Wagamama owner TRG to close dozens of outlets as profits plummet after soaring costs wipe out booming sales
- The Restaurant Group said it would close around 35 locations over the next two years
- Closings will be achieved through a mix of sales, lease expirations and break clauses
- Rising food, beverage and energy prices have sharply squeezed the company’s margins
The restaurant group will close dozens of outlets after annual losses soared 70% amid mounting inflationary pressures.
The owner of Wagamama and Frankie & Benny said he would close around 35 “potentially loss-making” sites over the next two years, reducing his leisure division by around 30%.
He intends to achieve this through a combination of sales, lease expirations and break clauses, while three more establishments will be converted into Wagamama restaurants.
Closures: Wagamama’s parent company, The Restaurant Group, said it would close around 35 “potentially loss-making” locations over the next two years
Restaurant Group told investors on Wednesday that action was being taken in response to a “challenging macroeconomic environment” for the hospitality sector.
In addition to rising food, beverage and energy costs, the company’s margins have been squeezed by labor shortages, forcing the company to raise wages to try to attract staff, and the latest increase in the UK National Minimum Wage.
As the company’s future earnings and trading are expected to remain impacted for the immediate future by cost-of-living pressures, it took a one-time charge of £117.5million in its latest results.
As a result, annual statutory losses for the London-based company, which also runs tex-mex chain Chiquito, have fallen from £40.3m in 2021 to £68.5m last year.
This is despite an increase in revenue of nearly £250m to £883m due to the easing of lockdown rules.
Demand in Restaurant Group’s concessions arm was impacted in early 2022 by government directives encouraging people to work from home following the emergence of the Omicron variant.
But he noted the division’s sales recovered faster than expected in the second half of the year after travel restrictions were eased again, allowing Britons to fly abroad with greater ease and get to the work more regularly.
Even as rising inflation gradually began to hurt consumer spending, the company said its pubs and Wagamama locations outperformed the broader market.
“We delivered a strong operating performance for the year in a market that continued to pose a number of headwinds for casual dining operators,” said chief executive Andy Hornby.
“The current exchanges have been very encouraging to the great credit of our teams who continue to ensure that our customers receive the best possible experience.”
Nonetheless, shares of The Restaurant Group plunged 13.4% to 39.2p on Wednesday morning, making it the worst performer on the FTSE All-Shares index.
Mark Crouch, an analyst at trading platform eToro, said the results would “leave a bad taste in the mouths” of shareholders who have already been reeling from the fall in value of their investment over the past year. .
Regarding the company’s outlook, he added: “Money is tight for many people and costs remain high, which can act as an anchor for growth in the foreseeable future.”
Activist investor Oasis Management has called for a major overhaul of the company, including an overhaul of management, which it accused of presiding over “strategic stagnation”.
She wants a strategic review of the company conducted by an independent bank and a seat on the board of directors. The Restaurant Group categorically rejected both proposals.
