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Keep the faith in premium, despite Revolution warning

The bar group is looking to put through price increases and better staff scheduling to offset costs, which will be higher than previously estimated
May 25, 2017

Revolution Bars (RBG) was forced last week to concede to a plethora of cost headwinds. These included the living wage, the double increase this year to the minimum wage, the new apprenticeship levy, along with an above-inflation increase to business rates. Shares in Revolution plummeted 40 per cent after the group issued a profit warning that admitted these costs would take more of a toll on the business than was originally forecast and would result in cash profits flat on last year. The shares have yet to recover.

IC TIP: Buy at 120.5p

This cost headache was made worse by the fact that the five new Latin America-themed Revolucion De Cuba bars opened last year had taken longer than the usual one year to mature. They are not likely to come to full profitability until years two or three. Although these bars have stuck to pace, with average weekly turnover coming in at £43,000, this new Cuban-style concept is more expensive to launch than the original style bar due to added costs such as live music. The group also tends to overstaff recently launched locations to try to make sure new customers have a great first experience, and are therefore more likely to come back. However, this delay to profitability has not put management off the Cuban concept - of the six bars the group plans to launch next year, half will be Revolucion De Cuba.

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