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
Easter pub/restaurant sales, Starbucks, Apps & other:
A DAY IN THE LIFE:
It’s the little things, isn’t it?
I mean I forgot to put a teabag in the pot this morning, only adding it some minutes later as an afterthought.
I stirred the pot, of course (old fork, curry remnants, nothing serious) but that didn’t do much good and I’ve been drinking brown water ever since and that isn’t good for one’s sense of well-being, not at all.
Bit busy this morning so let’s move on to the news:
COFFER PEACH TRACKER – EASTER SPECIAL:
• Easter Tracker sees poor LfL pub sales, a very bad restaurant performance and a ‘significant drop in consumer confidence’.
• Tracker reports ‘late Easter does no favours for Britain’s eating-out market’ with ‘• Easter weekend LfL sales down 3.8% on 2016’
• Tracker says ‘restaurant chains take biggest hit’. Pubs down 1% but restaurants down 9.1% LfL over the long weekend
• Later Easter usually helped by better weather but Tracker says ‘it was an Easter break to forget for Britain’s managed pub and restaurant groups with collective like-for-like sales down 3.8% on 2016’s four-day holiday weekend’
• CGA Peach’s Peter Martin comments ‘it was not a good time for eating out, as within the pub figures food-led businesses were down more than their drink-led competitors, which actually saw a slight increase in trade.’ Mr Martin continues by saying ‘the weather will have played its part in the comparatively poor performance in restaurants, but Easter falling late this year in April, rather than in March last year, will have been a factor too.’
• Tracker says poor Easter will lead the trade to ponder whether there is a wider tightening in consumer spending.
• No excuses. Late Easter & better weather should have helped pubs. But restaurants may suffer if consumers switch preferences.
• Tracker comments ‘Easter last year was wet and this year the weather was much better, so that would have favoured pubs over restaurants - the reverse was true last year. A late Easter also meant that some school holidays fell before the bank holiday weekend, meaning some children will have gone back to school on Tuesday. This may have curtailed the urge for families to go out.’
• Tracker says ‘operators will hope that overall April sales will hold up, even with a disappointing Easter, and that trading will even itself up over the two month period. We will know in a few weeks.’
• CGA comments ‘there will be nervousness about consumer sentiment with cost pressures hitting businesses and customers alike. We expect overall trading to remain fairly flat for the foreseeable future.’
• Clearly flat or down LfL sales will hit margins hard as inflation is higher and rising.
• Coffer Peach warns ‘Easter statistics are prone to variations around weather and time of year’. It says, however, that ‘these figures indicate that the UK consumer is starting to take a more cautious approach towards eating and drinking away from the home. The pub sector is now seeing the benefit of being leaner than it has been for some years which contrasts with the restaurant sector.’
• RSM suggests poor Easter points to a ‘tougher consumer environment for the eating and drinking out sector.’ It says ‘since June we’ve seen a significant drop in consumer confidence and this year’s Easter spending will have been impacted by the squeeze on household budgets due to rising inflation and relatively static wages.’
APPS & LICENSED HOSPITALITY:
• Still a big thing, nothing’s changed on that front since yesterday.
• Starbucks Q2 Thursday, mobile numbers up to 8% of sales in US (was 7% Q1)
• New Apps being launched left and right. We learned of three yesterday alone & two on Wednesday.
• Market participant numbers likely to expand, expand, decline sharply (mostly by predatory action rather than failure), contract to a hard-core of perhaps three, more likely two aggregators & then grow materially (in terms of revenue rather than the number of companies) from there
PUB, RESTAURANT & DRINK PRODUCERS:
• Starbucks reports Q2 numbers, says LfL sales +3% globally, +3% in US and +7% in China. Total revenue +6% to $5.3bn.
• Starbucks Q2. Says margin hits a record 17.7% with EPS +15% to 45c. Mobile order & pay now 8% of revenues.
• Starbucks points out it has 26,161 stores in 75 countries globally. It opened a net 427 new stores in Q2. Kevin Johnson, new CEO, reports ‘with our U.S. business accelerating throughout the quarter and strong performance in China, we are poised to deliver strong revenue growth in the second half and into the future.’ He continues ‘our success in opening over 2,000 stores around the world annually, delivering record AUV and profit, despite a very difficult period for many brick-and-mortar retailers is a testament to the 330,000 partners who proudly wear the green apron.’
• Starbucks’ comp sales +4% in March, sees an acceleration in sales. Co says ‘increased capacity combined with accelerating momentum and the beverage, food and technology innovation we will be introducing in the months ahead gives us great confidence in our ability to deliver strong comp sales and revenue growth in the back half of fiscal 2017.’
