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Premier Inn owner Whitbread warns of higher costs after returning to profit

FILE PHOTO: Signage for Premier Inn is seen on the outside of one of their hotels in London, Britain

(Reuters) -Premier Inn owner Whitbread said on Tuesday that surging costs for labour, utilities and food would eat into margins in the second half, sending its shares down more than 3% despite reporting better-than-expected first-half results.

The hotel chain operator swung to a group profit before tax for the six months ended Sept. 1 of 307.4 million pounds ($347.98 million), compared to a loss of 19.3 million pounds a year earlier, with revenue doubling as travel rebounded.

Premier Inn UK's strong trading performance has continued into the third quarter, the company said, with forward bookings in a positive position despite economic uncertainties as people spend more on travel now that restrictions have eased.

Budget hotel chains in particular are seeing robust demand for stays as consumers switch to affordable options amid a cost of living crisis, but they are also battling inflationary pressure.

Whitbread said inflation as well as investments in technology and marketing would increase its costs by 60 million pounds in the second half.

Despite rising inflation, food and beverage sales remained 5% below pre-pandemic levels and were unlikely to fully recover this financial year, the company added.

"Something that will be keeping the chief executive up at night will be the performance of its food and beverage arm," Mark Crouch, an analyst at social investing network eToro said in a note.

Shares of the firm fell as much as 3.2% in early trading but pared some losses and were last down 1.8% at 2,564 pence as of 0818 GMT.

($1 = 0.8834 pounds)

(Reporting by Amna Karimi and Radhika Anilkumar in Bengaluru; Editing by Rashmi Aich and Jamie Freed)