Wagamama owner TRG defies casual-dining sector gloom

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Wagamama owner The Restaurant Group has increased its full-year profit expectations in light of strong sales growth at its outlets, defying a gloomy picture for the UK casual-dining sector.

TRG, which has been under pressure from a group of activist investors over its languishing share price, said its revenues in the six months to July 2 were up 10 per cent year on year at £467.4mn and its adjusted earnings before interest, taxes, depreciation and amortisation stood at £36.3mn, an increase of 15 per cent on last year.

The group, which also owns the Brunning & Price pub chain and Italian-American diner Frankie & Benny’s, said on Wednesday that the stronger than expected trading performance supported a “moderate increase” to full-year expectations for adjusted earnings.

Andy Hornby, TRG’s chief executive, said he was “encouraged” by the “significant progress” made by the chain in the first eight months of the year, adding that the company was delivering on its plan to cut debt and increase margins.

In a nod to continued calls from activist investors for a major shake-up of the business, Hornby said the board “continues to actively explore strategic options to further accelerate margin accretion and deleveraging”.

Shares in the London-listed group were up by 1.2 per cent at 44p in morning trading.

Hong Kong-based activist fund Oasis Management owns nearly 15 per cent of TRG, while New York-based fund Irenic Capital holds about 3 per cent of the stock. The group of activist investors, which control roughly a fifth of the stock, rebelled over executive pay at this year’s annual meeting. Irenic subsequently called for the removal of TRG’s chair Ken Hanna, accusing him of corporate governance failures.

Activist investors have argued that as the only listed casual-dining operator, TRG has underperformed its rivals. A squeeze on consumers’ disposable income due to the cost of living crisis and soaring input costs have proved perilous for casual-dining operators, with other chains, including Prezzo and Bill’s announcing closures this year.

Roberta Ciaccia, a leisure analyst at Investec, said in a note that she projected a 3.5 per cent increase in full-year adjusted earnings. She also noted that TRG’s management reiterated its openness to asset disposals, adding that “recent outperformance, delivered in a difficult environment, reinforces [TRG’s] negotiating position”.

In the 21 weeks to August 27, like-for-like sales were up by 9 per cent and 10 per cent at Wagamama and TRG’s pubs division, respectively.

Sahill Shan, an analyst at Singer Capital Markets, said a strong film slate in cinemas and cooler weather compared with last year “benefited” TRG.

Like-for-like sales fell 2 per cent at Frankie & Benny’s. TRG announced this year it was closing 35 sites of the chain.