Restaurant Group swings to first-half loss but on track for full year

Restaurant Group said on Tuesday that it swung to a first-half loss following its takeover of Wagamama but posted a surge in revenue and said trading remains in line with its expectations for the year.

In the 26 weeks to the end of June, the company suffered a statutory pre-tax loss of £87.7m compared to a profit of £12.2m in the first half of last year as it took a hit from an exceptional pre-tax charge of £115.7m after writing down the value or restaurant sites deemed "structurally unattractive".

Still, adjusted pre-tax profit increased to £28.1m from £20.7m and revenue jumped 58.2% to £515.9m. Like-for-like sales grew 4% during the half as Wagamama and the company’s concessions and pubs businesses outperformed the market.

The group said like-for-like sales were up 3.7% in the first 34 weeks of the year, benefiting from soft comparatives in the prior year. LFL sales in the most recent six weeks were 0.2% higher, driven by the "strong" performance of the company’s three growth businesses, largely offset by its leisure business reverting back to a trend of modest LFL sales decline

Free cash flow improved to £27m from £14.2m, reflecting the cash generated from the Wagamama operations, partially offset by the increased cost of financing. Meanwhile, net debt increased by £25.7m to £316.8m. Restaurant Group said this was mostly due to a one-off £20.7m acquisition and integration cost relating to Wagamama.

Non-executive chairman Debbie Hewitt said: "We continue to focus on improving our brand offerings and delivering the best possible experience to our customers whilst optimising our leisure business to enhance the overall group performance.

"We are mindful of the headwinds in the casual dining sector and the meaningful uncertainties created by the potential of a 'no-deal Brexit' and are planning with this in mind. However, our business is now better diversified and purposefully positioned to benefit from multiple opportunities for growth."

At 0915 BST, the shares were down 13% at 134.30p.

Russ Mould, investment director at AJ Bell, said: "Expectations have been fairly high for Restaurant Group’s recovery after the market had time to digest the (expensive) purchase of Wagamama and how it might actually help to revive the group. It also seemed as if management had finally got a grasp on the problems hanging over its other brands including Frankie & Benny’s.

"Unfortunately its half year results don’t quite live up to the hype around its recovery efforts. Yes, Wagamama is doing well and there are signs of progress with repairing its other interests. But there are a few items on the menu which leave investors with a stomach ache.

"It has suffered £115.7m in one-off charges including a large impairment on its leisure business (which is primarily Frankie & Benny’s and Chiquito) where management are taking a more cautious view. A mere 0.2% like-for-like sales growth in the most recent six weeks is also very disappointing.

"There are a lot of moving parts with the business and it will take a lot longer to get each one running smoothly.

“On the positive side operating cash flow has greatly improved and there is a clear plan to execute. On the negative side is a weak consumer backdrop, intense competition in the casual dining sector and uncertainties that Brexit will bring to the UK economy and consumer spending in general."