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Shares at Wagamama owner soar 20% after raising profit guidance

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Wagamama
A Wagamama restaurant in Cheadle, England. Photo: Nathan Stirk/Getty Images

The owner of Wagamama saw its stock jump by almost a fifth on Tuesday after it upped its profit guidance following better-than expected sales.

The Restaurant Group (RTN.L) soared to the top of the FTSE 250 (^FTMC), climbing as much as 19.6% on the day.

In a brief trading update it said it had “traded well” since September, with like-for-like sales outperforming the rest of the hospitality market when compared to 2019.

The casual dining chain owner, which has around 400 sites across the UK and has Frankie and Benny’s and Chiquito restaurants under its umbrella, now expects adjusted profit of between £73m ($98m) to £79m, assuming it faces no further pandemic-related disruption. This was up from a previous guidance of £61.5m.

TRG added that its airport locations were also boosted by a “minor improvement” in passenger volumes.

It expects net debt to be now less than £190m as a result of the robust trading performance.

Shares in the The Restaurant Group climbed almost 20% on the day. Chart: Yahoo Finance
Shares in the The Restaurant Group climbed almost 20% on the day. Chart: Yahoo Finance

In September, the group said it had made good progress and was navigating industry challenges amid ongoing supply chain disruptions and labour shortages.

It said that its Wagamama noodle chain had the potential to grow to between 180 and 200 sites, up from its current 144 outlets.

The Restaurant Group plans to invest in its portfolio after a number of restaurant closures within the group’s leisure arm caused it to slump to a £127.6m pre-tax loss in the last financial year.

It reported profits of £11.2m for the 27 weeks to 4 July, compared with a loss of £18.3m in the same period last year.

“After a period when there has been very little appetite for the shares, serving up an upgrade was always likely to get a hearty welcome from the market and so it proved this morning,” AJ Bell investment director Russ Mould said.

Read more: Las Iguanas, Bella Italia owner to open 50 new restaurants

He added: “Most shareholders will be thanking their lucky stars that Restaurant Group successfully captured Wagamama back in 2018.

“While the deal attracted some criticism at the time as being too expensive, without it, Restaurant Group would have headed into the most testing period for the restaurant industry in generations with fairly pedestrian and in some cases downright tired franchises.

“Having such a popular format at least gave Restaurant Group a fighting chance and it now seems to have emerged as a more robust business with an increasingly streamlined estate and revived fortunes.”

Meanwhile, Douglas Jack, equity analyst at Peel Hunt, said: “Post-COVID, the company will have to deal with rapidly rising labour costs and act to prevent rising delivery volumes from undermining the in-store experience.

“However, we believe it has the scale and quality to manage this whilst market supply continues to fall.”

Watch: Chancellor Rishi Sunak insists the UK economy is on 'right path'

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