Restaurants and pubs company Restaurant Group (RTN) said it had seen a strong rebound in trading since reopening, leading to higher full year profit expectations, but negated the positive tone by flagging near-term cost and labour challenges, sending the shares 3% lower to 117.6p.

The reported half year results to 4 July were not particularly relevant given the restrictions in place during the early part of the year.

However, despite revenues falling 4.5% to £217 million, which were 58% below the first half of 2019, the company generated positive EBITDA (earning before interest, taxes, depreciation, and amortisation) of £11.2 million.

STRONG REBOUND

Since dining-in was allowed on 17 May trading has been buoyant and for the 15 weeks to 29 August the Wagamama franchise delivered 21% like-for-like sales growth, outperforming the market by 13%.

Interestingly, the company noted customers had developed a preference for delivery and takeaway suggesting a structural shift in preferences. Like-for-like delivery sales were up 146% in the last eight weeks while takeaway sales increased 90%.

The pubs businesses outperformed the market by 14%, delivering like-for-like sales growth of 12%. The company is targeting investment in its estate to increase revenues and add more accommodation capacity.

The leisure businesses delivered like-for-like growth of 18%, outperforming the market by 10%, with key initiatives undertaken to improve menus and food quality.

Not surprisingly, the concessions side of the business struggled against the ongoing restrictions on foreign travel and like-for-like sales at the 21 sites declined by 53%.

ANALYST UPGRADES  

Following today’s strong update, Shore Capital increased its EBITDA estimate by 57% to £55 million, while investment bank Stifel upped its estimate by 50% to £45 million. Consensus EBITDA currently sits at £47.6 million according to Refinitiv.

Management appear confident that the heavily restructured and recapitalised business is in far better shape coming out of the pandemic than when it went in.

Greg Johnson, leisure guru at Shore Capital, concurred saying ‘we believe a much better business is emerging post last year’s estate rationalisation, with an attractive rollout story and a potential reshaping of industry dynamics, with the significant capacity reduction continuing to be witnessed.’

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Issue Date: 15 Sep 2021