Restaurant Group Investors Left to Pick Up Check as Shares Sink

  • Stock dips the most in seven months after weak Christmas sales
  • Path to recovery will be ‘long and painful,’ analyst says

Restaurant Group Plc’s failure to lure British families into its Frankie & Benny’s chain over the Christmas period sent its shares tumbling and sparked concern over the scale of investment needed to revive the restaurant operator.

The stock fell as much as 13 percent in London, the most in nearly seven months, after the company said fourth-quarter comparable sales declined 5.9 percent. Restaurant Group also said it plans to cut prices and boost service, stoking analysts’ fears that profits will suffer.

“It will be a long and painful process to get themselves out of this mess,” Mark Brumby, principal of leisure industry consultants Langton Capital, said by phone. “They’re not terminally wounded but it’s just a question of where the share price is once they have done it.”

Wednesday’s results are the latest disappointment for the company, which replaced its chief executive officer and finance chief last year amid increasing competition from other casual dining chains and a drop in visitors to U.K. retail parks, where many of its outlets are located. The company said it needs to reduce menu prices at Frankie & Benny’s, its largest chain, where a Mac ’n’ cheese calzone -- billed as the “ultimate Italian-American combo” -- sells for 12.95 pounds ($16.29).

The company will share details of its investment strategy in March, when new CEO Andy McCue lays out plans to grow sales. His task is made tougher by rising costs for food imports as a result of sterling’s weakness and the need to comply with an increase to the U.K.’s minimum wage.

Profit Fall

Prior to today’s update, analysts were expecting pretax profits to fall 11 percent to 67.4 million pounds in the company’s 2017 financial year.

The dining operator’s struggles come at a time when Britons are still willing to spend on eating out. Comparable sales in the country’s pubs, bars and restaurants were up by 2.2 percent in the six weeks to Jan. 8, according to the Coffer Peach Business Tracker, an increase from 1.8 percent growth in the year-ago period. Coffer’s data includes Restaurant Group chains such as Chiquito and Coast to Coast.

“Higher competition is hurting them,” Brumby said. “The business became all about maximizing margins and they have gone way too far down that path.”

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