• Just Eat has this morning announced that ‘Dr John Hughes, Executive Chairman, is taking a leave of absence from the Company in order to undergo treatment for a medical condition.’ The company reports ‘during his period of absence, Paul Harrison, Chief Financial Officer, will undertake John's executive duties as Interim Chief Executive Officer. Andrew Griffith, currently Senior Independent Director, will act as Non-executive Chairman for this interim period and, with the Board, will complete the search for a permanent Chief Executive Officer.’
• Bubble& has commented on its decision to raise money on Crowdcube saying ‘crowdfunding for us presents an exceptional opportunity to involve ‘the people’. We’ve been face-to-face with so many people since Bubble&’s conception who are incredibly passionate about our business. We’ve met them on our market stalls, at events, in our community and across social media. We imagined bringing this crowd together - customers, friends, suppliers, family, community members and investors unknown - and inviting them to be a part of Bubble&’s future; to have a tangible link to our business and be able to feel a rush of inspiration knowing they were part of making the dream a reality and that they formed part of the story.’
• New pound coin could be a blip on move to a cashless society comment some observers.
• Tesco is to cut the number of lines that it sells at a number of its Express stores as a part of its planned ‘re-set’
o Adnams’ underlying trading is encouraging with ‘continuing strong growth’ in beer and spirits sales led by Adnams Ghost Ship and Adnams Copper House Gin. The sale of some of the group’s smaller units has acted as a drag on profitability, however, while the weak pound and the impact of selling the UK distribution rights for Lagunitas beers further hampered operating results. The group says these impacts ‘have continued into 2017’.
o Demand for craft beer is on the rise in China, which is poised to become the biggest consumer of alcohol in value terms in the world this year, according to research by Drink Sector. The report notes that ‘small and medium-sized craft breweries are well suited to target their brands in China at a niche segment of affluent and middle-class consumers who desire to trade up through purchases of premium foreign products.’
o Dr. Pepper Snapple Group Inc. first quarter net income fell by 2.8% to $177m year-on-year, while adjusted earnings were $1.01 per share.
o Everards CEO Steve Gould says there is scope for 40 acquisitions over the next four years if the sale of the Leicester brewer and pub operator’s current brewery goes ahead as expected. Everards will continue to target sites in its core location, within a 70 miles radius of its headquarters on the outskirts of Leicester, including parts of Buckinghamshire, Derbyshire and Shropshire, writes MCA.
o Year-on-year consumer spending in restaurants and in quick service restaurants (QSR) fell by 3% and 5% respectively in the first quarter of this year, per figures from the quarterly Cardlytics Spending Index. The index, which is based on the spending data of more than three million active accounts of UK bank consumers tracked on a weekly basis, also found that spending on restaurants and quick service restaurants increased by 8.1% and 17.7% in the first quarter of the year compared to the same period last year. Both categories have also continued to increase their foothold in the market – share of spend for QSR is up by 0.2% and for restaurants by 0.4%.
o Pret A Manger sales grew by 15% to £776.2m in the year to 29 December and like-for-likes rose by 4.8%, while EBITDA increased 11% to £93.2m. The coffee chain opened 50 new shops to take its total estate to 444 and intends to keep growing its estate by c10% each year as it looks beyond London towards cities and large towns in which it is underrepresented.
o Paypal Q1 profits have climbed 17% to $2.98bn, the rise has been attributed to the largest quarterly user increase in three years, with the addition of six million accounts.
• Mobile ordering and payment initiatives have shown growth as the Seattle-based Starbucks posts Q2 2017 earnings. Mobile payment reached 29%, with sales on the mobile order & pay smartphone app attributing 8%, of total sales in the US, both these figures increased on Q1 performances with 27% and 7% of sales respectively. CEO Howard Schultz commented that the mobile order & pay feature, ‘is obviously going to be a significant part of the morning business.’
• Pret A Manger is making extra efforts to recruit British staff ahead of an anticipated fall in EU immigration after a survey found that only one in 50 people applying to work at the chain is from the UK. Clive Schlee, CEO, said the chain was focusing on expansion outside central London, adding: ‘Outside the Circle line, Pret is incredibly unrepresented,” he said, referring to the London Underground line that roughly marks the edge of the city centre. “In [Underground] Zone 2 and beyond, Pret has got a huge amount of opportunity in Britain. We’ve scarcely touched the surface.’
