October 13 2011 at 05:00am
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Samantha Enslin-Payne

Taste Holdings, the owner of the Maxi's, Scooters Pizza, St Elmo's and NWJ brands, posted gains in revenue and earnings in the six months to August helped by robust spending on fast food and despite the unpredictable spending on jewellery.

The group posted a 27 percent rise in systemwide sales to R416 million and a 23 percent rise in revenue to R113.4m. Operating profit rose 44 percent to R10.7m and headline earnings rose 50 percent to R5.3m. The shares were flat at R1.35.

Chief executive Carlo Gonzaga said yesterday that in the past six months the biggest challenges were the high cost of gold for the jewellery division, high energy costs for food franchisees and the unpredictability of jewellery sales, which had not followed the usual seasonal trends.

Gonzaga said the high price of gold resulted in a lot of product innovation, including using more silver with gold. As NWJ is in the value segment it benefited from upper-end consumers trading down.

NWJ has 82 outlets. About 40 percent of NWJ's merchandise is made at the group's Durban factory, while 22 percent is imported and the balance is sourced locally.

Despite managing the high price of gold and intense competition in this retail category, and five store closures, the jewellery division added 7.9 percent in systemwide sales to R109m. Same-store sales rose 0.5 percent. The 17 NWJ outlets performed well - same-store sales growth exceeded 14 percent.
Gonzaga said corporate stores had generally performed better than franchise-owned stores because "we stock corporate stores optimally". Towards the end of period the group extended increased stock credit to franchisees, resulting in a positive increase in sales in line with the performance of corporate stores.

In the food division, which has 246 outlets, systemwide sales rose 36 percent to R307m.

Gonzaga said the biggest challenge facing the food division was the high cost of electricity, which over the past 36 months was now a franchisee's single biggest expense.

This was being addressed through energy saving initiatives, but Gonzaga added: "I don't think the government thought how it would affect small food businesses."

The group continued to focus on the vertical integration of its food business.

Gonzaga said: "In the long run we want more control."

This included extending the range of food it made to improve the quality and price for its franchisees. The group was evaluating food acquisitions and prospects for implementing a distribution and warehousing capacity. It was trading under a cautionary. Gonzaga would not give further details.

Analyst Jean Pierre Verster at 36One Asset Management said Taste Holdings had delivered a strong set of results, which showed it had benefited from efficiency of scale and backward integration due to its new food-manufacturing capability. The integration of St Elmo's, which it bought late last year, would further boost the use of Taste's food manufacturing facilities.

Verster said the jewellery segment came under pressure, but as a cyclical business it should perform better over the festive season.

The jewellery business should also feel relief as the gold price had eased back from it peak of $1 900 (R14 990) an ounce in early September to about $1 682 an ounce.

Source: Sunday Tribune (http://www.sundaytribune.co.za/healthy-appetites-boost-taste-sales-27-1.1156103)