Customers order food at Bermuda's only branded fast food franchise. *File photo
Customers order food at Bermuda's only branded fast food franchise. *File photo

SUNDAY, AUGUST 28: Weakening sales as the economy is mired in a 38 month retail slump has seen Kentucky Fried Chicken (Bermuda) post a first half loss for 2011.

KFC posted $20,933 loss for the first half of the year but it could have been over $80,000 had it not received payroll tax relief from the Government.

Chairman Donald Lines in a letter to shareholders said: “The first six months of the year have been difficult for Bermuda’s retail and hospitality industries and Kentucky Fried Chicken (Bermuda) Limited has certainly not been immune to a general weakness in discretionary consumer spending with half year sales declining for a second consecutive year.

First half gross sales declined by $80,970 (-3.2 per cent) compared to the prior year.

KFC saw its payroll costs decrease by $34,537 (-3.8 per cent), mainly due to adjustments in staff scheduling which resulted in an overall reduction in total staff hours and associated wage expense.”

Mr Lines said: “To date, the company has made every effort to maintain stable employment for our team members throughout a weak economy and has avoided reduction of operating hours or staff redundancies.

“However, the board of directors remains conscious of the need to keep expenses in line with business activity.

“Given the two year trend of weakening sales, the company will need to consider future operational changes, which adjust the scale of our business to meet the changing demand of our customers.

“Other operating expenses declined by $33,330 (-3.8 per cent) in the first six months as management continued efforts to tightly control costs.

“After two years of focused cost control, we believe that operating expenses have been cut or restrained as much as possible and that there is little if any room for significant further operating expense reductions during the balance of the year based on current operations.

“While payroll and operating expenses did show some declines in the first half, these cost reductions were, however, more than offset by higher depreciation costs related to the company’s premises.”

Mr Lines said KFC made essential capital expenditures to replace old mechanical components.

KFC (Bermuda) had an operating loss of $102,475 for the first half (a decrease in six month operating profit of $135,720 compared to the prior year).

Due largely to a one-time gain of $60,934 related to payroll tax relief granted by the

Government of Bermuda for the 2010 calendar year, together with investment income on surplus capital, the Company’s first half operating loss was reduced to a net loss of $20,933 for the first half of fiscal 2012.

Mr Lines said discussions were in place with the Bermuda Industrial Union regarding terms for renewal of the collective agreement with unionized staff.

The collective bargaining agreement with the BIU ended last April and KFC’s last offer was made this month as the company waits for a written response for the union.

Mr Lines said: “It is our hope that the BIU and its membership will recognize the weakness of market conditions and the urgency of the Company’s need to reach a realistic agreement with its staff that protects the interests of all stakeholders including employees, investors, and customers.

“While the Company has successfully protected its workers’ employment during the past two years of economic weakness, our ability to continue to protect employment going forward will be largely dependent on our employees’ willingness to recognize difficulties we all face in this economic environment.”