Restaurant Group trading update sends shares back two years

Restaurant Group's year-end trading update was sent back to the kitchen after sales slowed in the final weeks of the year, with the market expecting a boost from the favourable cinema releases over the festive period.

The FTSE 250 group, which runs the Frankie & Benny's, Chiquito, Coast to Coast and Garfunkel's chains, also warned of a tougher trading environment for consumer facing businesses.

Ahead of final results in early March, revealed revenue in the 52 weeks to 27 December was up 7.9% on the prior year, and like-for-like sales rose 1.5%.

This implied negative trading in the last seven weeks of the year, as previous trading updates had shown a 2% increase over the first 45 weeks.

Full year results will show material growth in earnings and cash flow versus the prior year, the group said, with profits for the full year "towards the middle" of the current range of market expectations range of £85m-89m.

After opening 44 new restaurants last year, management anticipate opening a broadly similar number during 2016.

But in light of the tougher consumer environment and the ensuing slowing of like-for-like sales growth, allied to possible fallout from the EU referendum, National Living Wage and global economic and geopolitical uncertainty, they admitted to being "more cautious than previously on the outlook for 2016".

Trying to not be too downbeat, the company added: "The company's move towards a more balanced portfolio is paying dividends and we have a proven track record established over many years of delivering strong financial returns and excellent cash flows, even through more difficult trading periods.

"Therefore, notwithstanding some of the uncertainties described above, we are confident that TRG is well positioned to deliver further profitable progress in 2016 and subsequent years."

Broker Shore Capital was disappointed with the Christmas period, "where we would have expected the favourable cinema release schedule for the group to have been a benefit".

Analysts see scope for a circa £4m downgrade to current 2016 PBT estimate of £96.7m, with EPS of 38.1p.

Shares in the company fell more than 16% initially to 525p, levels not seen since the end of 2013.