UK's Restaurant Group sees volume improvement amid turnaround

(Recasts, adds analyst quotes, shares)

Aug 31 (Reuters) - Britain's Restaurant Group Plc (Other OTC: RSTGF - news) said new menus at its chains Frankie & Benny's and Chiquito were drawing customers, although it posted a 2.2 percent fall in first half sales.

The company, operator of more than 500 restaurants and pubs in Britain and which has rolled out menus with low price meals and other offers, said it saw early signs of higher volumes.

Shares (Berlin: DI6.BE - news) in the company rose as much as 14 percent, before edging back from its highs, as markets cheered the positive outlook from the company which is working to turnaround its leisure business after years of slowing sales.

"Operationally and in the context of the turnaround and new management thesis, things appear to be on track," N+1 Singer analyst Sahill Shan wrote in a note. N+1 Singer has a "buy" rating on the stock.

Liberum analysts said signs of higher volumes since May, when the majority of the investment in new menus was made, was encouraging given the tough backdrop of inflationary pressures and a competitive market for eating out.

Restaurant Group rolled out a new menu for Frankie & Benny's focused on value meal options, price reductions on several items and more items targeted at families.

Rising competition from food-focused pubs in recent years and a drop in visitors to retail shopping parks, where many of its outlets are located, has hit the firm's store footfall.

The company said underlying pretax profit fell more than 30 percent to 25.5 million pounds($32.88 million)in the 26 weeks to July 2 as sales at outlets open over a year fell 2.2 percent.

The group hired Andy McCue, former boss of betting firm Paddy Power (EUREX: 27913021.EX - news) , in September 2016 to help drive its recovery. He will be joined by a new finance head, Kirk Davis, who is coming in from pubs company Greene King (Frankfurt: A0F66P - news) in February.

The firm also runs other brands such Garfunkel’s, Joe’s Kitchen and American food chain Coast to Coast.

Shares in the company were up 6.2 percent at 0845 GMT, among top gainer on FTSE 250 index

($1 = 0.7756 pounds) (Reporting by Rahul B and Sanjeeban Sarkar in Bengaluru; Editing by Greg Mahlich and Edmund Blair)