Restaurant Group and Revolution Bars: food trumps booze


It’s beginning to look a lot like Christmas for Wagamama owner Restaurant Group PLC (LSE:RTN) and a lot like a ghost town for Revolution Bars Group PLC (AIM:RBG).

Shares in Restaurant Group shot up 19% to 94.3p after the restaurateur again raised full-year expectations.

Liberum Capital Markets responded to the upbeat trading update by increasing its underlying earnings forecast for this year by 42%.

It has a target price of 160p.

“It has not provided any specific details on trading outperformance (CPBT October LFL sales +3.2%); however, we expect Wagamama, Pubs and Leisure segments to continue to be outperforming the sector by c.10-14% as seen between 17 May – 29 August. Wagamama trading performance is benefiting from sustained growth in delivery and takeaway channels, whilst we expect the food-led Brunning & Price estate and streamlined Leisure segments to be delivering high single-digit/low double digit LFL growth in recent months,” the broker said.

Russ Mould, the investment director at AJ Bell, said strong trading is allowing the group to rapidly pay down debt putting it in a better place to weather any further hits to the business from the reintroduction of restrictions and/or a downturn in the economy.

“The company has clearly sharpened its proposition outperforming the wider market across Wagamama, its leisure business and the pubs division. Even its concessions in travel hubs are starting to perform better as passengers return,” he noted.

The outlook looks less cheery for Revolution, even though it said it is seeing an “exciting return to normal trade following investment in all brands”.

Things could hardly get any worse for the bars and late night clubs operator.

Total sales in the year to 3 July slumped to GBP39.4mln from GBP110.1mln, reflecting the long periods in which the UK was in lockdown this year.

Profits have disappeared faster than a complementary Margherita; underlying losses of GBP3.9mln compared to positive adjusted EBITDA the year before of GBP9.8mln although if you are a stick-in-the-mud who prefers profit before tax then the situation has actually improved, with a loss before tax this time around of GBP26.3mln versus a loss the previous year of GBP31.7mln.

“We have taken advantage of the periods when we were closed or trading under restrictions to fine tune our existing brands through a focus on customer offering, sustainability, and the creation of two exciting new brand concepts, whilst we have also strengthened the engagement of our teams and driven our Diversity & Inclusion agenda, in order to set the business up to perform strongly when trading restrictions ended. We are ready to take advantage of the reduced competition and bring our freshly developed new concepts to the market,” the company said in its results statement.

There lies the light at the end of the tunnel for the company’s long-suffering shareholders. If the last man standing principle applies – as it rarely does after a night at one of the company’s bars – then the company should benefit from weaker competitors going to the wall.

“The threat of the COVID pandemic continues to recede, but local lockdowns, possible restrictions on large gathering and industry-wide cost pressures remain a concern,” cautioned finnCap.

“This year, the industry loses a peak weekend due to Christmas Day falling on a Saturday,” it noted as it left its 40p target price unchanged.

Peel Hunt, which also rates the shares a ‘buy’ but which has a more modest price target of 35p, said the full-year results were in line, which does not explain the 7.3% fall in the share price to 24.75p.

The bars operator has increased its net cash position to GBP4.6mln, the broker noted, despite accelerating its expansion programme.

“We expect three openings and 19 refurbishments in 2022E, followed by five openings and 18 refurbishments in 2023E,” Peel Hunt said.

It’s a brave company that opens more city centre late night bars in this environment but it looks like a case of “go big or go home” for Revolution.

The group recently started a third brand, Founders & Co, which is described as “an artisanal market-place experience”,to augment its Revolution and Revolucion de Cuba brands and is planning to roll out a fourth brand based on competitive socialising, whatever that is; perhaps it is a party game to come up with the most pretentious bar concept.

Rob Pitcher, a weak candidate for nominative determinism chief executive of the year, said the group is back to doing what it does best.

“As we had hoped and expected, our young guest base was ready to return to our bars and we continue to be pleased with our level of trade, reflecting the fun and memorable experiences our teams create for our guests,” Pitcher said.

Pitcher is not just talking up his trade. Monday’s Coffer CGA Business Tracker for October revealed Britain’s leading managed restaurant, pub and bar groups achieved modest sales growth in October amid mounting operational pressures but bars were a bright spot, with an increase of 13% in sales over pre-pandemic October 2019, although London remains a drag on growth.

According to the market research firm, a shortage of office workers and tourists meant sales in restaurants, pubs and bars were down by 4% on October 2019 whereas beyond the M25, they rose by 6%.

“Hopes are pinned on a strong Christmas trading period, but the sector needs and deserves sustained support in many areas well into 2022 to help fuel its recovery,” said CGA’s Karl Chessell.

As the saying goes, for Revolution, Christmas cannot come soon enough.


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