Moody’s predicts ‘tough 2018' for casual dining sector

24/10/2017 - 10:31
Fierce competition, rising inflation and the potential erosion of consumer confidence will make it tougher for casual dining chains to defend margins while maintaining or growing sales next year, according to rating agency Moody’s.

PizzaExpress, Wagamama and Stonegate Pub Company were among the businesses listed by Moody’s to be in for a tough 2018.

“While more people are eating out and casual dining chains are winning market share from independent restaurants, operating conditions will be tough into next year,” said Emmanuel Savoye, assistant vice president, analyst at Moody's.

“Intense competition, rising inflation and the potential for Brexit to knock consumer confidence in the UK will make it tricky for the sector to both maintain margins and grow sales."

Moody's expects continued pressure on margins for all companies due to competition and, for UK companies, the annual increase in the minimum living wage that started in April 2016.

It said PizzaExpress's margins remain high although they have narrowed in the past 12 months because of cost inflation.

Moody’s predicts that despite retained cash flow generation being adequate across the sector, free cash flow (FCF) generation will be limited because companies continue to invest in new restaurant openings.

Savoye added: “Because spending to expand is discretionary, it could be scaled back to improve liquidity if needed.

“However, overall liquidity is sufficient for most issuers, with no maturities due in the next 18 months. Cash balances are generally good, companies have access to revolving credit facilities, and benefit from positive retained cash flow generation.”

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