Wagamama underpins strong Restaurant Group trading

Hospitality operator the Restaurant Group reported a strong first-half performance in an update on Wednesday, expressing confidence in delivering its medium-term plan.

The London-listed company said its key Wagamama brand continued to perform well, despite temporary disruptions caused by hot weather in late May and in June.

In the second quarter, Wagamama outperformed the market, with dine-in covers experiencing year-on-year growth.

Recent openings were exceeding expectations, with TRG confident in the brand’s expansion plans.

Brunning & Price Pubs (B&P) also reportedly demonstrated exceptional trading performance in the first half of the year, with year-on-year growth in dine-in covers.

B&P had consistently outperformed the market, and was recognised as the best pub group in the UK by the CGA PubTrack survey, the firm’s board noted.

Although TRG's leisure business had faced challenges due to cost-of-living pressures, progress had been made in improving cash generation.

The company said it had effectively managed costs through operational efficiencies, and was ahead of expectations in its estate rationalisation plan.

Concessions trading had strengthened “significantly” in recent weeks, benefiting from the recovery of passenger volumes and strong operational delivery.

The company's like-for-like sales had shown exceptional growth compared to 2022, with run-rates even surpassing pre-Covid levels.

In terms of property, TRG said it was actively implementing its leisure estate rationalisation plan, noting that by the end of the financial year, around 35 sites, including eight freehold sites, would have been closed.

The disposal programme had progressed well, with interest from potential alternative tenants for both freehold and leasehold sites.

TRG said it expected to have exited or sold the majority of the 35 sites by the end of the 2024 financial year, generating cash proceeds of between £8m and £10m from freehold sales.

The firm said it had opened four new Wagamama sites and one pub restaurant in the current financial year.

It said the new Wagamama locations had a strong start, and were trading above expectations.

The board said it was confident in the firm’s ability to continue opening seven to eight new Wagamama locations annually from 2024 onwards, taking advantage of favourable property market conditions.

It added that its newly-opened pub restaurant, The Mytton and Mermaid in Shrewsbury, had meanwhile achieved record sales for a new opening.

Looking at its strategy, TRG said it was aiming to achieve significant EBITDA margin growth over the next three years and reduce its net debt-to-EBITDA ratio to below 1.5x by the end of the 2025 period.

Progress had already been made in executing the plan, including strong like-for-like trading, incremental cost savings, and accelerated expansion and rationalisation efforts.

While pleased with progress, TRG's board said it was evaluating strategic options with independent advisors to potentially further enhance the company's deleveraging profile and EBITDA margin growth.

The board said it was committed to ensuring any transaction was advantageous for shareholders, and aligned with the strength of current trading and long-term prospects of its businesses.

“Given the very encouraging trading performance in the first 28 weeks of the financial year, the Restaurant Group is confident in delivering management's expectations for the 2023 financial year,” the board said of its outlook.

At 0940 BST, shares in the Restaurant Group were up 7.97% at 42.11p.

Reporting by Josh White for Sharecast.com.