Loungers LON:LGRS the Bristol-based restaurateur has proved that the ‘Eat Out, to Help Out’ scheme, established by then Chancellor of the Exchequer, Rishi Sunak during the throes of the Coronavirus pandemic in 2020, is today a distant memory.
The company, established in 2002, reported record end-of-year revenues to 16th April of GBP283.5m, up 19% on 2022 and up 85% on 2019, the start of the pandemic.
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However, despite record revenues, Loungers saw profits decline year-on-year by 48% to GBP14.8m, because of, according to chief executive, Nick Collins: “…the positive impact in FY22 of Covid-related government support measures.”
Loungers revenue & footfall
It should have been a tough time for restaurants and bars, as 2022 and 2023 have been years formed by runaway inflation and a cost-of-living crisis in the UK. Not so, if revenue and presumably footfall are the yardstick by which success in the restaurant trade is measured. The parade of diners heading into Loungers restaurants and bars has not abated since the turn of the year, with Loungers reporting that during the twelve weeks since the company’s year end, its like-for-like sales have been up by 5.7% year-on-year, despite the impact of Easter timing and is “…pleased with [the company’s] performance and trajectory,” according to a statement to the market.
For sure, eating-out has become more expensive, and some of the revenue increases from restaurants can be explained through higher margins charged to customers, who presumably are still willing to pay for the experience.
Collins believes the inflationary impact on the sector is falling. He said: “…inflationary pressures are diminishing, and recruitment challenges have eased. As an example, a few weeks ago, we opened Ormo Lounge in the seaside town of Llandudno which achieved a record level of sales for any new Lounge opening in our 22-year history, reflecting the relevance of our offer and how well we trade by the coast.”
Resilient consumer
Collins’ view on the resilience of the UK consumer remains positive and he has been delighted by the sound of ringing tills, with the GBP51.5m of cash generated from operating activities representing growth of 81% since IPO in April 2019.
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The company is ramping up investment, it opened six new sites in the six weeks of March and April which according to the company: “[The] new site openings continue to perform exceptionally well, achieving record levels of sales, and our pipeline of new sites is as strong as ever.” The company opened the most outlets in its history, with twenty-nine new sites opened in the financial year.
Collins said: “…we are excited about our ongoing roll-out programme and the opportunity to bring our culture and hospitality to around thirty-four new locations in the coming year, with many more to come beyond that.” The company has identified potential for at least 600 Lounges across the UK and in the last year launched a new roadside brand, Brightside, with two sites now open and a third to follow in August 2023. All-in, the company now manages 222 outlets.
Sector upheaval
Loungers hasn’t been a listed company for a long time, it only listed four years ago, and in that period, it had to deal with the upheaval to the hospitality industry that was the Coronavirus pandemic. Following straight on from there, the sector had to deal with a massive increase in energy costs and inflation. Although the company noted it had received significant government support – as did most of the restaurant trade, it still had to tough out a generational shock that sent many hospitality businesses to the wall, not least the second largest cinema chain in the world, Cineworld LON:CINE, which last week filed for administration as it collapsed under massive debts aggravated by forced closure during lockdown.
Collins noted: “The investment community too needs to start hearing a different, more up-to-date message. Just because a number of over-leveraged casual dining brands have failed over the last few years doesn’t mean that casual dining is totally broken. Indeed, most of the growth and innovation in the sector is currently in casual dining. Likewise, just because certain high-profile operators are reducing their leisure/retail park estates doesn’t mean that these types of locations are absolutely off-limits. Indeed, some of our best performing Lounge sites are in exactly the locations that sector commentators seem to have condemned.”
The company, like many small and nimble hospitality operators, has had to innovate and be constantly reactive, but despite this the business has continued to deliver and is in a growth surge, when logic would dictate that it should be slowing down and cutting off its less profitable outlets.
Post-recovery
Collins said: “…Whilst the majority of businesses in our sector have struggled, Loungers has thrived, and whilst many of our peers still talk about ‘recovery’ we have been back to full speed for over eighteen months now – with the business enjoying significant growth despite the challenging backdrop,” adding, “…whilst highlighting the issues the sector continues to face and seeking more government support is understandable, it concerns me that hospitality is now viewed as a sector that is still very much on life-support.”
Loungers closed trading yesterday (12th July) at 190p. The company has offered a 6.1% year-to-date return, and a 3% one-year return with its shares ranging between 178p and 230p over a 52-week period. The company has a market capitalisation of GBP191m.
Bridgewise rates Loungers as a ‘Hold’. The analyst stated: “Looking at Loungers’ financials of Q3 reflected decent results. This typically translates into the stock performing on par with market performance for the upcoming quarter. Bottom line, Loungers’ financials indicate solid performance in terms of growth and income, which leads us to believe that they may become interesting again in the next few months. But for right now, we gave the company an overall grade of 73 and a ‘Hold’ recommendation.”
