Collins Foods (ASX:CKF) Exits Taco Bell: Is This a Buying Opportunity Before the KFC Turnaround Kicks In?

Collins Foods Exits Taco Bell: Time to Buy CKF?

Collins Foods (ASX: CKF) fell as low as A$8.45 in early trading on Tuesday before recovering to close at A$8.75 after announcing a legally binding conditional agreement to transfer 20 of its Taco Bell outlets to a Taco Bell-affiliated entity and Restaurant Brands Australia Holdings, with the remaining seven stores set to close within weeks. On the surface, the market sold the very news it spent a year asking for. We believe that reaction is overdone, and here is why this exit may be one of the cleanest strategic moves Collins Foods has made in recent years.

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

Why Exiting Taco Bell Is Actually Good News

Taco Bell was never going to be a Collins Foods success story. Revenue from the segment declined 3.9% in the half-year ended October 12, 2025, squeezed on one side by rising costs and on the other by stronger fast-casual competitors, including Guzman y Gomez, which has aggressively taken share in the Mexican-style quick service restaurant space in Australia. Margins were weak, and improving them would have required significant reinvestment with no guaranteed return.

What makes this deal genuinely positive is the structure of the exit. The incoming operators assume all lease liabilities on the 20 transferred restaurants, meaning Collins Foods walks away without the long-term financial obligations that typically make exiting a retail food brand so painful. Collins will also be reimbursed for net operating losses and necessary capital expenditure on those 20 stores from April 1, 2026, until completion, which limits the ongoing financial drag during the transition period. That is a clean exit, not a messy one.

Michael Toner, analyst at RBC Capital Markets, described the transfer as “a slight positive on balance.” We think that framing is actually conservative. Removing a declining, low-margin segment that was consuming management time and capital is not neutral. It is a meaningful improvement to the quality of the remaining business. Investors selling on this news appear to be reacting to the short-term headline rather than the medium-term implication.

It is worth noting that Collins Foods expects one-off closure and transaction costs of approximately A$1 million to A$2 million related to the seven closing stores. That is a manageable figure and should not materially affect the investment case.

The Investor’s Takeaway for Collins Foods

The core business is in a far better position than the recent share price reaction suggests. KFC Australia delivered interim revenue of A$563.8 million for the first half of FY26, confirming the flagship brand remains a solid, cash-generating operation. The KFC recovery story is about execution, not concept risk, and management has a clear path to improving same-store sales and margins as the cost environment stabilises.

Germany is now the clearest long-term growth lever for Collins. The company has agreed to acquire eight KFC restaurants in Bavaria for approximately €31.1 million, increasing its German store count by approximately 50% and has revised its development target to 45 to 90 new KFC openings across Germany over the next four years. Early results from that strategy have been encouraging, with German total sales growing 7.8% and same-store sales up 4.8% in the first seven weeks of the second half. For investors willing to look past the next few quarters, Germany could meaningfully shift the earnings profile of the company over time.

Adding confidence to the near-term outlook, management reaffirmed full-year FY26 underlying NPAT guidance of mid-to-high teens growth as recently as March 11.

The real test comes on Tuesday, June 30, when Collins Foods reports its FY26 full-year results. That report will show whether the KFC turnaround is gaining traction in the numbers and whether cost discipline is showing up in margins.

In our view, the stock near its June 2025 lows looks overdone relative to the quality of the KFC business and the improving strategic clarity. Patient investors may find a reasonable entry point here. That said, waiting for confirmation that the seven store closures have resolved cleanly before committing fresh capital is the more disciplined approach.

Taco Bell stores. Until those closures are confirmed as clean and cost-contained, there is residual uncertainty around the size of any write-downs or lease-related charges.