Costa Coffee's slow growth overshadows Whitbread profit rise

The City didn’t like the flavour of Costa Coffee owner Whitbread on Tuesday, after slowing growth at its café empire overshadowed a profits jump at the hotels and leisure giant.

The FTSE 100 firm, which is also behind the Premier Inn hotels chain, revealed sales growth at Costa stores open for more than a year of 0.6% in the six months to August 31, down from 2.3% in the same period last year.

The most recent quarter was worse still, with growth slowing to just 0.1%.

Premier Inn also lost steam, with growth slowing to 2.6% from 2.7%.

Simon French, an analyst at Cenkos Securities, said his firm was “concerned” over the slowing sales.

Whitbread also warned that Costa Coffee’s UK profit fell 4.6% to £61 million, partly because of higher wages and currency headwinds.

It was one of the biggest fallers on the blue-chip index following the update. The shares fell 171p, or 4%, to 3771p.

However chief executive Alison Brittain remained upbeat, and said a new range of hot lunches, such as ‘mac & cheese’, was flying off the shelves.

Despite wider market concerns that higher inflation will dent consumer confidence, Whitbread said the UK is entering the ‘third wave’ of coffee — a period in which customers are willing to spend more per cup for higher quality drinks.

Group half-year revenues rose 7.4% to £1.67 billion.

Underlying pre-tax profit rose 6.7% to £328 million.