Wagamama owner Restaurant Group said on Wednesday that it plans to cut its leisure estate by around 30% as it posted a widening of its full-year losses in a “challenging” market.
The company plans to cut its sites from 116 to about 75 to 85 by 2024 amid ongoing inflationary pressures. It pointed to “unprecedented cost pressures”, particularly in elevated levels of food and drink and energy inflation.
“This coupled with shortages of labour supply in the UK and increasing National Living Wage, has led to a reduction in operating margins despite the strong sales growth delivered,” it said.
News of the restaurant closures came as it said that statutory pre-tax losses in the year to 1 January had widened to £86.8m from £35.2m in 2021. Total sales rose to £883m from £636m.
The company, which also owns Frankie & Benny’s and Chiquito, said 2022 was a challenging year for the casual dining sector as the industry “recovered” from lockdowns in the previous two years and the travel industry started to rebuild passenger volumes.
“We entered the year with the Omicron variant still impacting our business, shortly followed by the war in Ukraine which significantly impacted utility and supply chain costs and resulted in increasing cost-of-living pressures for our customers,” said chairman Ken Hanna.
He added: “Whilst it is early days, the group’s trading performance in the first eight weeks of the current financial year (FY23) has been very encouraging. The management team have developed a clear plan to deliver significant EBITDA margin accretion over a three-year time horizon and the board continues to consider long-term strategic options.”
At 0940 GMT, the shares were down 9.8% at 40.86p.
Russ Mould, investment director at AJ Bell, said: “Recent activist pressure on The Restaurant Group may well be dialled up after a sticky set of 2022 results from the Wagamama owner.
“The company is really suffering with rising costs across the board – on energy, ingredients and staffing.
“It’s not alone and the company is still generating sales growth which is important, but that’s unlikely to be enough for some of its detractors.
“Oasis Management and Irenic Capital Management are among the institutions pressing the company to make changes – including, reportedly, selling off its pub and travel concessions arms.
“The Restaurant Group is already announcing plans to close more sites in its leisure division – the Frankie & Benny’s and Chiquito chains which offer generic Italian and Mexican food to a captive audience of shoppers and cinemagoers.
“However, the question may well be asked, why not spin off, sell off or in some way get rid of this part of the business entirely, along with the other bits, to focus on Wagamama which is clearly a restaurant brand with genuine appeal.
“Rename the business as Wagamama, clear out the rest, and you would have a streamlined and focused operation which might have more appeal to investors.”
