KFC owner Collins Foods shares sliding on Taco Bell exit

Collins Foods Ltd (ASX: CKF) shares are slipping today.

Shares in the S&P/ASX 300 Index (ASX: XKO) KFC fast food restaurant operator closed yesterday trading for $8.78. In early morning trade on Tuesday, shares are changing hands for $8.62 apiece, down 1.8%.

For some context, the ASX 300 is down 0.2% at this same time.

Here’s what’s happening.

Collins Food shares slide on Taco Bell divestment

Atop its KFC restaurants, the ASX 300 stock also operates 27 Taco Bell outlets in Australia.

But, as investors have been expecting, that era is coming to an end.

Collins Food shares are slipping today after the company announced it has entered into a legally binding conditional arrangement to transition 20 of its 27 Taco Bell restaurants to an affiliated company of Taco Bell (part of YUM! Brands) and Restaurant Brands Australia Holdings.

The two parties are expected to operate the Taco Bell business going forward under a new partnership arrangement. The deal also covers the restaurants’ employees, if they choose to accept offers of employment from the new owners.

The seven remaining Taco Bell restaurants will be closed over the next few weeks.

Collins Foods expects to incur one-off costs of $1 million to $2 million related to the closure of these seven restaurants.

The sale won’t offer a big cash boost for Collins Foods shares, with the company saying the purchase price comprises “a nominal amount” plus the value of stock and cash floats. The new owners will assume the lease liabilities for the 20 restaurants.

Following its Taco Bell divestment, however, Collins Foods said it can now focus on its core KFC brand. The ASX 300 stock has KFC outlets in Australia and Europe, with a particular growth focus in Germany.

What did management say?

Commenting on the divestment that’s yet to lift Collins Foods shares today, CEO Xavier Simonet said:

Collins Foods is pleased to announce the transition of 20 Taco Bell restaurants to the brand owner, Taco Bell, and its local partner, subject to completion of the proposed transaction. This will enable Collins Foods to focus on our core KFC business in Australia and Europe, including accelerating profitable development in Germany.

Simonet added, “We are committed to ensuring a smooth transition and to supporting all our team, whether transitioning or otherwise, through this process.”

Collins Food expects the sale to complete between June and August, depending on regulatory approval timelines and the purchasing parties finalising their terms.

With today’s intraday slide factored in, Collins Foods shares remain up a slender 0.5% since this time last year, not including dividends.

The post KFC owner Collins Foods shares sliding on Taco Bell exit appeared first on The Motley Fool Australia.

More reading

• Buy, hold, sell: Breville, Collins Foods, and MA Financial shares
• 2 ASX dividend stocks Morgans rates as buys
• Buy, hold, sell: Collins Foods, Liontown, and Northern Star shares
• 2 ASX shares highly recommended to buy: Experts
• Buy, hold, sell: Collins Foods, Endeavour, and Magellan shares

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.