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Tue 6th Oct 2020 - The Restaurant Group reports ‘very encouraging’ trading amid 30% drop in casual dining capacity
The Restaurant Group reports ‘very encouraging’ trading amid 30% drop in casual dining capacity: The Restaurant Group has reported ‘very encouraging’ trading since re-opening amid an estimated 30% reduction in capacity among multi-site casual dining brands. The company stated that trading performance post-lockdown (for the 11 weeks from July 4th to 20th September 2020), with circa 90% of the retained estate now open, has been very encouraging. Wagamama like-for-like sales growth has been 11%. Like-for-like sales growth of 4% in leisure, broadly in line with the market, represents the strongest trading performance in over five years. Its pubs division has shown like-for-like sales growth of 14%. Chief executive Andy Hornby said: “It has been an extraordinary and difficult period for the hospitality sector but one in which we have pulled together to achieve a great deal. The priority throughout has been the safety of our colleagues and customers, and we have also accelerated the reshaping of our portfolio, resulting in a higher quality, diversified estate. Since reopening, I am genuinely pleased with the strength of our trading performance and would like to sincerely thank each and every one of our colleagues for their extraordinary efforts. Whilst the sector outlook is uncertain, and we are mindful of recent restrictions across the UK, we are confident that the actions we have taken provide us with strong foundations to emerge as one of the long-term winners.” 

Of its divisional performance, it stated:

Wagamama: The company stated: “Since re-opening for dine-in we have seen a continued strong trading out-performance versus the market, with the division achieving like-for-like sales growth of 11%, representing a 5% out-performance versus the market. In terms of the performance achieved by segment, we saw the strongest performances in our communities and destination shopping trading segments driven by displaced workers and local summer holidays, with our central London estate performing the weakest due to reduced footfall numbers. Split of like-for-like sales performance by segment is as follows: Communities: Like-for-like sales growth of 25% (comprising c.50% of the estate); Destination shopping: Like-for-like sales growth of 9% (comprising c.25% of the estate); Major city centres: Like-for-like sales growth 6% (comprising c.12.5% of the estate); Central London: like-for-like sales decline of 24% (comprising c.12.5% of the estate)”

Leisure: The company stated: “Since re-opening the restructured business has been trading broadly in line with the market with the division achieving like-for-like sales growth of 4%. In terms of the performance achieved by segment, we saw the strongest performances in our retail parks as well as destination shopping trading segments driven by people working increasingly from home, resulting in trade being spread more throughout the week, with more leisure time to visit shopping centres and retail parks. Split of performance by segment as per below: Retail park only: Like-for-like sales growth of 10% (comprising c.20% of the estate); Destination shopping: Like-for-like sales growth of 8% (comprising c.20% of the estate); Parks with a Leisure scheme: Like-for-like sales growth of 2% (comprising c.59% of the estate); Central London: Like-for-like sales decline of 68% (comprising c.1% of the estate).”

Pubs: The company stated: “Since re-opening we have seen an exceptional trading out-performance versus the market, with our pubs achieving like-for-like sales growth of 14%, representing a 20% out-performance versus the market. In terms of the performance achieved by segment, we saw the strongest performances in our rural and suburban estate, with our central London estate performing the weakest reflecting the lower footfall due to the impact of working from home. Split of performance by segment is as follows: Suburban: Like-for-like sales growth of 17% (comprising c.35% of the estate); Rural: Like-for-like sales growth of 16% (comprising c.40% of the estate); Town: Like-for-like sales growth of 4% (comprising c.20% of the estate); Central London: Like-for-like sales decline of 38% (comprising c.5% of the estate).”

Concessions: The company stated: “As widely reported, covid-19 has hit the travel sector incredibly hard with short notice changes to quarantine arrangements and passenger volumes remaining significantly down on last year. Our focus has therefore been on a measured reopening programme as airport travel rebuilds, with a slower re-opening rate than the rest of group, focussing on positive Ebitda delivery in each site reopened. We currently have 16 sites open with like-for-like sales declining by 58%, +15% ahead of passenger volume decline. Passenger dwell time has increased at airports (due to increased security measures) which has increased customer spend per head. Additionally there is currently reduced competition operating, benefitting operators such as us who have re-opened.”

The company added: “Our group is focused on addressing what we believe are attractive segments of the market and good locations, with increasing penetration of delivery and take-away components across our Wagamama and Leisure divisions. Since re-opening, the group brands’ trading performance have been in line or exceeded their respective market benchmark, demonstrating their attractive positioning in the UK market. The group is therefore very well positioned across its diversified brand portfolio to benefit from a return to more normal levels of customer activity, as and when that occurs, and as a result deliver long-term shareholder value: Wagamama (37% of retained estate): is the only UK pan-Asian brand concept of scale and benefits from being aligned to a number of consumer trends, including the focus on healthy options, demand for speedy service and convenience through delivery. The business has a five-year track record of consistent market like-for-like sales outperformance pre-lockdown, and this has continued since trade recommenced. Delivery related sales penetration has increased significantly, and the business is well positioned to win in the long-term structural growth in the delivery market. Long-term ambitions include significant, measured roll-out to expand both in the UK to c.200 restaurants (from 146 today) and in international markets via franchise and US JV. Leisure (35% of retained estate): The portfolio has been significantly restructured leading to a c.60% reduction in the estate, resulting in the exit of a large number of structurally unattractive leases, addressing a prior key weakness in the division. The resulting portfolio has the potential to achieve a higher average Ebitda and Ebitda margin per outlet, with a significantly improved rental structure. Delivery related sales now represent c.10% of revenues (less than 5% in FY19) and the business is well positioned for further growth in this sales channel. Long-term ambitions will focus on improving the cash generative nature of the division, maintaining the best sites in the strongest locations and increasing delivery penetration. Pubs (19% of retained estate): Our pubs business benefits from being situated in strong locations with large outside spaces and limited local competition. There is strong asset backing, with a freehold asset base valued at £153m (as at Nov 2019). They have demonstrated excellent operational capabilities, with a well-established team and practices. Our Pubs business has a strong five-year track record of consistent market like-for-like sales outperformance and this outperformance has accelerated since recent re-opening. Long-term ambitions relate to there being considerable opportunity for further selective site expansion and growing the business from 77 pubs today to c.120-160 pubs. Concessions (9% of retained estate): The business has historically benefited from consistent UK passenger growth and traded ahead of it. Given passenger volumes are significantly down at present and anticipated to not significantly improve until 2022, we have restructured our estate resulting in a c.50% reduction in sites and adopted a disciplined re-opening programme focused on Ebitda delivery. Our like-for-like sales performance since re-opening has been ahead of passenger growth. The resulting portfolio has the potential to achieve a higher average Ebitda and Ebitda margin per outlet, on a flexible rental structure and deliver strong returns when air passenger growth returns to more normal levels of activity. For illustrative purposes only, the restructured group as it stands today would be capable of delivering annualised Ebitda of between £110m to £125m (on an IAS 17 basis) if its retained estate were to achieve 2019 sales levels. Clearly in these uncertain times, it is incredibly challenging to accurately predict when or if this will happen. For the avoidance of doubt, this is not intended to be a profit forecast and is purely illustrative in nature, showing what the annualised Ebitda could have been on the assumption that 2019 sales levels were achieved.”

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