Profitability increasing well as the expansion continues from London to nationwide.
Companies: Fulham Shore Plc
Fulham Shore (LON: FUL) published its Full Year Results up to March 2017 this morning. In short, the operational delivery remains reassuringly on-track, the financials are experiencing good growth as you would expect, and Management provides an encouraging update on its regional expansion.
Working down the income statement, Revenues rose 41% to £41m year-on-year, headline EBITDA rose 36% to £7.1m, Operating Profit rose 150% to £1.3m, and Profit after Tax rose from £76k in 2016 to £969k in 2017.
The big step up in growth from the EBITDA line to the Operating Profit line is largely due to pre-opening costs and share-based payments, which combined are growing less than the top line, helping with the operational leverage.
Looking at future roll-out plans, in the short term Management expect to open 15 new locations in this financial year but make the right noises with respect to not expanding for the sake of it. Many roll-out companies trip over by sacrificing unit economics to maintain expansion rate. Fulham Shore clearly doesn't intend to do the same, saying the expansion:
"will depend on our ability to secure sites that meet our return on capital criteria. This is critical to our success and we will not open new sites just to chase expansion numbers."
The Group are looking to become a nationwide chain and confirm this process has been encouraging so far but also that the ramp up period for regional units will likely be slower than in London:
"as we open in other towns and cities throughout the UK, we expect that sales are more likely to build to capacity over the first three or four years of each restaurant's life as the Franco Manca brand becomes better known regionally.
We are encouraged by our expansion outside of London so far, in particular the openings in central Brighton and Reading, which are serving more customers per week than our average London pizzeria."
Management flag the impact on staff availability has already been noticed with less skilled European restaurant staff.
"the long-term Brexit impact is unknown; it is, however, already affecting the availability of skilled European restaurant staff"
It also sounds like the Group may focus the stable of brands down from three to the two main brands of Franco Manca and The Real Greek. The third restaurant format, Bukowski Grill, is under review. This, of course, may mean the Group will ramp up activity, but under review normally means the opposite.
"We will be reviewing the progress of our third business, which is a single franchise of the Bukowski Grill brand in Soho, over the next few months."
It would be a shame as I can confirm Bukowski make a mean hamburger, but perhaps the margins available in higher cost, meat-focussed restaurants are not as attractive from a business perspective.
To confirm, I hold shares in Fulham Shore. Retail and dining out as a sector is facing well-publicised headwinds, with cost inflation being one example, but I think Franco Manca is well placed because it offers a great service at low prices. People feeling the pinch will still go out for dinner, but may lower their budgets and FUL offers a great meal for that lower price.
Shares have responded well this morning with a 3.9% rise in early trading.
