(Reuters) -Restaurant Group expects profit margins to improve in the medium-term as more customers dined at its Wagamama restaurants and pubs in the first quarter, sending shares of the company up more than 10% in early trade.
The improvement in trading, which the company said had continued into the second quarter, should be relief after investors in February pushed for changes to increase profitability.
Shares rose 10.1% to 44.6 pence at 0715 GMT.
Restaurant Group said it delivered about 5 million pounds ($6.26 million) of incremental cost savings on an annualised basis, with 70% expected to be benefited in 2023, and a full benefit flowing through from 2024.
Sales at its Wagamama restaurant, the Japanese noodle chain, rose 2% on a like-for-like basis for the 13 weeks ended on April 2, and dine-in sales jumped by 10%. Takeaway and delivery sales were down 13% as the reversal of lockdown trends continued.
"We believe Wagamama and Brunning & Price pubs are quality assets undervalued by the market, with potential to unlock significant equity value," analysts at Stifel said in a note.
The company, which operates more than 400 restaurants and pubs mostly across the UK, said the current favourable UK commerical property market and attractive rent terms has aided its plans to open seven to eight more Wagamama restaurants in 2024.
Restaurant Group last month said it will cut the number of Frankie & Benny's and Chiquito restaurants by about 30% to try to improve its margins.
The chains are part of the company's leisure estate sector, which reported a 4% fall in sales and 3% dip in dine-ins during the quarter.
For the wider company, the Wagamama chain's and the group's pubs' trading rose by 9% and 8% rise respectively in the four weeks to April 30 as the increased momentum continued into the second-quarter.
($1 = 0.7994 pounds)