REVOLUTION Bars Group has seen more than £40 million wiped off its stock market worth after warning that “well-publicised sector cost headwinds” will be higher than anticipated this year.

Shares in the group, led by Ayrshireman Mark McQuater, plunged more than 40 per cent after it flagged the greater than forecast cost impact from rises in the living and minimum wage, the new apprenticeship levy and above inflation increases in business rates.

Revolution, which runs outlets in Glasgow, Edinburgh and Aberdeen under its Revolution vodka and Revolucion de Cuba bars, also warned that it will not see a full profit contribution from its latest openings until its next financial year.

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The company said the financial performance of the six outlets it has opened in the last year is on track, with the venues achieving a weekly average turnover of £43,000. However it noted that “these bars are taking longer to mature to full profitability than originally anticipated”.

“Additionally,” the company said, “two key sites were closed for just under two weeks for major refurbishment (Blackpool in March and Cardiff in May). All these sites will make a full profit contribution in our next financial year.”

Revolution declared that the combined effect of the delayed profit impact of its new outlets and rising costs would mean adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) for the year will be broadly in line with expectations.

Analysts responded to the update by downgrading their profit forecasts for the firm.

Peel Hunt has cut its guidance on pre-tax profits by 22 per cent to £8.2 million. It said the rising costs cited by Revolution should not have been a surprise, noting such overheads are being managed by other operators without requiring forecast downgrades. And it highlighted as unhelpful the fact Revolution has parted company with two chief financial officers “in a relatively short period of time”. Revolution announced earlier this month Chris Chambers had left less than a year after he had joined.

Meanwhile, Numis Securities said downgraded its forecast for underlying earnings at Revolution by 12 per cent, saying: “Management has underestimated the impact of the new wage legislation.”

Numis added: “RBG has updated the market as like for like sales have slowed in recent weeks, and cost increases have exceeded expectations.”

With Revolution reporting like for like sales growth of 1.7 per cent for the year to date, Numis noted this compares with two per cent booked for the first half and 1.7 per cent in weeks 27 to 34.

“This implies a slowdown to 1.3 per cent in the last 18 weeks,” it said. “The company suggests that disappointing trading over Easter and the first May bank holiday is a factor here.”

In spite of the cost challenges, Revolution insisted the higher than expected costs will not hamper its expansion plans.

The company has maintained plans to open six outlets in its current financial year, building on its current tally of 66. Speaking to The Herald in March, Mr McQuater revealed the company has been holding talks over sites in Inverness, Edinburgh and Glasgow as it looks to build its portfolio north of the Border. He said at the time: “We’re looking to dramatically grow our Scottish operation. We are finding customers are connecting strongly with what we have got. It is not a part of the UK where rent or rates have gone mad. Customers are quite excited about what it is we do.”

Revolution’s warning on costs comes amid growing concern in the hospitality sector over rising overheads, with increasing food inflation following the Brexit vote adding to the burden.

Earlier this year Scottish licensed trade representatives warned that hundreds of pubs and hotels were at risk of going under because of massive hikes on business rates, in some cases by as much as 400 per cent.