I would like to say how much I enjoy the e-mails from Langton Capital on a daily basis. I use the newsletter as an ideal way of keeping me up to date with what is going on financially in the drinks industry.
Tenanted pub company
July tracker, McDonald’s, Brakspear & other:
A DAY IN THE LIFE:
Parts of Langton are on holiday. Back properly after the Bank Holiday but, for the meantime (and rural internet permitting), the email will go out in shortened form. On to the news:
JULY SALES TRACKER:
• Coffer Peach July Tracker shows ‘slight sales growth in July’ with LfL sales +0.6% against July last year
• Tracker says ‘restaurants perform marginally better than pub chains’ but sales overall lagging inflation, which is running at 2.6%
• Tracker says ‘it’s steady as you go for Britain’s managed pub and restaurant chains’ despite sales moving backwards in real terms
• Restaurant LfL sales +0.9% with pub sales +0.4%. London and provinces similar at +0.5% and +0.7% respectively. CGA Peach’s Peter Martin reports ‘it’s an essentially flat market out there, with the modest 0.6% growth rate exactly the same as we saw in June.’
• CGA Peach’s Peter Martin continues ‘despite all the media talk of fragile consumer confidence, it appears that the British are continuing to go out to eat and drink much as they did last year – which is good news.’ In money terms, this is the case, but volumes and profit will be under pressure due to inflation. Mr Martin says ‘the increased cost pressures that operators across the sector are facing this year, particularly from increases in business rates and food costs, mean that margins are being squeezed and businesses are feeling the pinch.’
• CGA Peach says ‘operators have been looking for efficiencies, but also increasing prices to mitigate rising costs. According to CGA’s latest Business Confidence Survey this summer, over 80% of operators have introduced at least some price rises this year, with a third implementing them across the board. These latest Tracker trading figures show that those rises haven’t stopped the public spending, but neither have they significantly boosted income for operators. It remains a tough market.’
• Total sales were +3.7% with LfL sales +0.6% showing that new capacity continues to put pressure on same-unit sales
• Davis Coffer Lyons comments ‘the market is essentially stable, with little dynamic movement in any of the sub-markets, geographically or by sector. The good weather in July should have benefitted wet led venues which makes the relatively strong figures from the restaurant sector encouraging.’ The sector is moving slowly backwards in terms of same unit performance.
• RSM UK comments ‘these latest figures will be greeted with a degree of relief by operators. Despite household budgets becoming increasingly stretched, consumers continue to indulge in eating and drinking out. We’ve seen businesses who develop exciting and affordable concepts outpacing competitors and attracting investors keen to support ambitious roll out plans.’
• The numbers could have been worse but volumes and footfall must be markedly down given that menu prices have been rising yet LfL sales are broadly static.
PUB, RESTAURANT & DRINK PRODUCERS:
• UK food volumes have risen to record levels. Exports of salmon are +53% per the Food and Drink Federation. Total exports rose by 8.5% to £10.2bn
• JT Davies, parent of Brakspear, has reported numbers. Sales for the year to end-December 2016 rose by 14% to £25.5m with EBITDA +1% at £8.3m. PBT was +33% at £6.6m. The company reports ‘EBITDA growth was in line with expectation, after investment in the company's growing managed house division, including increasing central headcount and systems capability to enable further openings. The managed business now comprises nine pubs, with three new openings planned within the next 12 months.’
• JT Davies CEO Tom Davies comments ‘2016 was a good year for Brakspear. Our core tenanted and leased business continues to trade very well, benefitting from several years of investment in design, marketing, training and tenant recruitment.’ Mr Davies concludes ‘major investment in the people and infrastructure is allowing us to accelerate the development of this side of our business, and puts us in a strong position for further expansion. Inevitably, this had an impact on EBITDA, but it was the right decision.’
• The Grocer reports ‘Brits cutting back on grocery spend as Brexit squeeze hits’. It says ‘three in 10 have switched to cheaper grocery brands to combat effects of inflation, a new survey has found.’
