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
June Tracker, confidence, Red’s, Gaucho, Prezzo & other:
A DAY IN THE LIFE:
I’ve decided to take up a hobby that does not require the expenditure of any energy.
Or money for that matter and the first pastime I’ve landed on is collecting dead flies on my office window ledge.
It’s easy, looks after itself and, in this hot weather, it’s self-replenishing even when you have an unlikely attack of conscience (or a visit from a client, advisor or regulator) and clean the thing up.
And, all things considered, looking at ugly little dead flies with their legs sticking in the air does bring home the fact that, even after MIFID II and England’s exit from the World Cup, things could be worse.
On to the news:
JUNE PUB & RESTAURANT TRACKER:
• June Coffer Peach Business Tracker has bar & restaurants’ LfL sales +1.1% in June vs inflation of 2.3%
• Tracker says ‘June heatwave and football boosts Britain's pub takings’. Managed pub sales +2.8%, restaurants down 1.8%
• Stark differences exposed by weather & World Cup but also by overbuilding across the restaurant sector. Wet led pubs, which are often not managed & therefore not captured by these numbers, will have performed better still.
• More of the same expected for July. At least for the first couple of weeks for the football and for most of the month re the weather.
• CGA Peach says ‘Britain’s pubs enjoyed a mini sales boom in June thanks to the hot weather and the start of the World Cup.’ Managed pub sales beat inflation by 0.5%. JD Wetherspoon last week said that it would need 3% to 4% LfL sales growth in order to stand still in terms of profits. That said, June’s numbers are better than some recent months.
• Peach’s Peter Martin says ‘sun and football are usually good news for the pub trade – and with England’s World Cup run and the hot weather continuing into July, we should expect more positive trading.’
• CGA Peach says ‘regionally London did better than the rest of the country in June, with pub sales up 3.7%, and restaurants down just 0.4%, compared to a 2.3% like-for-like decline outside the M25.’
• Across the managed pub market drink sales were ahead 5.1%, with food up only 0.3%, for the month says CGA
• RSM says that the drop in restaurant sales is less bad than it has been. It says ‘there will be a sense of optimism for many restaurants with the year on year fall at less than 2%.’ For pubs, the outlook is better. RSM says ‘with the sun set to shine for the rest of July, it could turn out to be a bumper Summer for pubs and bars as they look to take the lion’s share of consumer spending.’
• LfL sales are running +0.7% for the cumulative year to June.
• Coffer Corporate Leisure says ‘adverse publicity around the casual dining market certainly is not leading to reduced eating out. Similarly, the effect of discounting in restaurants appears to be marginal.’
• Capacity is still going on. Coffer Peach reports ‘total sales growth across the pub and restaurant cohort, which includes the effect of new openings, was 4.2% in June, reflecting continuing if slower brand roll-outs, and running at 3.8% for the 12 months to the end of the month.’
PUB, RESTAURANT & DRINK PRODUCERS:
• Consumer confidence grew two per cent in the second quarter of 2018, boosted by events including the Royal Wedding and the start of the World Cup, according to Deloitte’s Consumer Tracker. The increase was underpinned by a strong labour market and positive wage growth. The tracker, which surveys 3,000 UK consumers, also revealed confidence in disposable income has grown by 13% year-on-year to -11% in Q2 2018, narrowing the spending gap between essentials and discretionary categories for the first time since Q3 2016.
• Red’s True BBQ brand owner Red Smoque reports overdue numbers for March 2017 to Companies’ House. Period is historic but the co reports revenues up 25% at £14.0m with losses of £2.3m up from losses of £608k in the prior year. The group now has negative shareholders’ funds of some £2.6m.
• Red’s says it opened 2 restaurants during the period but says ‘the future ahead is expected to bring further challenges to the sector including uncertainty with consumer spending ahead of Brexit’. Red’s says ‘the directors see the next 12mths as an appropriate time to consolidate Red’s position within the market place’. This 12mth period referred to ended more than 3mths ago.
• It is thought Gaucho does not have sufficient funds to pay HMRC an outstanding tax bill of more than £1m and will be placed into administration unless a buyer can be found. Final bids are expected from a number of prospective suitors. Speaking to Sky News, a spokesperson for Gaucho said: ‘We have been managing our cash tightly as we near completion of the options process. We remain confident that the Gaucho business will emerge from this process on a more stable footing.’
• McDonalds has stopped serving salads in 3,000 restaurants in 14 states after reports of the dishes being connected to an outbreak of intestinal parasites.
