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Restaurant Group sinks as Wagamama warns it is not immune to sector slowdown

In the noodle chain's second quarter results, LFL sales growth dropped sharply to 6.3% compared to 12.5% in the first quarter of the year

Restaurant Group PLC - Restaurant Group sinks as it warns Wagamama not immune to sector slowdown
Restaurant Group acquired Wagamama for £550mln last year

Shares in Wagamama owner Restaurant Group PLC (LON:RTN) sank on Monday after the noodle chain warned that it is not immune to the pressures facing the casual dining sector, leaving a bad taste in the mouths of investors.

In an update for Wagamama’s second quarter, the chain’s chief executive Emma Woods said the industry was facing “numerous headwinds” as the group saw a slowdown in UK like-for-like sales growth in the three months to 6.3% compared to 12.5% in the first quarter.

READ: Restaurant Group slumps as 'unattractive' diner chains undermine Wagamama boost

The steep drop in sales growth overshadowed an 11% increase in turnover in the quarter to £93.5mln, while adjusted earnings (EBITDA) for the period rose 27.2% to £16.7mln.

Wagamama also said it had a “strong pipeline of sites” for its third quarter and next year, with two more conversion sites having opened already in the current quarter.

News that the restaurant chain is losing steam is likely to put more pressure on RTN, which in its interim results in September swung to a first-half loss of £87.7mln as a result of underperformance across its other dining chains such as Frankie & Benny's and Chiquito.

Analysts at Liberum, which rate RTN at a ‘hold’ with a 150p target price, said the company was suffering from “oversupply and a cautious consumer” as well as what it described as an “unhelpful film schedule and travel market disruption”, as most of the company’s restaurants are located in airports and near to cinemas.

“Cinema attendance fell by -19% in August compared to the same month in 2018, which negatively impacted passing footfall to multiple Restaurant Group restaurants. The Star Wars film later this year could provide a boost but the success of last year’s Bohemian Rhapsody makes for challenging comparatives”, Liberum said.

In late-morning trading, RTN’s shares were 6.2% lower at 136.9p as investors lost their appetite for the stock.

Quick facts: Restaurant Group PLC

Price: 134.1 GBX

LSE:RTN
Market: LSE
Market Cap: £659.1 m
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