• US data from Sense360 showed that whilst McDonald’s led the limited-service segment in customer frequency in July, it lost some of its edge compared with the previous month. Customers visited McDonalds an average 2.2 times in July, compared to 2.3 for June.
• Per MCA, Robin Rowland, CEO of Yo! Sushi, has said decreasing profit to debt ratios in the sector is frustrating investors. Oversupply has led to a ‘survival of the fittest’ situation, to which Rowland said ‘If you’re not the best in class, number one or two, you’re in trouble.’
• Asda posted its first increase in quarterly sales for three years after a successful Easter, with sales rising by 1.8% in Q2. The supermarket said it had attracted 275,000 new customers during the period.
• The ONS reported UK retail sales increased by 0.3% for July, month-on-month. However, all sectors apart from household goods saw a fall in volume sales.
• Annual profits at Treasury Wine Estate increased by 55% as its integration of the Diageo wine business and overall EBIT margin was three years ahead of schedule. Earnings before interest and tax was up 36% to AU$455.1m with net profit after tax up 55.3% to AU$269.1m.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• According to BBC, visitors from the EU who want to work, settle or study in the UK would have to apply for permission under new proposals but the government also plans to keep visa-free travel to the UK for EU visitors. The Home Office says it will publish details in due course.
• Fritz Joussen, CEO of Tui, described UK demand as ‘very resilient’ among fears that unfavourable exchange rates could price out UK customers. Tui posted its first-ever profit for the nine months to June with Joussen forecasting full-year group turnover ‘of more than 3%’ with the ‘underlying operating result to grow by at least 10%’. The sale of Travelopia for £325m and Tui’s stake in Hapag Lloyd for €244m would leave the group debt free at the end of the year, according to Joussen.
• At least 13 people have died and 50 injured after a van attack in Las Ramblas, Barcelona. Police are treating the incident as a terror attack, saying they have arrested one man in connection to the attack and local media reporting that another suspect died in a shootout.
• Cyprus is set for a record year for tourism following a 16% increase in international visitors to 1.46m in H1 2017. British tourists accounted for 27.5% of foreign arrivals in June, second to Russia at 31.9%. 53.8% of tourists were aged between 20-44 years old.
• STR reports for the week ending 12 August that US hotel occupancy rose 07.% to 73.6%, ADR increased 1.5% to $128.39 and RevPAR grew by 2.2% to $94.46.
FINANCE & MARKETS:
• Oil up at $51.03
• Sterling down at $1.2896
• Pound up vs Euro at Euro 1.0985
• UK 10yr gilt unchanged at 1.10%
• World markets: UK, Europe & US down yesterday with Asia mostly lower in Friday trading
RETAIL NEWS WITH NICK BUBB:
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis had another decent time in Fashion last week, thanks to the autumnal weather, and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains flags that w/e Aug 13th saw their Fashion Store LFL sales up by 1.0%. Including Homewares and Lifestyle chains, total Store LFL sales were up by 1.6% last week, but overall Online sales were “only” up by 13.6% (against 20% growth a year ago), “as the holiday season appeared to slow sales”.
• Planet ONS Watch: We flagged yesterday that, in the real world, July (the 4 weeks to July 29th) was a reasonable month on the High Street overall, as per the BRC-KPMG Retail Sales survey last week, thanks to the Food Retailers. But life was stronger last month on that bizarre parallel world, the Planet ONS, as per yesterday’s Office of National Statistics Retail Sales figures for July. Our friends at Capital Economics had pencilled in a 0.8% month-on-month rise in seasonally adjusted sales volume in July, so the reported +0.3% outcome looked disappointing (leaving volume only 1.3% up year-on-year). But the non-seasonally adjusted sales value figures showed decent 4.2% growth and that wasn’t just driven by the volatile ONS figures for “Small Businesses” (who are said to have been up 6.4% by value), as “Large Businesses” were still said to have been up by as much as 3.6% by value (which compares with the 1.4% overall growth in the BRC-KPMG Retail Sales figures for last month). The overall ONS growth remained driven by “Non-Store” sales last month (ie Mail Order/Online, where Small Businesses are particularly strong), with +17.6%, compared to +3.0% for Predominantly Food retailers and +2.9% for Predominantly Non-Food retailers.
