The Restaurant Group, owner of the Chiquito, Garfunkel’s and Frankie & Benny’s chains, lost nearly a third of its value yesterday after announcing a slowdown in sales and giving warning of a quieter 2008 for the leisure sector.

The company blamed a tighter consumer market for sales growth of only 1 per cent in the final quarter of last year, compared with 7 per cent in 2006, and said that conditions would continue. Its shares closed down 55¾p, or 31.9 per cent, at 119p.

The warning came as Sports Cafe Holdings, which has eight venues including the original London branch, said that it was in talks with its bankers for an extension to its banking facilities after poor Christmas trading and a slow start to 2008. Its shares closed down 4¼p, almost 55 per cent, at 3½p.

Andrew Page, chief executive of The Restaurant Group, said that the sell-off was “overly harsh and well overdone” and defended what he described as a “cracking year”.

Total like-for-like sales for 2007 rose from 5 to 5.5 per cent and the company said that it would report annual results, due in March, in line with management expectations and in the mid-range of analysts’ forecasts.

However, the company’s outlook is less encouraging, with the leisure sector expected to feel the brunt of weaker consumer spending. “Consumers are being squeezed,” Mr Page said. “We would be naive to think this doesn’t have an impact on restaurants.”

Despite expecting quieter trading in 2008, he said that the company would be “very disappointed if we didn’t make progress on 2007”. Mr Page added that some of the group’s chains, where the average meal costs between £12 and £15, could benefit as consumers look for cheaper alternatives when eating out.

Aside from consumers cutting back on spending, restaurant chains also face pressure from food price inflation. The company said that higher prices, particularly in dairy products, could cost it up to £5 million.

Analysts said that the announcement was the start of what would be a tough year for the leisure sector.

Matthew Gerard, an analyst for Investec, said that although the sell-off of the company’s shares was an overreaction, the entire sector had been nervous since Clapham House, the owner of Tootsies and Gourmet Burger Kitchen, gave warning of weak trading early last month.

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