Speaking to MCA, BigHospitality's sister site, following TRG's full-year 2022 (FY22) update earlier this week during which the group outlined plans to increase its EBITDA (earnings before interest, taxes, depreciation and amortisation) margins, Hornby said all of the strategic plans were 'already in the pipeline' and 'entirely grown from within'.
“It’s not been impacted by any of the shareholder issues,” he said.
Oasis Management, a Hong Kong-based hedge fund that owns a 6.5% stake in TRG, released a public letter last month that called for an ‘immediate and near-term’ change of governance at TRG following what it said had been poor performance in its share prices. Earlier this week, prior to the release of the full-year update, the activist shareholder threatened to push for the removal of Hornby unless he delivered a shake-up of the business.
For Hornby, the most important aspect of the three-year plan is that EBITDA improvement will come from three different areas: cost reductions – predominately around food; the continued like-for-like sales (lfl) performance of its core brands; and thirdly, what it is calling ‘portfolio mix movement’. This will encompass the growth of Wagamama – which will open five to six sites per year, benefiting from the continued recovery in airport concessions; and the downsizing of its leisure estate, with around 35 sites expected to be jettisoned over the next couple of years.
In the UK, the expansion of the Wagamama estate will be focused on openings in regional locations, due to the long-term change in working patterns seen in London, with the exception of a new site in Battersea Power Station, which Hornby described as a unique development. But it’s also growing the brand overseas. Through its joint venture in the US it has eight sites there and is targeting 25 to 35 over the next four years, and it is also growing its franchise operations in Europe and the Middle East.
While there has been recent speculation about a potential sale of TRG’s pub business, the group set out plans to continue to invest in the estate, which mostly comprises its Brunning & Price business and achieved 10% growth in lfl sales in FY22, outperforming the market. The business said it was keen to look at opportunities to increase the accommodation offer at Brunning & Price, with only three pubs currently offering rooms. Hornby said that while consideration would be given to the potential to have rooms as part of the offer when it came to new openings, the focus of the growth opportunity was more around seeing whether it could convert some of the space above the pubs in its existing estate into rooms.
TRG may be looking to further downsize its leisure estate, but Hornby said the business had 'genuinely made good progress in leisure'.
“Customer ratings have improved, our staff retention has improved, and I do think operationally we are making really good progress,” he said. “It is just a segment of the market where it does make sense to exit sites as and when you get the opportunity.”
For the recently acquired Barburrito business, Hornby said the early signs had been really pleasing, with TRG looking to expand upon its current 14-strong estate with around two new openings per year.
In terms of current trading across the group, Hornby said it had been very encouraging. “People can say what they like but our lfl sales momentum has remained very positive.” He was keen to highlight the 16% increase in VAT adjusted lfl sales for Wagamama, and 14% rise for Pubs. “You can see from that there is genuine volume growth.”
While the consumer was clearly still under some pressures, Hornby noted that when you do look at TRG's lfls: “It does seem that two things are indisputable: one, that dine in volumes are going up quite strongly on last year – people are definitely going out more – and secondly that although there has been some pressure on spend per head, i.e. people may cut back a tiny bit in terms of how many starters or sides they order or how many drinks they have in general, the spend behead is moderated less than people were expecting.”
While lfl delivery and takeaway sales declined by 17% for both Wagamama and its leisure business in the eight weeks to 26 February 2023, compared to the same period in 2022, Hornby said it put around half of that decline down to the overlap with Omicron trading restrictions, adding that they were still 'well above 2019 levels'.
When the Omicron Covid variant hit, delivery peaked at around 25% of Wagamama’s overall sales and has now settled back at around 20%, he explained. While he expects dine-in to outperform delivery this year, Hornby said that he expects delivery sales to grow more in like with dine-in in 2024.
“We are pleased with our operational performance,” he added. “The key now is if inflation can start to turn down, particularly throughput inflation, that will be the moment that life starts to get easier for all casual dining players, not just for TRG.”