• Asda PR Watch: The improved Q2 LFL sales performance of Asda (for the 13 weeks to 30 June) was flattered by the move of Easter (the +1.8% LFL turned into +0.7% on an Easter adjusted basis) and the Asda/Wal-Mart PR machine wasn’t trumpeting too loudly about the performance, given that gross margins were hit by the price investment… although Asda CEO Sean Clarke was excited that “275,000 new customers chose to shop at Asda in Q2”. Wal-Mart CEO Doug McMillon said that “Customers are responding to investments in price and store experience by visiting the stores more often and increasing their basket sizes. There’s still much more to be done, but we’re clearly headed in the right direction”.
• Bunnings Watch: The giant Australian Retail/Food conglomerate Wesfarmers said yesterday that Bunnings UK (aka Homebase) racked up £54m of losses in its first full year (to end June), on sales of £1.2bn, after £19m of “transition and restructuring costs” (including the concession exits and the pilot store programme costs). Q4 sales fell 6.8% in sterling terms, despite the Easter timing boost, with significant disruption impacting performance as the Homebase EDLP repositioning continued, with the key Kitchen and bathroom area “in transition”. But the 4 Bunnings Warehouse pilot stores are said to have received strong supplier support and positive customer feedback and they still hope to have 15 to 20 pilot stores by Dec 31st…
• Westfield Watch: The giant Australian Property developer Westfield confirmed yesterday that the £600m extension (including John Lewis) to the Westfield London shopping centre in White City will now open six months ahead of schedule in March 2018. Westfield didn’t provide the usual sales figures for their 2 London centres, but did say that Westfield London and Westfield Stratford were valued at US$ 3.78bn at 30 June, on a 4.45% yield.
• Trade Press: Retail Week magazine has not been published today because of the August holidays, but Drapers magazine has come out and has a front-cover feature article about the fall and rise of the fashion retail entrepreneur and TV “Dragon” Touker Suleyman. The Editor of Draper notes in her column that New Look’s CEO complained last week about the poor standards of UK clothing factories and, as it has been seven months since Channel 4¬’s “Dispatches” programme found that some subcontracted clothing factories in Leicester were paying less than half the national living wage, thunders “Where is the action on Leicester scandal?”. In terms of News stories, Drapers focus on the news that the fashion industry has demanded Government support for ethical UK manufacturing, House of Fraser has cut its digital platform team from 18 people to 10 as it outsources some functions to India, footwear retailers have told Drapers they are optimistic for the autumn following an unexpected uplift in trading this season and Jones Bootmaker has closed a further nine stores (after a business review by new owners Endless). Drapers also have a review of the footwear brand Asics’ high-tech new Regent Street ¬flagship.
• Heston Watch: We were interested to see yesterday that Wal-Mart CEO Doug McMillon said in the Q2 results presentation that “In June, I visited Asda to see the progress being made…While there, I visited stores as well as our Heston grocery-delivery fulfilment centre”. By Heston, of course, he meant the place near Heathrow (rather than the famous chef…) and by fulfilment centre he, of course, meant a so-called “dark store”. The 110,000sqft Heston unit, in an industrial estate, opened in April and was Asda's fourth Grocery home delivery centre in the UK (after Nottingham, Leeds and Enfield, with Dartford to come), but the first to be fully automated. Greg Rodmell, Asda's operations development manager, who oversaw the project, said back in December: "This is the home shopping centre of the future. Rather than walking round a supermarket picking things from shelves, the packers will stand still and the totes (containers) will come to them. This is a pilot not just for Asda but the whole of Walmart, so if it's successful the same model could be introduced in Mexico, China, Canada and many more countries”.
• News Flow Next Week: As we head towards the Bank Holiday weekend, things are quiet next week, but we get the latest Kantar/Nielsen grocery sales data on Tuesday and the Laura Ashley finals on Wednesday, whilst out in the US the GameStop Q2 results will be worth a look on Thursday.