All Bar One owner Mitchells & Butlers has narrowed annual losses, but warned of a hit from soaring wage and energy costs.
The pub and restaurant group – which also owns brands including Harvester, Miller & Carter and Browns – said it is facing pressure from rising gas and electricity prices as well as food and staff costs amid supply and worker shortages.
The company said it is seeking to mitigate the cost increases “as far as possible” through an ongoing overhaul and tight control of the business.
But it added: “There will inevitably be a residual impact on the current financial year’s performance.”
Chief executive Phil Urban said the group will need to put up prices for customers to counter the cost hikes, but stressed that increases will not be “eye-watering”, with the company largely looking to make savings elsewhere.
He is repositioning businesses under a turnaround plan, called Ignite, ramping up its delivery offer as well as automating supply and staff roster systems.
The cost warning takes the shine off figures showing a rebound across the group, which reported sharply narrowed pre-tax losses of £42 million for the year to September 25, against losses of £123 million the previous year.
Like-for-like sales declined by 9.6% over the full year, though Mitchells & Butlers said it has seen a return to sales and profit growth since pandemic restrictions eased on July 19.
In the eight weeks since its year-end, like-for-like sales have risen 2.7% on pre-pandemic levels, though it said sales by volumes remain in decline – of between 10% and 15% – with trading boosted by increases in spend per head and reduced VAT on food and non-alcoholic drink.
The group said the current rocketing inflation has presented a “major challenge” to the wider hospitality sector, which has been hit hard by the supply issues across the economy.
M&B has seen its energy costs double in recent months, while it has faced extra costs from an acute driver shortage.
The group has put in place measures to ensure it has enough drivers between depots and pubs, but Mr Urban said it will be a “rocky road” over the peak festive season.
On top of this, firms in the sector are also facing an extra staff bill after Chancellor Rishi Sunak announced an increase in the national minimum wage from April.
Mr Urban said: “The trading environment remains challenging and cost headwinds continue to put pressure on the sector.
“However, we have strengthened our balance sheet and returned to profitability and cash generation, allowing us to resume our capital plan and Ignite programme which will deliver sales and efficiency improvements to help combat these challenges.”
Richard Hunter, head of markets at interactive investor, said pub groups such as M&B have been in the “eye of the pandemic storm and their fortunes fluctuated accordingly”.
He added: “Despite the limited progress the company has been able to make, revenues and operating margins are approximately just half of pre-pandemic levels.
“Inflationary pressures are currently evident in terms of both utilities and employment costs, and wage inflation may not yet have peaked following the impact of Brexit on the availability of temporary staff.”