- Like-for-like sales 16.4% above pre-Covid levels
- Food and energy costs eat into margins
- Tacos-to-burritos seller reports positive current trading
Tortilla Mexican Grill (MEX:AIM), the UK’s largest fast-casual Mexican restaurant group, served up record sales for the year ended 1 January 2023 with a boost from a record year of 18 site openings and below-inflation price increases to mitigate rising food and energy costs.
Yet shares in the value-for-money burritos, tacos and salads seller were unchanged at 120p as results revealed that digesting extra costs, rather than pass on all the extra expenses to consumers during a cost-of-living crisis, ate into margins and profitability.
Nevertheless, the resilient operator reported positive current trading in the face of tough comparatives and management remains excited by the brand’s ‘continued growth potential in the UK as well as our opportunities to build on our proven franchise operations to expand overseas’.
HUNGRY FOR GROWTH
Tortilla Mexican Grill delivered adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of £4 million last year, below the prior year’s VAT-adjusted £4.8 million as food and energy inflation hurt profitability.
Despite rail strikes and weather disruption, the restaurant group delivered a 20% jump in annual sales to a new record £57.7 million, with like-for-like sales up 16.4% versus pre-pandemic 2019.
This year of record expansion, with a net 18 sites added to the portfolio, beefed up the total number of sites to a year-end 82, with new openings including 10 group-operated sites, one new franchise site at Bristol airport in partnership with SSP (SSPG) and five university site openings via a new partnership with Compass (CPG).
Crucially, May 2022’s takeover of rival Chilango has strengthened the company’s position in London, with five of the eight sites successfully converted to the Tortilla brand and the three remaining sites refurbished post-acquisition.
TRADING REMAINS RESILIENT
Despite tough comparatives, like-for-like sales were up 4% year-on-year in the eight weeks to 26 February and 11% higher when adjusted for VAT.
And while elevated costs continue to hurt the restaurant sector, management is taking action to manage costs across the supply chain and says food inflation rates have ‘largely plateaued’.
Tortilla Mexican Grill reiterated it is trading in line with consensus estimates for 2023, which call for a rise in sales to £70 million and EBITDA of £5 million.
CEO Richard Morris commented: ‘More and more consumers are seeking out high-quality, healthy, customisable food at great value, and both of our brands - Tortilla and Chilango - sit at the heart of these exciting consumer trends.’
Morris added: ‘The strong performances of our restaurants up and down the country as well as the success of new openings in the likes of Lincoln, Coventry, Canterbury, and Leicester once again demonstrate the very broad appeal of our proposition and the demographic diversity in which we operate and succeed.’
WHY LIBERUM IS BULLISH
Reiterating its ‘buy’ rating on Tortilla, Liberum Capital said the new financial year has ‘started well, with year-on-year like-for-like sales growth of 4% against a tough comparison, which, combined with continued tight cost control, gives us confidence in current year forecasts.’
The broker added: ‘Consumer trends remain in favour with its flexible formats, convenient, customisable value-for-money offer growing its brand appeal. The balance sheet is strong, management is executing well on the roll out and is showing tighter cost discipline.’
