June 17, 2017 3:59 am JST

Japan's Royal Holdings lifted by end of night shift

Eatery business thrives as revamped operations improve profitability

JADA NAGUMO, Nikkei staff writer

Royal Host is concentrating staff on busier shifts to improve profitability.

TOKYO -- Royal Holdings shares are climbing as investors reward the restaurant operator for moving fast to improve profitability through ending costly late-night operations and other reforms.

The stock has reached its highest level in almost 27 years, jumping as much as 2% at one point to 2,628 yen on Friday. It has enjoyed days of year-to-date highs and is up about 40% from the start of 2017.

Sales are growing, even with late-night operations gone. Royal Holdings ended 24-hour operation of its mainstay Royal Host family restaurants in January. But existing-store sales held firm, beating company expectations by growing 3% on the year in April and 1% in May.

"The company has been successful at shoring up operations during peak lunch time hours," said Seiichiro Samejima, analyst at Ichiyoshi Research Institute. In addition to improving menu quality and healthy options, Royal Host has also beefed up staff during lunch hours. Spending per customer grew 1% in April and just under 4% in May as older patrons and families came in more frequently.

Royal Host's expected average site operating time of 15 hours and 30 minutes for 2017 would be three hours shorter than in 2011. Sales per hour this year will likely improve considerably if the focus on lunch hours is successful. The restaurant will also reduce labor costs now that it no longer needs expensive night shifts.

Profitability has already been positively impacted by these reforms. Even as sales fell 1% on the year to 9.3 billion yen ($83.9 million) for the January-March quarter, pretax profit rose 23% to 487 million yen. Some expect an upgrade to earnings for the current fiscal year.

Other restaurant companies are following Royal Holdings' example by reviewing late-night operations. Skylark reduced operating hours at 60% of its 1,000 or so family restaurants that stay open late, such as its Gusto brand, between February and April. Workers are being redeployed toward lunch and dinner hours. "The impact of these reforms is only just beginning," a company official said.

Royal Holdings may lose its advantage should rivals continue to improve profitability. It now trades at 33 times projected earnings per share for the current fiscal year. This is not cheap compared with Skylark's 17 and is well above a restaurant-sector average in the upper 20s. Royal Holdings closed Friday down 0.42% at 2,567 yen as investors took profits.

Royal Holdings still has some blind spots, however. Sales continue to fall at the Tenya tempura chain, bucking the company's expectations. To maintain its high valuation, Royal Holdings will have to extend improvements in operation efficiency to other businesses as well.

Royal Holdings Co., Ltd.

Japan

Market(Ticker): TKS(8179)
Sector:
Industry:
Consumer Services
Restaurants
Market cap(USD): 942.01M
Shares: 40.20M

Skylark Co., Ltd.

Japan

Market(Ticker): TKS(3197)
Sector:
Industry:
Consumer Services
Restaurants
Market cap(USD): 2,935.05M
Shares: 196.14M

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