PizzaExpress plunges as diners tire of 'old and jaded' format

PizzaExpress, once the darling of the restaurant sector, warned yesterday that sales were continuing to fall at its core London sites as it unveiled plans to revamp and modernise its oldest restaurants.

The group, which has set the standard for pizza chains since it was founded in the Seventies, conceded that many of its sites were "overdue for complete refurbishment" and pledged to double spending to refurbish 80 of its 324 UK restaurants.

It cautioned that it had seen no recovery in underlying trading over the summer after like-for-like sales from January to June fell by 1.5 per cent ­ worse than the 1 per cent decline signalled in a June profits warning. Within the M25 zone, which comprises the bulk of PizzaExpress's profits, sales fell by 3 per cent last year, although overall they rose by 1 per cent.

The bleak assessment of its prospects sent the group's shares tumbling 23 per cent to 312.5p, knocking nearly a quarter off its stock market value. The shares have sunk from 921p in January as the City has fretted that the PizzaExpress format has become old and jaded and unable to cope with increasing competition from rivals such as Ask Central's Ask and Zizzi pizza restaurants and Signature's Strada.

Paul Campbell, the finance director, said the group would double its planned capital expenditure programme to £13m this year and £11m the year after to make its older sites more appealing. He said sales at restaurants open longer than 10 years, which includes most of its London estate, had fallen by 3 per cent. "Older restaurants happen to be mainly in the South-east and London, in the most competitive part of the market," he added.

While declining to name outlets, Mr Campbell said "most restaurants would probably get some attention". Where the group had recently refitted older sites in Chichester, Maidstone and Kingston-upon-Thames, underlying sales had risen by 10 per cent, he added.

Analysts slashed their full-year forecasts and cautioned that there was likely to be further downside from increased cost pressures, such as expensive rent reviews and higher insurance and wage costs. The refurbishment plans also curtailed hopes that the group would return some of its cash to shareholders, they added.

"The prospect for recovery in the short term is not there because those [London] sites [being refurbished] carry much more clout in terms of profit contribution," Andrew Saunders, at Numis Securities, said. He reduced his pre-tax profit forecast for 2003 to £35m from £42m. A year ago, analysts were expecting profits of £52m for 2003.

Pre-tax profits in the year to 30 June fell to £38m from £40m previously, on turnover of £213.7m against £185.6m a year earlier.