
expectations and that they feel comfortable proceeding with a roll-out
programme of that concept."

However, Restaurant Brands did not disclose how much the performance of the rejuvenated stores had improved.

Meanwhile,
Pizza Hut NZ's total sales were up 4.4 per cent to $20.63 million but
same-store sales fell 3.7 per cent to $18.85 million. Restaurant Brands
opened more Pizza Hut stores in the past year in response to the
arrival of Australian chain Domino's and "initial short-term
cannibalisation of new stores on the existing base" had contributed to
the fall in same store sales, the company said.

The news was
still good from Starbucks, which continued its "solid performance".
Total sales rose 10.2 per cent to $6.2m and same-store sales rose 1.2
per cent to $5.67m.

Across the group, Restaurant Brands' total
New Zealand sales were up 0.4 per cent and those at its Australian
businesses were up 1.7 per cent.

Looking ahead, Restaurant
Brands said colder weather had already had a positive impact on Pizza
Hut NZ sales. KFC's sales were expected to grow as a result of the
ongoing brand transformation and promotions.

- NZPA