Franco Manca warns on profits as a sales slowdown and rising costs bite

The owner of pizza chain Franco Manca has warned profits will be below market expectations

 

 

 The owner of the Franco Manca pizza chain has said it won’t raise prices in the short term in spite of a summer customer lull and rising costs which prompted it to issue a profit warning and knocked a fifth off its shares. Aim-listed Fulham Shore, which also owns The Real Greek chain, said reduced levels of trade, particularly in its sites in the London suburbs, had hit sales and that higher costs from the likes of the national living wage and rising business rates had pushed costs up. This meant while its adjusted earnings before interest, taxes, depreciation and amortisation would be “significantly higher” in the current financial year than the previous one, the level is “likely to be less than the current market expectations” of £8.8m, according to Bloomberg data.

This wiped 22pc off the share price, taking the stock down to 13.4p.

Management said while the casual dining sector continues to face several cost pressures, it “does not intend to raise menu prices in the short term as we believe this is one of the fundamental reasons for the success of both The Real Greek and Franco Manca”.

It added it would continue to pay the national living wage to all its employees, including those below the age of 25 at which point it is legally mandated.


The group said it still intended to open 15 sites this year but has decided to review the number of sites it plans to open in the future and try to negotiate better deals with the landlords of sites it has already identified.

The owners of retail sites which accommodate restaurants might be under more pressure to do a deal with tenants after a recent slowdown in the pace of expansion by some restaurant companies. Tasty slashed its planned opening programme from 15 sites to seven sites in response to its March trading alert, while Comptoir cut back to four sites in 2017 and four more in 2018.

Frankie & Benny's owner The Restaurant Group has slowed down the pace of the number of sites it is opening

The Restaurant Group has also applied the brake somewhat regarding new openings under new boss Andy McCue. The company opened more than 40 new sites in 2015 but will open a maximum of 20 this year and next.

While the Fulham Shore is holding firm with its opening schedule this year, it has decided to sell its Bukowski Grill business, which has operated from one site in London’s Soho.

Russ Mould, investment director at investment company AJ Bell, said: “Whether Fulham Shore’s problems are company-specific or indicative of a wider problem in the restaurant industry - and for that matter any business dependent on discretionary consumer spending, be it retail, travel or media - remains to be seen.


“But it has to be a concern that the group is the fourth casual dining specialist to warn this year, suggesting that consumer sentiment may not be as strong as bulls of the UK economy would like to think.”

Fulham Shore said in July Brexit had already started to curb the availability of skilled European restaurant workers and noted that food costs were rising, meaning there was “some evidence of reducing consumer expenditure”.