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Franco Manca owner Fulham Shore slumps as it becomes latest restaurant group to warn of tough trading

Full-year revenues are likely to be less than what the markets are currently expecting after a slowdown in trading over the summer

Higher costs such as paying staff the national living wage are also impacting profitability

A trading update from Fulham Shore PLC (LON:FUL) left investors with a sour taste in their mouths after the Franco Manca pizza chain owner reported a slowdown in sales during July and August which will impact full-year earnings.

The AIM-quoted group said it believed the drop-off in sales was part of a “sector-wide trading pattern” which would seem to be true: Wildwood owner Tasty Plc (LON:TAST) and Restaurant Group PLC (LON:RTN), which owns the Frankie and Benny’s chain, have both flagged tougher conditions in recent weeks.

Softer sales, higher costs

Weak sales during the key summer period – which is usually when more people eat out – is never a good sign and the market reacted swiftly, with shares shedding 22% of their value to sit at 13.5p.

“Despite hitting our Group targets for the first quarter of this financial year, during the holiday season in July and August the group has seen a slowdown in trade, primarily from our restaurants in London suburbs,” read a trading update ahead of today’s AGM.

On top of falling sales, Fulham Shore is also having to cope with higher costs to support its increased level of operations.

So far this year, the firm has opened seven Franco Mancas in the UK and another in Italy, while it has also added three The Real Greek restaurants to its 56-strong portfolio.

Expansion plans unchanged but earnings to take a hit

Unlike some of its peers who have been forced to cut back on their expansion efforts, Fulham Shore said the downturn in trading wouldn’t affect its own roll-out plans and it still expects to open another 15 restaurants between now and March.

However, the higher costs and fall in revenues will hit headline EBITDA (underlying earnings), which will be less than what the market is currently expecting.

It did add that EBITDA would still be “significantly higher” than what it achieved last time around and is confident that its brands have “significant further growth potential”.

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