Loungers continues to expand

Loungers (LGRS) posted record revenue for the year to 17 April, boosted by its 'local' focus as people spend more in their own neighbourhoods. The hospitality firm, which operates under the Lounge and Cosy Club brands, is expanding its estate footprint and taking advantage of a high street decimated by closures. 

Chief executive Nick Collins told Investors’ Chronicle that the company is “benefiting from changes brought about by the pandemic” as people spend more time (and cash) in their local areas.

This was borne out by the results. Average customer spend was higher, and a gross margin of 43 per cent was up by 180 basis points from last time around. New tech seems to be working out, with the order at table app taking 40 per cent of total sales at Lounge sites.

Estate growth is likewise encouraging. The company can now boast 200 sites, after opening 27 in the year, and is benefiting from strong property opportunities as high street retail struggles. Management said that hitting 500 sites is a “conservative” target, while Panmure Gordon analysts think there is scope for 700. An aggressive approach looks like it is bearing fruit, with new sites posting above-average sales and cash profits.

Peel Hunt analysts said that Loungers has gone through a significant “de-rating in the hospitality sector even though it has emerged from Covid with the best upgrade track record”. The shares are trading at 20 times the house broker’s 2023 financial year earnings forecast, which looks a little chunky, although this is expected to fall to 17 times in 2024. And while prices have not been raised by as much as peers, this is something to watch as inflation rises further and the cost of living crisis intensifies. Hold.  

Last IC view: None