Football World Cup, summer heat wave and lack of blockbuster movies are all blamed for disappointing results.
Summer of sports and sun take its toll on Restaurant Group
- Like for like sales drop by 2%, while shares fall by nearly 3% in early trading.
- Acquisition of Wagamama looks set to enhance earnings and deliver cost synergies.
- We continue to recommend the shares as higher risk ‘buy’.
In a very brief trading update for 2018 the group said like for like sales were disappointingly down by 2%, leaving shares down by nearly 3% in early trading this morning. Investors may forgive management for 2018’s overall performance which was affected by the football World Cup and the heat wave and should be pleased to hear it has delivered like for like sales growth since the summer.
However, the lack of blockbuster movies towards the end of the year led to lower cinema admissions not helping its leisure business. New pubs and restaurant branches have helped raise total revenues though by 1% (excluding the acquisition of Wagamama).
Looking ahead, we take a more positive outlook and expect the acquisition of Wagamama, which has been performing well, to diversify its brand portfolio, enhance earnings and deliver material cost synergies. The expansion of its pubs and concessions at airports also show some promise.
For 2019, there will not be major sporting events to cause disruption to the same extent as last year but we can only have our fingers crossed with regards to the British weather. Hopefully there will also be a defined outcome on the Brexit situation before too long, allowing consumers to feel more reassured about their future and begin to spend again. We therefore keep our buy rating for investors seeking a balanced return and willing to accept a higher level of risk.
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