May 26, 2017 / 6:57 AM / 6 months ago

Restaurant Group gets off to stronger start in 2017 amid turnaround

(Reuters) - Britain’s Restaurant Group Plc (RTN.L) is making progress with its turnaround efforts, it said on Friday, as the struggling pub and restaurants operator reported a slower-than-expected decline in comparable sales for the first 20 weeks of the year.

Shares in the company rose as much as 14 percent to 362.70 pence and were the top gainers on the FTSE midcap index .FTMC, after the company also said it was confident of reporting full-year pre-tax profit in line with market expectations.

Restaurant Group, which operates more than 500 restaurants and pubs in the UK, said comparable sales for the 20 weeks to May 21 fell 1.8 percent and total sales declined 1.5 percent, less than the 3.9 percent contraction in 2016 total comparable sales.

The company said its concessions business, which has food and beverage operations within 12 British airports, benefited from strong passenger numbers while higher cinema admissions helped boost sales at its leisure brands Frankie & Benny‘s, Chiquito and Coast to Coast.

However, it said it expected these trends to moderate over the remainder of the year.

Liberum analysts said in a client note the trading update was reassuring and a marked improvement from last year’s exit run rate, helped by strong performance in pubs and concessions.

Analysts, however, expect like-for-like sales to trend lower, despite recent price cuts at its New York Italian restaurant and bar Frankie & Benny‘s.

Restaurant Group faces the tough task of luring back customers using the value proposition bait at a time when Britons are reining in spending and consumer confidence is on a gradual decline.

The company set out a plan in March to turn around its leisure brands, including rolling out a new menu for Frankie & Benny’s focused on value meal options, price reductions on several items and increased offerings targeted at families.

UBS analyst Heidi Richardson has said the price cuts at Frankie & Benny’s will not drive the required footfall increase from the core family-value-oriented customer as Restaurant Group’s rivals’ offerings are on average 22 percent cheaper.

The company has also added four executives over the last seven months to help streamline its business, including hiring former Costa Express managing director Murray McGowan for the same post for its Leisure division.

The company said on Friday it continued to focus on the turnaround of its leisure business, adding that its strategy was progressing well.

According to Thomson Reuters I/B/E/S, the full-year pre-tax profit is expected to be 56.60 million pounds.

Reporting by Rahul B in Bengaluru; editing by David Evans and Susan Thomas

Our Standards:The Thomson Reuters Trust Principles.
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