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Wed 8th Mar 2023 - Update: The Restaurant Group and Starbucks
TRG lfls out-perform respective markets, to exit c.35 leisure division sites: The Restaurant Group (TRG) has reported that Wagamama, Brunning & Price and Concessions businesses saw their like-for-like sales all out-performed their respective market benchmarks in FY22, as it announced plans to further rationalise its Leisure division. In the eight weeks from 2 January to 26 February 2023, like-for-like sales at Wagamama were up 2% versus last year, and 9% up on a VAT adjusted basis. For Brunning & Price like-for-like sales in the eight weeks were up 9% (and ahead 14% on a VAT adjusted basis), while they were down 4% across its Leisure division, which includes Frankie & Benny’s (up 2% on a VAT adjusted basis). Its Concessions arm saw a 48% increase (56% up on a VAT adjusted basis). The company said that dine-in trends had been particularly strong during the eight weeks, with dine-in like-for-like sales at Wagamama and Brunning & Price up 9%. It said that the delivery and takeaway like-for-like sales decline for Wagamama and Leisure was in line with reduced demand across the delivery market. Total sales for the year to 1 January 2023 stood at £883m (2021: £636.6m), with adjusted Ebitda profit of £83m (2021: £81.2m) and adjusted pre-tax profit of £20.3m (2021: £16.6m). Statutory loss before tax stood at £86.8m (2021: loss of £35.2m). However, the company reported a statutory operating loss of £49.7m compared with a profit of £11.8m a year earlier, as it was hit by impairment charges on its leisure business because of higher inflation and cost of living pressures. In the year it said that Wagamama achieved like-for-like sales growth of 8%, representing a 3% outperformance versus the market. It said that Brunning & Price delivered an “exceptional performance in FY22”, delivering like-for-like sales growth of 10%, representing a 11% outperformance versus the market. Its Leisure division achieved flat like-for-like sales growth in FY22, 5% behind the market. The company said that its Concessions business recovered strongly during 2022 with all 42 sites open for trading during the peak summer season. Like-for-like sales declined by 13%, 10% ahead of the passenger volume decline of 23% over the year. The company said that in response to the tough macro-environment, its Leisure business has “proactively developed a further estate rationalisation plan in order to further enhance its cash generation”. The company said: “There is a good level of lease flexibility across the Leisure business and we plan to exit circa 35 potentially loss-making locations over the next two years through a combination of exercising break clauses, lease expiries, selective conversions and accelerated disposals.” This will include conversions – one to three sites to be converted to Wagamama over the next two years; lease events – at least 13 sites will be exited at break clause or lease expiry; freeholds – seven freeholds will be sold; and accelerated disposals – sites are being marketed for exit and we expect to dispose of 10-20 sites. Overall, as a consequence its Leisure estate is expected to reduce by circa 30% from 116 sites today to 75-85 sites by 2024. The company also set out plans to deliver margin accretion over three years. It said: “Despite strong sales growth and rigorous central cost management, sector-wide cost inflation has caused a significant deterioration in TRG’s Ebitda margin from a pro-forma 2019 Ebitda (pre-IFRS 16) margin of c.14% down to 9.4% in FY22. When accounting for the benefit from lower VAT in Q1 2022, the FY22 VAT Adjusted Ebitda (pre-IFRS 16) margin falls to 8.3%. We have built a proactive plan to drive significant margin accretion from this 8.3% base, with the clear ambition to target an improvement of 250bps to 350bps over the next three years (i.e. FY25 year-end run-rate).” It said the core drivers of this strategy will be volume and pricing growth, cost opportunities and portfolio mix – to enhance the profitability mix of the group over the next two to three years. Andy Hornby, chief executive, said: “We’ve delivered a strong operating performance for the year in a market which has continued to pose a number of headwinds for casual dining operators. Current trading has been very encouraging to the great credit of our teams who continue to ensure our customers receive the best experience possible. We have a clear plan to increase Ebitda margins over the next three years and deliver significant value for all our stakeholders.”

