Caffè Nero quells doubts with first pre-tax profit

Cafè Nero announced its first pre-tax profit last week, confirming it as one of the more successful coffee shop operators.

In the six months to 30 November, the group made a pre-tax profit of £155,000, which is up from a loss of £760,000 in the same period last year. Turnover went up by 70% to £19.2m, compared with £11.3m a year earlier.

The group is now the third-largest in the country, after Starbucks and Costa, operating 111 bars in 38 UK towns and cities.

The Caffè Nero result is significant because some analysts have expressed doubts as to whether coffee bars in city centres could meet rents and overheads given the increasing saturation of the market.

Such doubts were reinforced last year when Coffee Republic, which Caffè Nero wanted to buy, reported a £7.7m loss in the year to the end of last March, a substantial drop from its £2.7m losses the year before.

Caffè Nero's profits will cheer investors, but underlying caution is reflected in the share price, which, at 25p at the end of last week, was still less than half the 53.5p it traded at in March 2001.

But Caffè Nero chairman Gerry Ford remained bullish, pointing out that the pre-tax profit had been achieved earlier than expected. He was also confident that the coffee-bar market would continue to grow, particularly outside London.

Ford said the reasons Caffè Nero was succeeding where others have failed were straightforward, if not necessarily easy to achieve. "We have better-quality coffee and better food," he said, "and we have managed our business better in terms of labour costs, rents and gross margins."