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Collins Foods (ASX:CKF) warns of earnings hit from rising costs and global tensions

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KFC franchise operator Collins Foods has issued a trading update, cautioning that ongoing inflation, along with rising labour and energy costs, is expected to weigh heavily on its earnings.

The company has forecasted a decline in its underlying margins for the first half of FY25 projecting a reduction of between 1.3 and 1.6 percentage points from the previous year’s margin of 15.8%.

The anticipated decline underscores the challenges the company faces in maintaining profitability amid a tough economic environment.

Collins Foods highlighted that same-store sales performance has been significantly impacted by weaker consumer sentiment, particularly in Australia and Europe.

Economic uncertainty and high living costs have led consumers to tighten their spending, which has directly affected the company's sales.

Additionally, the ongoing conflict in the Middle East has created further complications, notably affecting sales in the Netherlands, where consumer confidence has been shaken by geopolitical tensions.

The company's warning signals broader concerns within the fast-food industry, where rising operational costs and global instability are making it increasingly difficult to sustain growth.

Collins Foods is involved in the operation, management and administration of franchisee restaurants in Australia and Europe.

The company operates KFC and Taco Bell restaurants in Australia, Germany and the Netherlands.

The company operates approximately 275 franchised KFC and 27 franchised Taco Bell restaurants in Australia, 16 franchised KFC restaurants in Germany, and 56 franchised restaurants in the Netherlands.

At the time of reporting, Collins Foods’ share price stood at $7.82.

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