Costa coffee helps Whitbread serve up profit rise

The surge in new Costa outlets has driven owner Whitbread's performance. Picture: Vismedia

The surge in new Costa outlets has driven owner Whitbread's performance. Picture: Vismedia

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Coffee chain Costa gave owner Whitbread an invigorating shot that boosted profits at the half year stage yesterday.

The group opened an extra 153 coffee shops around the world in the six months to the end of August, which helped sales at Costa grow by a fifth.

It added a net 86 stores in the UK, meaning its estate of 1,664 outlets in locations ranging from high streets and shopping centres to motorway service areas and garage forecourts is now 800 greater than its closest competitor.

The chain also recently marked the milestone of 1,000 international stores with a new outlet in Bangkok.

Costa’s continued strong growth combined with further market share gains at budget hotel Premier Inn to help Whitbread post a rise in half-year underlying profits of 12.6 per cent, to £216.1 million.

Premier improved like-for-like sales by 3.3 per cent and added 1,368 UK rooms, taking its total to 53,039. Revenues grew by 12.2 per cent to £497.4m.

Chief executive Andy Harrison said the latest figures put Whitbread on track to deliver this year’s business plan and meet “growth milestones” set for 2016 and 2018.

“Our two growth engines, Premier Inn and Costa, performed well,” he said.

“Since the onset of the recession in 2008-9, Whitbread has grown its sales and underlying pre-tax profits by 11.1 per cent and 12 per cent per annum respectively, demonstrating the strength of the business and our leading market positions.”

Across the group, Whitbread said it created 1,200 UK jobs over the period, with a further 10,000 expected in the next three years.

In April 2011, the company pledged to grow the number of Premier Inn rooms in the UK by around 50 per cent to 65,000 by 2016. It extended the target in April to 75,000 by 2018.

The company expects to open some 4,000 Premier Inn rooms in the current financial year and a further 4,500 in 2014-15.

Whitbread’s results were ahead of what most City analysts had been expecting. The firm also hiked its interim dividend by 11.8 per cent, to 21.8p.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said “Whitbread has delivered another firm statement of intent in achieving its strategic goals.

“The initial share price reaction would tend to suggest that these robust figures had been anticipated in terms of stock performance – over the last year the shares have risen 43 per cent as compared to a 13 per cent jump in the wider FTSE 100 Index. Nonetheless, the Whitbread growth story continues to drive on, and the current market consensus of the shares as a ‘buy’ is most likely to remain intact.”

However, James Hollins at Investec reiterated his “sell” recommendation for Whitbread, despite hailing “another robust set of results”.

“While progress against targets has been exemplary, we continue to believe that an overtly bullish break-up valuation is being applied to the group’s equity, whereas we regard the group’s potential returns and earnings growth as solid but unspectacular,” he said.

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