29th Apr 2016 13:31
LONDON (Alliance News) - Shares in the Restaurant Group PLC sank to the bottom of the FTSE 250 on Friday after it warned on profit for its full financial year, ending a long run of consistent profit growth, and as it revealed the resignation of its chief financial officer.
Shares in the company were down 25% at 280.54 pence on Friday afternoon, the worst performer in the mid-cap index.
The restaurant operator, which runs the Frankie & Benny's, Chiquito and Garfunkel's chains, had been posting continuous profit growth for the last few years as it has been rapidly expanding its portfolio of sites.
But in January, it warned that a tough trading environment was leading to depressed like-for-like sales growth in 2016, a concern it repeated at the time of its financial 2015 results in March. In March, Restaurant Group reported a 1.5% decline in like-for-like sales for the first 10 weeks of 2016, which it attributed to softer consumer demand and weaker overall consumer confidence.
It warned at the time that it expected the trend to continue through the year, and that while total sales would rise due to new restaurant openings, like-for-like sales growth would likely be "difficult to generate".
In a new trading update on Friday, Restaurant Group said it is continuing to see a deterioration in trading conditions in 2016 so far, particularly in the leisure business which comprises the restaurants located at retail parks.
In the 17 weeks to April 24, total sales grew by 4.7% but like-for-like sales fell by 2.7%.
Restaurant Group said it doesn't expect any improvement in underlying like-for-like trends in the short term, which will lead to a fall in full-year sales of between 2.5% and 5.0%. This would translate into a full-year pretax profit in the range of GBP74 million to GBP80 million, down from the GBP86.8 million it made in financial 2015.
"This brings to an end a consistent run of almost uninterrupted profit growth lasting over a decade," Edison Investment Research Analyst Paul Hickman said.
Hickman added that while Restaurant Group had created a "strong reputation" for its disciplined operations, consistent growth programmes, pragmatic brand positioning and strong investment returns, it is facing competition for a "squeezed consumer wallet" from companies such as pub operator Greene King PLC and takeaway firms such as Domino's Pizza Group PLC and Just Eat PLC.
Restaurant Group has commenced a comprehensive review of its operating strategy in an attempt to improve performance, covering its property portfolio, site roll-out programme, brand positioning and overheads.
It is continuing with its expansion plans, having opened four new sites in the year to date and expecting to open a further three by the end of the first half. Restaurant Group said overall openings this year will be lower than last year, but it still anticipates opening more than 30 sites across the brands.
Restaurant Group also revealed that Chief Financial Officer Stephen Critoph has resigned from the company with immediate effect, and that it has commenced the search for a replacement.
"We are focused in the short term on the operational levers that will improve our trading performance. In the medium term, we are reviewing the core strategic assumptions that differentiate our operating model to ensure that we optimise returns for shareholders," Chief Executive Danny Breithaupt said.
"In spite of the current like-for-like challenges, overall returns remain strong, the business continues to be cash generative, and there is a strong core business to build on," he added.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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