• Private equity firm Carlyle has abandoned its attempt to take control of struggling restaurant chain Prezzo after a spat with its existing owner threatened to erupt into legal action, per Sunday Times. Carlyle bought more than a third of Prezzo’s senior debt earlier this year with the aim of forcing through a debt-for-equity swap and installing its own boss at the chain. Existing owner TPG has since bought back the debt.
• Chris Miller, the founder of White Rabbit Fund, has declared ‘the days of the 30-store rollout are dead’ as consumers are increasingly left cold by ‘cookie-cutter’ chains. Speaking to MCA, Miller added that the onus is on operators to create baskets of distinctive and authentic multi-site brands tailored to their locations. On another note, Miller said that demand for property and premiums has softened over the last year, with competition for prime sites falling from c20 operators to as little as two.
• Brakspear has opened its new flagship pub, The Frogmill, in the Cotswolds. The 16tth century inn in Shipton Oliffe, near Andoversfold, Gloucestershire, is now Brakspear’s biggest managed site and comprises a 100-cover restaurant, bar, 28 boutique bedrooms and wedding and conference facilities for up to 150 guests, all housed within extensive grounds.
• According to the MCA’s Menu Tracker, Wetherspoons has the greatest price differential between regions with prices in London 17% more than in the South. However, more than half of operators maintained the same prices throughout the UK.
• Per credit-safe, Q2 company failures grew by 30% yoy to 4,827 with 10 of 12 sectors all experiencing increases in failures. Notable failures have included Poundworld, Maplin and a CVA from Carluccio’s. Chris Robertson, CEO of credit-safe, said the collapses had left suppliers nursing bad debts of £2 billion, up 300% yoy.
• Establissements Geyer Freres, a soft drinks firm, has been acquired by Royal Unibrew. The deal values the company at $94m.
• UK pea growers are facing a 20-30% reduction in harvest due to the heat and lack of rain. The warning of follows lettuce growers’ warning of a shortage due to the unusual weather.
• Per MCA, in the last year only 5% of pub licensees believe food was the most important factor for turnover growth, with more believing improved service, investment and drinks offer as more important factors.
• The administrators of Poundworld have announced that 1,024 jobs will be lost as a further 80 stores close.
HOLIDAYS & LEISURE TRAVEL:
• Travel Weekly has stated that the UK government’s Brexit White Paper has received a guarded welcome from the travel and tourism industry, whereas the reception in Brussels has been lukewarm.
• UK airports group the Airports Operators Association has called for talks on new flying rights in Europe to get underway soon following the government’s Brexit white paper. Karen Dee, the group’s chief executive said: ‘We welcome confirmation in the government’s Brexit white paper of its proposal to seek an aviation agreement that matches as closely as possible today’s traffic rights and aviation regulation arrangements’.
• Facebook has announced it will not remove fake news from its platform as it does not violate its community standards.
FINANCE & MARKETS:
• OECD has warned that living standards across the world could fall if trade wars intensify. Says world could lose out on 14% of what it would otherwise have achieved by 2060.
• China’s monthly trade surplus with the US hit a record $29bn in June.
• President Trump has called the EU a ‘foe’ on trade.
• China grew at an annualised 6.7% in Q2.
• Sterling stronger at $1.329 and €1.1329
• Oil up at $74.29
• UK 10yr gilt yield down 2bps at 1.27%
• World markets: All up Friday but Far East mixed in Monday trade.
o Brexit, serious question. Putting adversarial, read-only positions to one side, is this really where we wanted to be? I mean, really?
o Trump flipflop on trade with post Brexit UK leaves future uncertain. FT says UK ‘cannot rely on the US.’
o Philip Hammond has defended Theresa May's Brexit plan saying the City could still ‘flourish’
o Lloyds of London chief says Brexit plans could speed up the departure of firms from the UK.
o PM May says Donald Trump had advised her to sue the European Union as part of her Brexit strategy
o Reuters reports German businesses have been urging members to prepare for a hard Brexit
o Theresa May has promised extra investment for the aerospace industry
PRIOR DAY TWEETS:
• Later tweets: Holiday booking boom likely to commence shortly. Football ended Weds (or Sat or Sun) but UK good weather continues…
• Trump warns May White Paper will ‘kill’ chances of trade deal w. US post Brexit. Says he would’ve handled Brexit ‘much differently’
• Poundworld & others falling over left and right but The Works manages to get IPO away. Remarkable in a number of ways
• For those throwing off a month long, football inspired hangover, Langton included, we have news for you; apparently Wimbledon starts soon…
• Brexit dream dead say various Brexit supporters incl. Rees Mogg, Farge, Trump etc. Serious question, though; how do we return to reality?
