30th Apr 2024 11:33
(Alliance News) - Whitbread PLC's decision to axe a number of branded restaurants and covert some into hotel rooms was "logical" and a "shrewd way" of making the most of its real estate, analysts on Tuesday said.
Shares in Whtbread were up 3.8% to 3,162.00 pence in London on Tuesday.
The Dunstable, Bedfordshire-based owner of Premier Inn plans to convert a large number of restaurants into hotel rooms, and sell-off underperforming sites, as it looks to hit a target of 97,000 open rooms in the UK by 2029.
The plan will result in the loss of 1,500 jobs, Whitbread said.
Whitbread said the actions were part of its 'accelerating growth plan', which will see the conversion of 112, and the sale of 126, branded restaurants to unlock 3,500 new room extensions and help it reach at least 97,000 open rooms in the UK by 2029.
Whitbread said the plans will require GBP500 million of investment over the next four years, which will be funded through its existing annual capital expenditure programme.
The company said the changes will cause a one-off reduction of GBP20 million to GBP25 million to UK adjusted pretax profit in financial 2025.
This will be recovered in the following two years, Whitbread said, with the removal of lower-returning restaurants and the addition of new high-returning hotel rooms.
Overall, the plan is expected to deliver a net incremental annual adjusted pretax profit benefit of between GBP30 million to GBP40 million. Over time, this could rise to as much as GBP90 million per annum, Whitbread said.
The news came alongside annual results.
In the 52 weeks to February 29, Whitbread said pretax profit rose 21% to GBP451.7 million from GBP374.9 million a year prior. Earnings per diluted share increased by 14% to 159.9 pence from 137.5p.
Sales rose 13% to GBP2.96 billion from GBP2.63 billion.
Reflecting the strong financial performance, Whitbread said it intends to start a further GBP150 million share buyback, which will be completed during the first half of the new financial year. It also increased its total cash dividend by 31% to 97.0p per share from 74.2p.
AJ Bell investment director Russ Mould said "hotels are where it's at right now for Premier Inn owner Whitbread".
He felt the decision to "slash jobs and sites for its chain of branded restaurants, and even convert some restaurants into hotel rooms, looks logical.
"It makes sense for the company to focus on what it is good at."
Mould pointed out that Brewers Fayre and Beefeater are "arguably not strong enough brands to perform against a difficult consumer backdrop and in a competitive casual dining market".
But Premier Inn is "well-positioned as it offers affordable and reliable accommodation for people looking for an inexpensive trip away or someone travelling for business."
Derren Nathan, head of equity research, Hargreaves Lansdown said the plans appear to be a "shrewd way to optimise the current real estate footprint and a capital efficient method to help reach the 2029 target."
While the ongoing expansion and commitment to returning cash to shareholders has seen debt levels creep up, they are at levels that are not "overly concerning".
"The valuation has come under pressure of late largely due to wider concerns about the health of demand for hospitality. But Whitbread is a first-class operator that should be able to execute its medium-term goals and ride out any short-term turbulence," he added.
By Jeremy Cutler, Alliance News reporter
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