Wagamama owner Restaurant Group swings to a loss on £115m writedown
Restaurant Group plunged into the red as it recorded a loss for the first six months of 2019 following its controversial £559m takeover of pan-Asian chain Wagamama.
The figures
Revenue rocketed 58.2 per cent from £326.1m in the first half of 2018 to £515.9m in the first half of 2019.
Restaurant Group fell to a pre-tax loss of £87.7m, compared to last year’s£12.2m profit, after taking a £100m writedown on its Frankie & Benny’s and Chiquito restaurant brands.
Cash flow doubled to £52.3m but net debt piled up after the unpopular Wagamama purchase to £316.8m, 13 times higher than this time last year.
Investors made a loss per share of 16.1p while Restaurant Group agreed to pay an interim dividend of 2.1p per share.
Why it’s interesting
Restaurant Group’s share price dropped 4.2 per cent on the losses, with Peel Hunt having expected it to post a £27.8m profit due to Wagamama.
Like-for-like sales rose four per cent year-on-year in large part thanks to the pan-Asian chain.
But the firm took a pre-tax charge of £115.6m on its struggling Frankie & Benny’s and Chiquito restaurant chains, which comprise its leisure business.
Non-executive chairman Debbie Hewitt MBE said the leisure arm’s drop in like-for-like sales was down to strong sales last year boosted by “extreme weather” and the World Cup.
But analysts said the company is struggling to meet high expectations as shareholders started to see the upside of the Wagamama purchase, having initially found it hard to stomach.
“Unfortunately its half-year results don’t quite live up to the hype around its recovery efforts,” AJ Bell’s investment director Russ Mould said.
“Yes, Wagamama is doing well and there are signs of progress with repairing its other interests. But there are a few items on the menu which leave investors with a stomach ache.”
He pointed to the large one-off charges and a 0.2 per cent growth in like-for-like sales in the last six weeks.
Meanwhile The Share Centre said markets were reacting to the outlook for the retail sector, after the British Retail Consortium warned companies to prepare for economic turbulence as sales dropped in August.
“We had hoped and expected structural changes within the group would bear more fruit however, the structural challenges have not abated. If anything they are getting worse with the Brexit saga adding more fuel to the fire,” investment research analyst Helal Miah said.
The Share Centre has put its ‘Buy’ rating for Restaurant Group under review.
What Restaurant Group said
Chief executive Andy Hornby said:
I am delighted to have joined The Restaurant Group in August. Our three growth businesses of Wagamama, Concessions and Pubs are all out-performing the market and have potential for further growth.
At the same time, we have an acute focus on optimising our Leisure business, through targeted operational initiatives and disciplined estate management.
Despite the well documented challenges facing the casual dining sector, the Group’s diversified set of brands provides firm foundations.
More to follow.
Main image credit: Getty