Nightcap sees strong long-term potential for hospitality, which will drive share prices across the sector as the consumer becomes more confident, according to executive director Michael Toxvaerd.

Despite revenue growth of 42%, the Dirty Martini and Barrio operator reported like-for-like sales down 10% in the 26 weeks ended 31 December 2023 (H1 FY24).

Speaking on an earnings call yesterday (2 April), Toxvaerd said the late night operator’s share price has been damaged as a result of the “general exodus of capital overall” and a reluctance to invest in consumer-focused businesses.

“This has damaged a lot of smaller listed companies like us in terms of liquidity,” he said. “Whilst it’s been a tough ride, we believe we’ve definitely bottomed out as a sector.

“When you’re a PLC and grow as quickly as us, there’s a lag between seeing the impact of acquisitions and also a further delay in converting that revenue into profitability.

“We believe there’s long-term potential for our sector as a whole, and also an opportunity for us to deliver on additional consolidation.”

Also present on the call was CEO Sarah Willingham, who added that Nightcap has undertaken five acquisitions over the last three years. While the business remains cautious in the near term, it is focused on delivering profit through synergies now beginning to come through.

“Our revenue was driven not only through acquisitions but also the increasing maturity of our sites,” she said. “Our cluster models in Birmingham and Bristol have proven to be very successful.”

Nightcap announced its acquisition of Dirty Martini last year and of Piano Works earlier this year. It remains on the lookout for businesses with potential for additional value creation through a group structure.

In the last 12 months, it has closed one site – Barrio Watford – and is looking to offload it to a “more appropriate” food-led concept.

Its estate comprises “very few” unprofitable sites, Willingham added. The impact of rail strikes, however, has been “brutal.”

H1 FY24 was focused on integrating Dirty Martini, she explained. The group was bought for £4.65m in a pre-pack deal but contributed more than £10m to revenue during the period.

“We needed to get under the skin of this business to integrate it into the Nightcap culture,” she said. “The cost of sales was a lot higher because of the way the menu worked, the way they staffed.”

Having put in more efficient supply and staffing, the cost of sales is in line with the rest of the business, according to Willingham.

“It did take us a few months but was a successful integration.”

In addition, the business also focused on building a more solid infrastructure following its acquisition spree in the wake of the pandemic.

“Buying five businesses in a short period of time leads to lots of different teams and head offices,” Willingham added. “Now we structurally look a lot better.

“We’re absolutely ready for the economy to turn and come back to growth, and to bolt on another group of bars if we need to.”

Completed in February this year, the Piano Works acquisition has also contributed an event-based source of revenue to the group. It has been useful in driving traffic and filling bigger venues, Toxvaerd said.

Future acquisitions will similarly focus on flexible concepts.

“We’re looking at themed late night bars. These are often smaller – a move away from the sticky dance floor nightclubs of the past,” Toxvaerd added. “This is the direction the whole market is moving in.”

He pointed to Rekom and Revolution Bars’ shifts to to party bars and away from large venues.

“2024 looks to be the year where the UK late night sector is being reshaped through restructuring and consolidation.

“Nightcap was founded in the belief that consolidation would take place. With five acquisitions in three years, it’s in our DNA to lead consolidation efforts.”

The group is therefore keeping a “close eye on developments”, he said.

In addition to implementing efficiencies across the estate, the evolution to a digital first business has served Nightcap well.

Different websites and marketing strategies for each individual bar group has been brought under a single structure, with a group sales & marketing director.

Appointing a group people director has resulted in a significant uplift in retention, with only 41 vacancies across the business.

“Historically our conversion had been low due to old legacy websites that didn’t work particularly well,” Willingham said. “Now we have new tools to drive optimisation, gain marketing share, and provide a complete view of our customer base of over 1 million.”

“We will continue to be creative in terms of how we can consolidate our sector,” Toxvaerd added.