The Restaurant Group to further shrink leisure estate as losses widen
In the group’s full year 2022 results, TRG reports that sales growth across its leisure estate, which encompasses the Frankie & Benny's and Chiquito brands, remained flat and was 5% behind the market. However, it has also hailed 'robust trading' across its Wagamama, pubs and concessions arms, which all saw like-for-like sales out-perform their respective market benchmarks.
Total sales across the business rose to £883.0m in 2022, up from £636.6m in 2021.
Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) was £83.0m (2021: £81.2m), while adjusted profit before tax was £20.3m on a pre IFRS 16 basis (2021: £16.6m).
In total, the company posted a statutory loss before tax of £86.8m (2021: loss of £35.2m), which it has blamed on an exceptional pre-tax charge of £117.5m relating to the reduced forecast earnings within its leisure division and the subsequent planned restructuring.
TRG describes its leisure arm as a 'highly contested market segment' and the 'most directly impacted by cost-of-living pressures'.
As a result, the group plans to exit around 35 potentially loss-making locations over the next two years through a combination of exercising break clauses, lease expiries, selective conversions and accelerated disposals.
One to three sites will be converted to Wagamama over the next two years; at least 13 sites will be exited at break clause or lease expiry; seven freeholds will be sold; and a further 10-20 sites are being marketed for exit.
Overall, the leisure estate is expected to reduce by around 30% from 116 sites today to 75-85 sites by 2024.
A 'clear plan' for growth
The publication of TRG's results comes as the group has found itself under pressure from one of its shareholders, which yesterday (7 March) threatened to push for the removal of UK casual dining operator's boss, Andy Hornby, unless he delivers a shake-up of the business.
Oasis Management, a Hong Kong-based hedge fund that owns a 6.5% stake in the business, has said it is aiming to put TRG in a 'virtuous circle' where it can 'reduce debt, reduce interest, resume dividends . . . get a higher stock rating, better market cap [and] attract better people'.
It comes after the activist investor released a public letter last month that called for an ‘immediate and near-term’ change of governance at TRG following what it said had been poor performance in its share prices.
Noting a 'significant deterioration' in its EBITDA margin, which it blames on sector-wide cost inflation, TRG has set out a plan to build back profits over the next three years.
TRG's EBITDA margin fell from 14% in 2019 down to 9.4% in FY22. When accounting for the benefit from lower VAT in Q1 2022, the FY22 VAT adjusted EBITDA margin fell to 8.3%.
Alongside the further rationalisation of the leisure estate, TRG's plan to drive 'significant margin accretion' from this 8.3% base includes the continued expansion of Wagamama and its pubs arm, with the recovery of its airport concessions sites as passenger volumes continue to increase post pandemic also expected to enhance the profitability mix of the group over the next two to three years.
The group has cheered a 'very encouraging start' to the 2023 trading year. In the eight weeks to 26 February this year, Wagamama's comparable sales improved 2%, helped by a 9% rise in dine-in sales and offsetting declines in takeaway and delivery demand.
“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,” says Hornby.
“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.”
