Shares in Goals Soccer Centres PLC (LON:GOAL), plunged in early trading Monday after the five-a-side pitches operator cut its profit guidance for both 2018 and 2019.
In an update for the year ended 31 December, the AIM-listed firm said underlying sales had risen 0.5% on the prior year to £32.4mln with “positive growth in H2”. This had followed a weak first half that was characterised by knock-on effects from the ‘Beast from the East’ in March as adverse weather dented earnings.
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Underlying sales in the second half had risen around 4%, mainly as a result of an investment programme that saw the group upgrade 39 of its 46 UK clubs.
The firm also said it had expanded its ancillary revenue streams in the second half in an effort to drive sales, including the provision of children’s parties and an “enhanced food and beverage offering”.
In its US business, Goals said its South Gate club had continued to perform well and was its best performing site globally, however, growth in trading at its new Pomona and Rancho clubs had been “slower than initially anticipated”.
As a result, the firm said it had incurred non-recurring start-up losses of £0.8mln, of which £0.4mln was applied to Goals.
The group’s fourth US club in Covina, which opened in December, had seen “encouraging” initial trading.
Despite the revenues and sales growth in the second half, Goals said the introduction of the food and beverage offering the birthday party package had led to a “materially higher initial cost of sales in these areas”, adding that this had resulted in a “£0.3mln decline in profitability in the second quarter and a 3% overall drop in gross profit.
A £0.3mln increase in labour costs and a £0.2mln rise in other costs had also occurred in the period, with the firm saying it had implemented mitigation measures in the fourth quarter to attempt to reduce them.
“Since December, the new pricing, product offering, and staffing requirements have been reviewed and a new stock management system is now in place to provide more effective management in this area of the business, ensuring costs are properly controlled going forward.”
The company also said it expected exceptional costs for the year to be around £5.5mln comprising £4.6mln in non-cash asset impairments, primarily connected to reductions in the carrying value of 3 clubs and the previously announced sale of our Beckenham North club to Crystal Palace Football Club, and £0.9mln in restructuring costs.
Goals added that its net debt at the year-end was around £29mln and that it had agreed with its lenders to amend its Net Debt/EBITDA ratio covenant from 3.0x to 3.4x at 31 December 2018 while also being in “an advanced stage of discussions” to amend the quarterly tests in March and June 2019 to 3.25x and 3.0x to provide “additional headroom after which the covenant will reduce back to 3.0x”.
In its outlook, the group said that while it had seen positive growth in the second half, the outturn for 2018 had been “disappointing” while being impacted by both lower margin ancillary activities and slower-than-expected US growth.
As a result, the group said it expected full-year adjusted profit for 2018 to be between £4.3mln and £4.5mln.
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For 2019, Goals said it expected its investments in modernisation to deliver increased sales and “a return to more normalised margins”, however it still reduced its profit guidance for its UK business by £0.6mln due to “current economic and political uncertainty”.
In terms of strategy, the firm said it was launching a new academy product in the US with Manchester City FC in the second quarter, while in the UK market it would be “exploring a series of initiatives, around coaching and sponsorship which will drive improved performance”.
Andy Anson, chief executive of Goals, said it was “disappointing that well-conceived initiatives to drive revenue have been delivered at the expense of margin”.
However, Anson added that the firm had “already taken action to tighten cost control, and processes and procedures are now in place to augment and support margin management. The benefits of these changes will be felt in the current year, as will the effect of the new management team”.
Shares were down 16% at 60.5p.