- Dining group delivers strong like-for-like growth
- Warns cost inflation has worsened
- Chilango deal strengthens position in fast-casual Mexican food market
Fast-casual Mexican restaurant group Tortilla Mexican Grill (MEX:AIM) served up tasty first half like-for-like sales growth and insisted its store roll-out programme remains on track, welcome news that helped the shares trade 2.5% higher at 124.5p.
However, understandable caution on the outlook kept a lid on share price gains as the value-for-money burritos and tacos seller warned cost inflation has become more pronounced and macro-economic headwinds are expected to persist over the coming months.
GROWTH WRAPPED UP
For the six months to 3 July, Tortilla’s like-for-like revenue grew by 19% amid growing customer demand for its competitively-priced food.
The company, which sells freshly made Californian-inspired Mexican cuisine and floated on AIM late last year to capitalise on growth opportunities brought about by the pandemic, managed to shift over 3.2 million burritos in the first half alone.
Total sales were up 60% versus the comparable period in pre-pandemic 2019 at £26.9 million, underpinned by the roll-out of new company-operated sites and boosted by new franchise sites with SSP (SSPG) and Compass (CPG) and the £2.75 million acquisition of Chilango.
Management insisted the Chilango deal strengthens Tortilla’s position as ‘the UK’s leading fast-casual Mexican chain and accelerates its expansion across the UK to further capitalise on growing consumer demand for healthy, convenient and customisable cuisine’.
Guided by CEO Richard Morris (pictured below), Tortilla Mexican Grill also insisted all its new sites are performing well and in line with expectations since opening. It remains on track to deliver against the target outlined at the time of its IPO, to open 45 new sites over the coming years.
COPING WITH COST INFLATION
Tortilla Mexican Grill warned the significant levels of cost inflation seen across the restaurant sector became ‘more pronounced’ towards the end of the half-year period and these macro-economic headwinds are expected to persist in the months ahead.
As is the seasonal norm, the dining group’s full year profit performance will be weighted towards the second half of the financial year.
To offset these headwinds, the company is keeping a lid on costs, has raised prices and also partnered with Uber Eats, Just Eat and Deliveroo (ROO) to access more customers choosing to stay at home.
‘Whilst the macroeconomic environment remains challenging, we are working hard to mitigate cost pressures as much as we can and are mindful of the impact on the consumer of the cost-of-living crisis,’ commented Morris.
‘However, we remain very confident that supported by our strong reputation for outstanding value, excellent delivery proposition, and growing UK presence we are well positioned for long term growth.’
THE LIBERUM VIEW
Liberum Capital is sticking with its forecasts for the year to December 2022, seeing a drop in pre-tax profit from £5.7 million to £3.9 million on sales of £62 million ahead of a pre-tax profit rebound to £4.3 million on £74.5 million turnover in 2023.
‘Tortilla is uniquely positioned to benefit from global tailwinds with a fresh, healthy, value-for-money offer that fulfils multiple occasions, resonates with a young demographic, works across several formats and enjoys numerous routes to market,’ said analyst Anna Barnfather.
‘As scale grows further in the coming years this will enhance the brand strength, with the increasing network of sites supporting revenue and profit growth.’
Barnfather added: ‘The strong top line growth and competitive positioning makes Tortilla well placed to navigate inflationary pressures with scale advantages and further operational efficiencies helping to preserve profitability against a challenging backdrop.’
