Shares in Frankie & Benny’s owner The Restaurant Group (RTN) jump 9.6% to 347.8p as the market appears confident it can revive the business after a difficult few years.
Like-for-like sales are down 1.8%, but this is not as bad as many analysts feared.
In 2016, the company hit a major bump in the road as its higher prices and removal of value offers and popular dishes deterred customers and triggered a series of profit warnings.
Many of its restaurants are located in retail parks, often close to cinemas. As a result, it often benefits when lots of people go to see a film as many also want to eat a meal afterwards.
The latest update reveals that strong cinema admissions did indeed help to draw in more customers to its restaurants, which also include Coast to Coast and Chiquito.
The same principle applies to air travel as it has restaurants in all the main airports. The more people flying on planes, the greater the footfall in airports and thus potential to win customers for a bit to eat.
That explains why it makes a reference to strong growth in passenger numbers in it latest trading update.
Elsewhere, good weather lured more people into its pubs chain Brunning & Price.
In March, we questioned whether investors were too confident about the company’s decision to not cut its dividend, which implied optimism over its turnaround plan.
Broker Numis analyst Tim Barrett forecasts a 4% drop in like-for-like sales this year so is encouraged by the latest figures, but warns the full impact of recent price cuts is yet to play out.
The analyst cautions the turnaround will take time with cost pressures in the restaurant sector unlikely to return to a previous profit margins of 13% in the near term.
In light of this, he thinks investors should take advantage of share price weakness in Restaurant Group and invest now. He believes the company has strong management, a solid balance sheet and attractive free cash flow.
Not all brokers are as optimistic as UBS analyst Heidi Richardson recommends ‘sell’ due to doubts over whether sales growth and margins can recover in the near term.