START THE DAY WITH A SONG:
Last Friday’s song was Easy by the Commodores. Today who sang the following:
A tornado flew around my room before you came,
Excuse the mess it made, it usually doesn't rain in
Southern California, much like Arizona
RETAIL NEWS WITH NICK BUBB:
• Saturday Press and News (1): The surprise news on Friday about The Works IPO was the main talking point in the Saturday papers, with the Guardian quoting our view that we had assumed that their IPO dream had died after the recent trauma on the High Street and the collapse of the private equity backed Poundworld. The Business editorial in the Times also noted the irony of the IPO announcement by The Works coming on the same day that the administrators of Poundworld closed another 80 stores…and highlighted that Endless, the private equity backers of The Works, are selling out almost completely. The veteran City Editor of the Daily Mail also noted that the founders of The Works are also selling a lot of shares. The IPO of The Works was the main Business story in the Times, with the headline “Discounter defies retail woes with £100m float” and there were similar headlines in other papers.
• Saturday Press and News (2): The main Business story in the Daily Mail was about John Lewis (“Dawn of a new look John Lewis”), after the launch of a new own-label womenswear range and the unveiling of other initiatives by MD Paula Nickolds, including rooftop cocktail bars and cinemas. And, in a further attempt to highlight High Street winners rather than losers, the FT had an interesting feature article on how “Clever tactics help shops take on the Internet”, listing seven key messages: “Be cheap” (eg B&M), “Be personal” (eg HMV), “Be local” (eg Waterstones), “Be exclusive” (eg JD Sports), “Be a brand” (eg Ted Baker), “Be dominant” (eg Specsavers) and “Be flexible” (eg Next).
• Saturday Press and News (3): There were a few snippets about the news that the latest FD at Halfords will be Loraine Woodhouse from Waitrose. And the Daily Mail had 3 snippets about other people moves: Wilko has recruited Craig McGregor from Top Shop as Retail Director, Peter Franks is stepping down as Primark’s Store Design and Development Director and Mark Felix from John Lewis is joining Money Supermarket. The Daily Mail also highlighted the sale of £52m shares in Ocado by a Bahamas-based trust fund linked to Tim Steiner. The market report in the FT noted revived MBO rumours about Dunelm and the Times and the Telegraph market reports noted the push by UBS on Next on Friday. Finally, the veteran City commentator in the FT, Neil Collins, mocked the City analysts upset with M&S’s shameful stance on quarterly reporting and expressed hope that Archie Norman and Steve Rowe can “prevent M&S becoming the Woolworth of the 2020’s”.
• Sunday Press and News (1): The main story in the Sunday papers was the Sunday Times Business front page scoop that Debenhams is in trouble, after credit insurers tightened terms for its suppliers, and the Sunday Times also had a feature on how credit insurers have been the nail in the coffin for many retailers over the years: “Who pulled the rug from under the High Street?”. And Business Rates continued to be a hot topic, with a feature in the Sunday Telegraph, headlined “Poor deal on Rates has retailers on the rack” and noting the view of Tim Steiner of Ocado that it is unfair to criticise Online retailers over Business Rates. The Sunday Telegraph also noted that Sports Direct has bought the hockey specialist Barrington Sports (which has one store and a website) out of administration.
• Sunday Press and News (2): The Mail on Sunday flagged that Mothercare and AO.com are amongst the companies facing shareholder revolts at their AGM’s this week and the Sunday Times flagged that N Brown faces an investor reaction against Director’s bonuses. And Neil Craven of the Mail on Sunday, now Deputy City Editor, highlighted in his column the Retail revolution likely to be caused by the rapid growth of voice shopping apps and thundered that it is no wonder that Archie Norman uses such startling language as the M&S business being on “a burning platform”.
Today’s Press and News: The Sunday Times story that Debenhams is in a cash crisis after running into trouble with supplier credit insurers is the big focus today, with the Times, the Telegraph and City AM flagging the reassuring company line that the fears are overdone. City AM and the Daily Mail pick up the news that Sports Direct has bought the hockey and cricket specialist Barrington Sports out of administration, whilst the Times and Telegraph have snippets about the latest Springboard footfall figures (High Street footfall was actually up a tad in June, but weak Shopping Centre and Retail Park footfall left the overall total down by 0.9%).
News Flow This Week: With Wimbledon and the World Cup now over, alas, this week is free of distractions, in theory, and there is actually a fair bit going on in the Retail world. The British Land and N Brown AGM’s are tomorrow. The Hotel Chocolat pre-close update is due on Wednesday. Then Thursday brings first dealings in The Works IPO, the Sports Direct finals (and an update on England football shirt sales…), the Mothercare Q1/AGM update, the AO.com Q1 update/AGM and the ONS Retail Sales figures for June.