The share price of Revolution Bars Group had declined by close to 38% in afternoon trading as the City reacted to the profit warning issued by the company this morning.
Shares in the company at time of writing had fallen by 77.5p to 126.5p versus the group IPO price of 200p, inevitably leading to speculation that the business could become an acquisition target for the likes of Stonegate Pub Company, whilst also placing a question mark over the position of its current management team led by Mark McQuater.
This morning the 67-strong company reported that its underlying profit for the year to 1 July would be below the £17.2m to £17.9m analysts had forecast.
It said that new sites were taking longer than expected to hit full profitability and that the impact of headwinds such as the living wage, minimum wage, apprenticeship levy and business rates would be more than anticipated in the current year.
The company has opened five new Revolucion De Cubas in the last twelve months (and one new Revolution Bar) and said that while the underlying sales performance of these bars remained on track with an average weekly turnover of £43k (net), they taking longer to mature to full profitability than originally anticipated.
It also warned that two key sites were closed for just under two weeks for major refurbishment (Blackpool in March and Cardiff in May).
Consequently, due to the timing of profit maturation at the new Revolucion De Cubas and the industry-wide cost headwinds, the company predicted that the adjusted EBITDA (pre-opening costs) out-turn for the year is expected to be broadly at the same level as last year.
It said underlying sales performance of the business had remained positive in the second half with like-for-like sales continuing to grow by 1.7% for the year to date.
The group said: “The directors remain confident in the underlying strength of the business, its brands, the strong customer proposition and the business’s capability to deliver high returns on invested capital. Consequently, it remains the plan to open six new bars in the next financial year.”
Leading analyst Douglas Jack at Peel Hunt said: “Despite growing the EBITDA margin by 12bps in H1, the company’s new guidance for flat EBITDA in 2017E implies a margin decline of 300bps in H2. Management claims this is due to labour cost inflation and business rates even though this impact should not be a surprise, and is being managed by other operators (numerous Leisure companies have reported this week, without requiring forecast downgrades). We believe losing two CFOs in a relatively short period of time has not been helpful to RBG in this case.
“It is important that the company’s expansion plans remain in place, given that the company has a net cash position and a track record for generating a 38% cash ROI.”