7th Dec 2022 20:39
(Alliance News) - Pub, bar and restaurant operator Mitchells & Butlers PLC announced it had returned to profit on Wednesday, but analysts cautioned that rising costs may stymie the company's recovery moving forward.
"Mitchells and Butlers results demonstrate the highly volatile time pubs have been experiencing as the urge to socialise post pandemic has snapped back, just as inflation has been eating away at margins," said Susannah Street, senior investment & markets analyst at Hargreaves Lansdown.
In the year ended September 24, the Birmingham-based firm swung to a pretax profit of GBP8 million from a loss of GBP42 million, as revenue more than doubled to GBP2.2 million from GBP1.1 million.
Like-for-like sales topped pre-pandemic figures, growing 1.1% against financial 2019 - reassuring AJ Bell Investment Director Russ Mould that people "haven't abandoned a good night out" if Mitchells & Butlers' results were anything to go by.
Mitchells & Butlers thanked a general return to office working, city centres becoming stronger and increasing confidence in the hospitality sector for the recovery in its sales.
Most interestingly for AJ Bell's Mould, however, was that food was the dig driver of sales for the business, not drinks. Like-for-like food sales increased by 5.2% against financial 2019, while drink sales fell 4.1% against the same period.
"This may surprise a lot of people as someone strapped for cash might easily avoid going out for a meal as it can cost a lot of money, whereas they might be more prepared to have a few pints of beer," he explained.
Amid worries around the cost-of-living crisis and comments from JD Wetherspoon PLC that people were drinking fewer pints in the pub, it was easy to assume that the broader hospitality sector was in trouble, according to Mould.
This was certainly a concern for Mitchells & Butler which admitted it remained "very mindful" of the "potential implications of the cost-of-living challenge" facing its customers.
Nonetheless, the firm reported an encouraging start to the new financial year, with like-for-like sales growth of 6.5% in the first ten weeks against the year prior.
For Hargreaves Lansdown's Susannah Streeter it remained an "extremely tough time to be a publican" regardless, adding that the pain "will not be short term" either.
"The cost of energy in particular is an ongoing migraine which is set to intensify given that prices are expected to rise further and uncertainty reigns about the level of government support going forward," Streeter said.
Mitchells & Butlers said that it expects inflation to add 10% to 12% to its approximately GBP1.8 billion cost base, before mitigation, in financial 2023.
It added the energy price guarantee from the UK Government for businesses for six months from October 1 was welcome, but costs are still expected to increase this year, causing "significant uncertainty" over its second half.
This wasn't all waiting for the pub operator, according to interactive investor's Victoria Scholar. "On top of that, the hospitality group has been facing headwinds from April's jump in VAT from 12.5% to 20%, very hot weather and industrial action such as the train strikes," she said.
Still, Scholar added, with many pubs and restaurants have been forced to close this year given the post-pandemic pressures from inflation and the difficulties obtaining staff and remaining profitable, Mitchells and Butlers is "arguably well positioned" to benefit from the reduction in competition and consolidating landscape.
Shares in Mitchells & Butler closed 11% higher at 157.06 pence on Wednesday in London.
By Heather Rydings, Alliance News senior economics reporter
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