Growth is back on the menu at Franco Manca and The Real Greek owner Fulham Shore (FUL:AIM) as the company is expecting to more than double its rollout from four to 10 openings over the next year.
The company is confident of finding the right sites for new openings, flagging an increasing availability of restaurant space as its competitors come under pressure and close sites.
Restaurants have been caught out by rising costs, squeezed incomes and oversupply, with the likes of Frankie & Benny’s owner The Restaurant Group (RTN) struggling with falling sales and profits.
Sales at Fulham Shore have jumped from £27.5m to £33m and operating profit has risen from £1.2m to £1.6m in the half year to 23 September.
Shares in the company have risen 12.5% to 10.5p.
POTENTIAL HEADWINDS
Fulham Shore is not immune to sector headwinds, particularly higher costs, as profit margins at The Real Greek and Franco Manca are expected to decline over the next few years, potentially forcing a hike in prices.
Overall profit margins are expected to dip from 41.4% to 40% in the year to March 2019 according to broker Allenby Capital, while net debt is expected to fall from £11.9m to £10.7m.
Despite the margin pressure a £110,000 pre-tax loss is expected to swing to a pre-tax profit of £546,000.
ECCENTRIC TOPPINGS
The success of Franco Manca is arguably its cheap pizza offering with unusual toppings such as broccoli, stilton and roasted hazelnuts, resulting in over 2m pizzas being served over the period.
Vegan and gluten-free options have also been well-received in both restaurant chains.
LOW RENTS KEEP PRICES DOWN
Chairman David Page says Fulham Shore’s strong performance is driven by experienced management with an eye on good sites with low rents.
The company is able to negotiate lower than average rents for its Franco Manca branches, helping to pass on low prices onto customers.
A lack of discounting and resistance to hiking prices has also sustained returns, as well as sourcing supply in the UK and Italy directly instead of paying a middleman for the privilege.
