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June 30 (Reuters) - Collins Foods CKF.AX, operator of KFC restaurants in Australia, reported a decline in same-store sales (SSS) in its European operations in the early part of fiscal 2027 on Tuesday, due to a heatwave that disrupted consumer sentiment, reversing early gains in its shares.

The company attributed the slowdown to multiple challenges, including the ongoing Middle East conflict, which is influencing fuel prices and consumer confidence, as well as weaker performance of limited-time menu offers compared to last year.

"The fundamentals of the European business remain sound, and a clear program of initiatives is underway, in collaboration with Yum! YUM.N, to rebuild sales momentum over the short and long term," the company stated.

The Brisbane-headquartered firm's SSS in the first eight weeks of fiscal 2027 rose by 4% in Australia but fell by 7.2% in Germany and 7.8% in the Netherlands.

Total KFC sales, however, grew 6.7% in Australia and 26.4% in Germany due to the inclusion of recently acquired Bavarian outlets, while sales declined 5.2% in the Netherlands.

Collins Foods expects a stable cost environment for the full year 2027. While labour inflation remains elevated across Australia and Europe, the company highlighted that its AI-related productivity measures and automation initiatives are on track.

The company posted a net profit attributable of A$44.2 million ($30.43 million) for the year ended May 3, compared with A$8.8 million for the year ended April 27, 2025, supported by new product launches and operational execution.

Collins Foods shares fell as much as 4.7% to A$7.97 by midday in Sydney, retreating after touching their highest level since March 27 earlier in the day.

($1 = 1.4526 Australian dollars)