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Revolution Bars – from ‘platform to be confident about our prospects’ to profit warning in less than 3 months

By Steve Moore | Friday 19 May 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

A “Trading Update” announcement from Revolution Bars (RBG). With the shares having been falling from above 210p earlier this week, what the chances that it is positive news?

“Revolution wishes to update the market on expectations for the 52 weeks to 1 July 2017. The underlying sales performance of the business has remained positive in the second half with like for like sales continuing to grow by 1.7% for the year to date and gross margins remaining as expected…”

Sounds reasonable enough. “… The company is experiencing the well-publicised sector cost headwinds from the impact of the living wage, the double increase this year in minimum wage, the new apprenticeship levy, as well as the above inflation increase in general business rates. These increased costs will be more than anticipated in the current year”. Uh oh.

This follows 28th February-announced half year results noting “like-for-like sales for the eight weeks to 25 February rose by 1.7%. This, taken together with improved adjusted PBT and the impact of new sites, gives us the platform to be confident about our prospects for the future”. Less than 3 months later though, we have a profit warning!

With the cost headwinds self-admittedly “well-publicised”, why are they suddenly now going to “be more than anticipated in the current year”? – particularly when just four months before the year-end the company said it had a platform to be confident about its prospects! This suggests a failure in the process of recognising what should be anticipated.

I note it was announced earlier in February that CFO Chris Chambers had informed the board that he was to resign “for family reasons” and earlier this month that he has now stepped down and an experienced interim CFO, Michael Foster, appointed “whilst the search for a permanent replacement Finance Director continues”.

It is added that “the company believes that the adjusted EBITDA (pre-opening costs) out-turn for the year is expected to be broadly at the same level as last year”, though that “the directors remain confident in the underlying strength of the business, its brands, the strong customer proposition and the business's capability to deliver high returns on invested capital. Consequently, it remains the plan to open six new bars in the next financial year”.

Hmmm. Last year (53 weeks) saw adjusted EBITDA of £15.6 million translated to pre-tax profit of £8.5 million. With the shares currently more than 35% lower on the day, heading towards 130p, this compares to a present market cap of little more than £65 million. This suggests there could be value, but I’d need some renewed progress to be delivered from here to have any confidence and, also very conscious of the current consumer environment and cost headwinds, currently avoid.

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