Next edition of Propel Turnover & Profits Blue Book shows 709 largest sector companies turning over total of £40.2bn: The next edition of the Propel Turnover & Profits Blue Book, which will be sent to Premium subscribers on Friday (10 March), shows 709 of the largest sector companies are turning over a total of £40.2bn – up from £39.4bn the previous month. A total of 455 companies are making a profit while 254 are making a loss. The Blue Book is updated each month and ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Premium subscribers also receive access to four other databases: the Propel Multi-Site Database, produced in association with Virgate; the New Openings Database; the Who’s Who of UK Food and Beverage; and the UK Food and Beverage Franchisor Database. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email to upgrade your subscription. Subscribers also receive access to Propel’s library of Friday Wrap interviews and now also have access to a curated video library of the sector’s finest leaders and entrepreneurs, offering their insights on running outstanding businesses in the sector. Premium subscribers are also to be given exclusive access to the recording and slides to Propel Multi-Club Conferences. Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before; regular video content and regular exclusive columns from Propel group editor Mark Wingett.

TRG targeted by second activist shareholder: The Restaurant Group (TRG), the owner of Wagamama, is being targeted by a second activist investor – Irenic Capital Management. Bloomberg reports that Irenic Capital has had private discussions with TRG. The talks reportedly covered the potential divestiture of its pubs and concessions businesses, increasing disclosure around the profitability of Wagamama and reducing corporate costs, said one of the people. Irenic Capital, founded by Andy Dodge and Elliott Investment Management alumnus Adam Katz, has been amassing a position in Restaurant Group but the size of its stake couldn’t be learned. A representative for Irenic Capital declined to comment. In February, TRG rejected Oasis Management’s demand for a board seat, saying it was already reviewing strategic options.

