Credit crunch immunity may be off the menu for Restaurant Group

Published on Monday 5 January 2009 20:20

FEARS that budget eateries may be feeling the heat from the credit crunch intensified yesterday as the owner of the Frankie & Benny's and Garfunkel's chains reported a sales slowdown.

Restaurant Group, which also owns the Chiquito brand, insisted its "value" offering was helping to insulate the business from the worst of the consumer downturn.

But it admitted in a brief stock market update that sales had taken a tumble during the seven weeks to 28 December. That prompted City analysts to downgrade their full-year profit forecasts for the group.

Shares fell sharply in early trading but later recovered to close 1.5p higher at 107p.

The firm said like-for-like sales for the 52 weeks to 28 December were up 1.5 per cent, compared with growth of 2.5 per cent reported in mid-November.

While Restaurant Group did not reveal the extent of the fall in the seven-week period, analysts at investment bank Dresdner Kleinwort estimated the decline could be as high as 5 per cent.

Last month, Beefeater and Brewers Fayre owner Whitbread admitted it had seen some "softening" of growth as families tightened their belts and opted to eat at home. Industry experts believe that fast-food companies stand to benefit during a recession, with pizza, burger and fried chicken takeaway meals becoming the family treats of choice.

A spokesman for Restaurant Group, whose cafs, bars and restaurants are focused on leisure complexes and retail parks, said: "This is a creditable performance resulting from the group's distinctive market positions."

Seymour Pierce analyst Hugh-Guy Lorriman noted that the company's like-for-like sales growth had now dropped from 5 per cent in the spring of 2008.

However, he added: "The group has avoided the worst – a profit warning based on the last quarter of trading."

Dresdner Kleinwort cut its full-year profit forecast for Restaurant Group by 9 per cent to 41 million, but retained a "buy" recommendation on the shares suggesting substantial bad news had already been factored in.

Numis cuts its 2009 pre-tax profit forecast by 15 per cent to 36.5m but also still keeps a "buy" rating, saying the shares offer attractive long-term value.

During the year, Restaurant Group opened 40 new restaurants and expects to open between 18 and 25 in 2009.