Pubs and restaurants owner Mitchells & Butlers PLC (LON:MAB) has seen a return to like-for-like (LFL) sales growth in recent weeks.
In the eight weeks since the end of the company’s financial year, M&B saw LFL sales rise 0.5% from a year earlier. That’s a big turnaround from the 52 weeks to 24 September that saw LFL sales fall 0.8% from the previous year, but the trend is clearly improving, as the second half of the financial year saw LFL sales rise 0.2%.
The financial year just ended saw revenue at the All Bar One and Toby Carvery brands owner ease a little to £2,086mln from £2,101mln the year before.
Profit before tax fell to £94mln from £126mln the year before, while adjusted earnings per share dipped to 34.9p from 35.7p, reflecting lower total sales but also a weaker margin in the second half of the year as the National Living Wage kicked in.
Net debt was a still frightening £1.84bn, which is around 4.3 times adjusted underlying earnings (EBITDA), unchanged from the previous year.
Looking at the restaurants sector as a whole, the group said the growth in the number of new restaurants had slowed considerably since the summer of 2015, giving the company the chance to win back market share from competitors who had been eating its lunch.
The company said it was still a bit early to predict with any level of certainty what the effects of Britain’s decision to leave the European Union would be, but there is no denying the fall in the value of sterling since the referendum vote has had an impact on input prices for Mitchells & Butlers, thus affecting margins.
“Although we are working hard to take mitigating action where possible, we expect to see downward pressure on margins in this financial year, as our sector incurs the additional cost head-winds including the first full year of the National Living Wage, indications of two potential increases in the National Minimum Wage, the impact of exchange rate movements on foreign currency denominated purchases, and the recent business rates review,” the company said .
"During the year we have made good progress in our three priority areas: building a more balanced business; instilling a more commercial culture; and driving an innovation agenda. This focus is starting to have a positive effect on our sales, with improved performance against a subdued market in recent months through continuation of the momentum we saw start in the second half of last year,” said Phil Urban, M&B’s chief executive officer.
“Sales growth in the first eight weeks was impacted by the Rugby World Cup in the prior year, but I'm encouraged by the underlying momentum which has seen recent weeks return to the levels seen in the summer,” he added.
Mark Brumby of Langton Capital said M&B is a big ship and it will take time to turn.
“That does not mean that this will not happen but cost pressures in the year just started will make generating profits that little bit more difficult and, as the company may have been guilty of pushing prices a little too aggressively in the past, it may not be able to press the ‘price’ button and this could impact margins,” Brumby said.
“As regards its share price, we are now at a point where the group is trading at only around 7.7x current year earnings and it has a 2.7% (and hopefully growing) yield,” Brumby noted.
“M&B has an extremely attractive estate but, with much still to do, the group’s shares may be fairly priced at around these levels,” he concluded.