Starbucks UK sales exceed pre-pandemic levels driven by delivery and drive-thru, future growth to focus on smaller, digitally-focused city and drive-thru locations and franchise stores: Starbucks UK has reported sales exceeding pre-pandemic levels for the first time – driven by delivery, drive-thrus and strong footfall in suburban and retail park locations – as it posted turnover of £449,257,000 for the year ending 2 October 2022. This compares to £328,014,000 in 2021 and £361,726,000 in the last full year before the pandemic, ending 29 September 2019. Of the 2022 figure, £282,651,000 came from company owned stores (2021: £205,132,000) while £165,896,000 came from licensed and franchising (2021: £122,369,000) and £710,000 from store value card breakage (2021: £513,000). Pre-tax profits dipped from £13,348,000 in 2021 to £10,396,000 (2019: pre-tax loss of £6,593,000). The number of stores at year-end rose from 1,000 in 2021 to 1,088 (company-owned rising from 297 to 318) while employee numbers were up from 4,009 to 5,177. The company said: “For the first time, the company saw annual sales exceed pre-pandemic levels. The company experienced strong demand for its products and delivered strong sales growth as it moved back to its standard operating model, transitioning out of the pandemic. Nonetheless, FY22 saw adverse impacts on sales due to covid-19. During the peak of the Omicron variant, the government guidance to work from home where possible had a negative impact on footfall for office and city locations. The company’s performance was improved by changes portfolio which helped the business meet customers where they are. This included investments in digital, evolving the estate towards more drive-thrus and the positive incremental impact of delivery sales, supported by a strong footfall recovery in suburban and retail park locations. Office, travel and inner city location footfall has been slower to recover, however the recovery in these locations started to strengthen towards the end of the year, with a particularly strong recovery in London as commuters returned to the city. New store openings also supported the strong sales growth, with the company ending the year with 1,066 stores (2021: 1,000) 318 stores are company operated (2021: 297) and 748 are licensed/franchised (2021: 703), representing a 30/70 ratio. The company continues to seek growth through its license and franchise partners as part of its strategy.” The company said the current year result included an impairment charge of £2.9m, including impairments on 39 stores of £4.9m (2021: seven stores – £600,000) and reverse impairments on 24 stores of £(1.9)m (2021: 16 stores – £(3.0)m. No dividends were paid. The company added: “The UK market continues to experience a long-term trend of shifting consumer demand and sentiment, which has been accelerated by the pandemic. The newly developed flexible working capabilities of office workers following the pandemic continues to support high street locations in suburban areas. The pandemic has also accelerated the transition to purchasing online. The company continues to invest in channels that best serve these behavioural changes, such as drive-thru and digital platforms, which continue to go from strength to strength. At the year-end, a total of 669 stores were on the delivery platforms, across various cities in the UK. The company operates with three delivery aggregators (Uber, Just Eat and Deliveroo). Investment into the mobile platform and Starbucks Rewards programme continues to be a pivotal part of the company’s strategy into FY23. In FY22, the company launched Stars for Everyone within its rewards programme, which allowed customers to earn stars on their purchases regardless of their payment method type. This has led to a significant increase in the active member base for the company. The company has seen consumers move towards digital payments and looks to build upon this through the rollout of further digital initiatives to enhance its customers’ online experience. FY22 represented the final stages of the company’s recovery of transactions to a pre-pandemic baseline. Most store formats were ahead versus FY19 and key urban locations were close to reaching FY19 comparable transaction levels by the end of the year. We saw strong ticket growth, with the average basket size increasing and more customers including food and merchandise in their purchases, supported by strong growth in our bakery and reusable cup ranges. Innovation has always been a driving force behind the Starbucks brand, with FY22 representing a year of further growth into the food range including the launch of Pizzettas and Egg Bites. The company also continued to develop its cold beverage range, leveraging Starbucks’ global R&D capabilities, which remains a strong driver of growth talent for its stores. Key initiatives launched in the year include pay increases, maintaining a premium to national living wage, free food on shift and an extra day’s holiday. The company opened 30 new company operated stores during FY22, whilst nine stores permanently closed. New store openings were targeted in key drive-thru locations with high traffic counts. In total, the company has 285 drive-thru stores at the end of FY22, of which 26 are company operated stores, and 259 are licensed/franchised stores. Growth in the company operated estate will be targeted on key city and drive-thru locations, with a focus on store format innovation, smaller digitally forward stores, and high traffic count locations across the UK. However, the competition to acquire properties that meet the right location and format for new stores continues to intensify. The company has increased the number of licensed stores and franchised stores by 45, representing a 30/70 ratio of total company operated to total licensed stores (2021: 30/70). We have been very encouraged by the performance of these stores and the company expects more licensed stores and franchised stores to open in FY23 as part of its targeted strategy for growth. The company expects store growth to be driven primarily by its licensed partners.” Starbucks features in the Propel Turnover & Profits Blue Book. Its turnover of £449,257,000 is the 22nd highest in the database. Its pre-tax profit of £10,396,000 is the 46th highest in the database. The Blue Book ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email to upgrade your subscription.

RMT calls off rail strikes next Thursday: The RMT union has called off planned strike action at Network Rail on Thursday, 16 March after receiving a new pay offer. RMT members at Network Rail will have a referendum on the updated offer. As things stand, workers at 14 train operating companies will still take industrial action on 16 March. However with Network Rail workers no longer joining them, disruption will not be on the same scale and is likely to vary by operator. An RMT spokesperson said: “The... National Executive Committee has taken the decision to suspend all industrial action on Network Rail following receipt of a new offer from the employer. Further updates will be given on all aspects of the national rail dispute in the coming days.” Network Rail chief executive Andrew Haines said: “We are relieved for our people, passengers and freight customers that industrial action in Network Rail has now been suspended. We look forward to further information on plans for a referendum.” RMT members who work for train companies, including train guards, are still due to strike on 16, 18 and 30 March, and on 1 April.

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