Mitchells & Butlers saw like-for-like sales growth in the fourth quarter of 9.7%, with the strongest performance being seen in the food category. The trading update called out spend-per-head as a key driver of the uplift.
Cost headwinds are easing and remain at the bottom end of previous guidance. Results for the full year are now expected to be at the top end of market forecasts, which for operating profit range between £196m and £217m. The company sees continuing momentum in the current financial year.
The shares were trading flat following the announcement.
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Our view
The muted reaction to Mitchells & Butlers' encouraging fourth quarter update suggests investors were already expecting a strong end to the year. We've seen food sales increase despite last year's strong growth and a strong recovery in drinks sales.
This is testament to the diversity of the Group's brands, which can help it react to market conditions of the day. The broad portfolio includes family friendly restaurants like Harvester and Toby Carvery, as well as more premium offerings such as Miller & Carter steakhouses. There are also popular high street watering holes including O'Neills and All Bar One.
Whilst the continuing resilience is impressive, further out things could get tougher. The Group itself notes the pressures facing consumers. We think the true impact of the cost-of-living crisis is yet to bite consumer demand for non-essentials such as a trip to the pub.
Rising sales are all well and good, but as the old adage goes, it's revenue for vanity and profit for sanity. The group's falling margins have been a cause for concern, and despite some glimmers of hope on that front, Mitchells & Butlers is still expecting to report double digit cost inflation for the financial year just ended. Its scale and focus on cost efficiencies should mitigate some of this, and management hopes this will allow margins to start to rebuild towards pre-covid levels, but that's no easy task.
It's a credit to management that the performance of its pubs and restaurants has allowed the company to deliver a solid performance in the year just ended. So far there's no sign of a slowdown in the current year. But storm clouds continue to loom. With this in mind, we see the decision to keep dividend payments on hold as a sensible one, which will allow continued investment into the estate.
Whereas competitors have been trimming their estates Mitchells & Butlers has made some modest additions to its footprint. Given the supply coming out of the market we support this move, as long as site selection is prioritised. Existing sites are also being upgraded, which looks to be an important contributor to the outperformance of its brands.
With a solid balance sheet backed by considerable property assets, Mitchells & Butlers is better placed than some to cope with a downturn in consumer sentiment. But the valuation now sits above the long-term average, meaning shares are likely to be sensitive to any ups and downs in demand.
Mitchells & Butlers key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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