Burger Brexit Hit Sends Famous Brands Down Most in 14 Years

(Bloomberg) -- Add avocado bacon burgers, truffle cheese fries and bourbon-glazed mushrooms to the casualties of Brexit.

Famous Brands Ltd. of South Africa, which bought the U.K.’s Gourmet Burger Kitchen chain months after the country voted to leave the European Union, slumped the most in 14 years Tuesday after it said it would keep losing money until the next financial year.

The company cited weak consumer confidence stemming from political uncertainty linked to Brexit and recent terror attacks in the U.K. Shares of the owner of Steers burgers and Debonairs Pizza dropped as much as 17 percent in Johannesburg after the company said difficult trading conditions also persisted in its home market.

“The U.K. environment with Brexit has turned out to be considerably worse than initially expected,” weighing on the performance of Gourmet Burger Kitchen, said De Wet Schutte, an analyst at Avior Capital Markets. While the timing of the purchase was “unfortunate” in light of the Brexit vote, the investment shouldn’t be judged on the first six months, said Schutte, who has an outperform rating on the stock.

Famous Brands bought Gourmet Burger Kitchen in September 2016 in a 120 million-pound ($158 million) deal and said it remains optimistic that the business will add value in time. Even so, it said in an update in August that only two of four planned Gourmet Burger restaurants, where an avocado bacon burger goes for 9.85 pounds, will be opened in the second half. Famous Brands opened six outlets in the first half, bringing the total since purchase to 14.

The company did not mention Brexit in its latest statement but cited its August update, in which it said the vote to leave the EU contributed to a “general economic slowdown featuring rising inflation and limited wage increases.”

The curtailing of new Gourmet Burger stores comes as first-half same-store sales fell and as business at some of the outlets that it has opened since buying Gourmet Burger has been slower than estimated. With preopening capital costs of about 1 million pounds per store, the company is also trying to reduce spending risk in the “prevailing subdued macroeconomic environment” in the U.K., it said.

Food and clothing retailers and restaurant operators are struggling in South Africa as weak economic growth, 28 percent unemployment and what Famous Brands described as “sociopolitical uncertainty” curb consumer spending.

To contact the reporters on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net, Neo Khanyile in Johannesburg at nkhanyile@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III