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Pret A Manger finds the right recipe for earnings growth(The Herald Via Thomson Dialog NewsEdge) PRETA Manger, the sandwich and coffee chain which is onethird owned by US fast-food giant McDonald's, yesterday unveiled its first pre-tax profit in more than half-a-decade after sorting out its overseas expansion woes and the return of its co-founder. The company, which now has 159 outlets in the UK, Hong Kong and the US, has also been attracting more customers with its recently introduced ranges of healthy soups, salads, sushi, hot wraps and no-bread sandwiches. Pret, which has struggled over the past five years after a disastrous foreign expansion foray, revealed a 2005 pre-tax profit of GBP2.6m, compared with a loss of GBP904,000 the previous year - its first pre-tax profit since 2000. The company made an operating profit in 2004, but had dipped into the red at the pretax level because of non-cash goodwill write-offs relating to a 2001 restructuring. Turnover at the group, which has six outlets in Scotland and says it plans to increase that number by the end of next year, climbed to GBP170.7m last year, compared with GBP152.5m in the previous year. The firm, which trades on its additive-free food and still employs more than 3000 staff in three countries, had plunged into the red four years ago after expanding too rapidly overseas. Jonathan Metcalfe, who cofounded Pret in 1985, had stepped down from the day-today running of the business in 1998 but resumed control after openings in New York, Hong Kong and Tokyo turned sour. The company had encountered problems sourcing ingredients at its then 20 US outlets, and its NewYork headquarters proved to be too large and expensive. More tills also had to be installed to service Manhattan's impatient consumers. Meanwhile, the company said same-store sales in the UK had grown more than 6-per cent, in spite of poor trading conditions after the July 7 bombings in London last year. Pret also has outlets at Heathrow and Stansted airports, which will likely have taken a hit in the airport chaos that followed the foiled bomb plot. The 2005 turnaround also comes amid improving performance at its businesses in Hong Kong, which are now operating profitably for the first time, and in New York, which the company said has become "profitable at the shop level" and achieved "double-digit growth". Pret is now proving itself to be one of the few UK food businesses capable of cracking the difficult US market. PizzaExpress recently closed outlets in Washington and Philadelphia after discovering that selling pizza to Americans was probably not its best idea. Pret funded its early, disastrous expansion by selling a 33-per cent non-controlling stake to McDonald's in 2000. Ironically, the fast-food giant earlier this year revealed dwindling profit margins across Europe and said it was closing 25 UK outlets after being hit by competition from sandwich bars such as Pret. Nick Candler, Pret's finance director, said: "This has been a very strong year for us, where we've seen growth, lots of cash and more shop openings. "We opened 12 last year in the UK, and so far this year opened nine, with probably another three to go. We plan to open another 12 next year. "We have learned to expand slowly and cautiously, and the company has also been boosted by the return of its founder, who has returned the focus of the business to providing beautiful food served by beautiful, friendly people." He added that Pret plans to open two more outlets in Hong Kong before the end of the year, taking its total there to nine. The company also has 10 shops in New York and said it was currently looking to expand again in the US. Metcalfe and his college friend Sinclair Beecham, who started his working life as a cashier with NatWest, opened their first Pret in 1986. Backed by a GBP20,000 bank loan, their aim was to open a sandwich bar whose products were superior to the tired lunch offerings available in the UK at the time. Pret's latest accounts, obtained by The Herald from Companies House, reveal that capital expenditure in 2005 was GBP12.4m, more than double the GBP5.5m invested in 2004. Copyright 2006 Newsquest Media Group Source: Financial Times Information Limited - Europe Intelligence Wire. |