- Full year profit warning as margins squeezed from higher input costs
- Measured pace of new site openings
- EBITDA margins expected to be significantly below prior expectations
Restaurant developer and operator of Coppa Club and Noci brands Various Eateries (VARE:AIM) issued a full year profit warning as higher than expected food, energy and labour costs are causing an ‘unprecedented’ squeeze on margins.
The shares dropped 16% to 33.6p which means they are 52% below the 73p initial public offering price they listed at on AIM in September 2020.
NOT PASSING ON COST INCREASES
Backed by hospitality industry veterans Hugh Osmond (Pizza Express and Punch Taverns) and Andy Bassadone (Cote Restaurants) the group said the board said it was prioritising customer satisfaction and its value proposition ahead of maintaining margins.
Executive chairman Bassadone commented: ‘A squeeze on margins of this scale is unprecedented in my 35 years' experience in the hospitality industry. Even though we were anticipating a significant downturn, the actual rise in input costs has been much higher and far more sustained than the industry anticipated.
‘In addition to the discipline we are exercising in relation to new openings, we continue to focus rigorously on the cost structure and operational efficiency and will adapt the way we operate in this environment.’
WHAT IS THE LIKELY FINANCIAL IMPACT?
The company anticipates net EBITDA (earnings before interest, tax, depreciation, and amortisation) margins for the year to 30 September will be impacted by around five to seven percentage points.
In addition, central cost pressures may amount to a further one to three percentage point reduction resulting in EBITDA margins being ‘significantly’ below prior expectations.
In the first half to 2 April group revenue increased 16% to £20.6 million compared with 2022 with like for like sales marginally ahead. Central London sites saw like for like sales jump 10% as office workers and tourists increased.
However, cost pressures and the removal of last year’s VAT benefit and Covid support had a direct impact on gross profit which fell to £0.6 million from £1.5 million.
The group finished the half with cash at the bank of £3.1 million down from £14.5 million.
Looking forward the company said excluding the effects of train strikes sales across the group continued to hold up well and the performance of recent openings were ‘encouraging’.
Meanwhile the availability of sites in prime locations at significantly lower rents continue to increase.