• The UK is considering a two-year visa for young Europeans after Brexit, which will be aimed at low-skilled sectors to address potential staffing shortages. About a quarter of Pret’s new stores would be in London, a little over a quarter in the rest of Britain and the rest abroad, according to Schlee. Pret’s like-for-like sales rose 5% as it branched out into products such as coconut porridge and stores selling only vegetarian food. Total sales rose 15% to £776m as 50 new stores were opened, taking the total to 444. Earnings before interest, tax, depreciation and amortisation rose 11% to £93m.
• Domino’s Pizza Inc.’s US same-store sales grew by 10.2% in the first quarter and the chain has now reported double-digit same-store sales growth in nine of the past 11 quarters. The strength of the results has surprised investors, who had been expecting a slowdown. Domino’s stock rose 3% and is nearing an all-time high of $192.01. ‘Franchisees and operators worldwide continued stepping up to the challenge of sustained success,’ Domino’s CEO Patrick Doyle said during an earnings call Thursday. ‘Our performance is the result of many years reshaping our brand by improving the food, reinvesting in our digital capabilities and improving our stores.’
• Revenue increased 15.8% in the first quarter, to $624.2m, from $539.2m in the same period a year ago. Net income surged 37.4%, to $62.5m, or $1.26 per share, from $45.5m, or 89 cents per share the previous year.
HOLIDAYS, LEISURE TRAVEL & HOTEL
o UK residents traveling abroad has continued to increase despite a slight fall in reported in February. Between December to February, visits abroad increased 4%, with visitor spending increasing 7%. Foreign visitors to the UK remained at 2.3 million in February 2017, the same as February 2016, however, visitor spending rose 6% to £1.2bn.
o New research has found that there is ‘room for improvement’ in UK visitor attractions with the biggest barriers to visiting being cost (36%), lack of information (27%) and the quality of food and drink (18%). The study suggests that vendors should look at bundle deals and provide top quality facilities that help to create a stress-free visit, to appeal to more customers.
o Passenger traffic from Dubai to North America dropped despite Dubai International being the world’s leading airport for international passenger numbers. Traffic to North America was down 4.3% compared to 2016 but the airport’s overall traffic rose 7.4% to 22.4m passengers in Q1.
• IHG is to put some 770k rooms on TripAdvisor’s instant booking marketplace
• David Dao, the 69 year old passenger from the viral United Airlines video, has won a undisclosed financial settlement from the airline.
FINANCE & MARKETS:
• ECB holds its interest rates at zero, maintains slack monetary stance
• Oil up c40c at $52.05
• Sterling hits 7mth high vs US$. Currently trading around $1.2911
• Sterling up vs Euro at 1.1993
• UK 10yr gilt yield down 3bps at 1.06%
• World markets: UK down yesterday with Europe also weaker. US market up but Asia down in Friday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: Apps in hospitality. They weren’t a thing & now they are. Will get bigger. JDW taken plunge, others to follow see www.langtoncapital.co.uk
• Apps & restaurants. Biggest thing since arrival of fast food says NRN in US. Exaggeration? Perhaps but directionally correct. See e/m
• Apps & pubs. Ordering from table. Grab-and-go. Bill paying. You name it, market will grow. See US examples www.langtoncapital.co.uk
• Food inflation 6% says CGA / Prestige. Could help some to generate helpful inflation but, for most, this is a major pain
• Big ticket sensing a slowdown? Travis Perkins says macro picture is ‘inconsistent’. AKA worrying? Cars good but most for export
• US Q1 season positive. EPS +11.8% Q1 on same quarter last year. Market still soggy. Perhaps better to journey than arrive
• Apps in Leisure. We kid ourselves we know a thing or two. Leisure operators please get in touch if you’d like to chat through options etc.
RETAIL NEWS WITH NICK BUBB:
• GFK Consumer Confidence Watch: The widely-followed and long-running monthly GFK Consumer Confidence survey came out overnight and the headline is “UK Consumer Confidence drops one point to -7. Is pre-Brexit economic turbulence brewing?”. Four of the five measures decreased, leaving only the Major Purchase Index showing an increase (although consumers probably only think now is a good time to buy because they think prices are going up…). However, Joe Staton, Head of Market Dynamics at GfK, says: “In the face of widespread reports of rampant inflation, stagnating wages and anxiety over our borrowing binge, UK consumer confidence is surprisingly stable”. Interviewing was carried out during the April 1st-12th period, so it is not a completely up-to-date view of the consumer mood since the snap Election was called on April 18th.
• Bunnings LFL Sales Watch: In the quarterly update from the Aussie parent Wesfarmers yesterday it was said that Homebase/Bunnings UK total sales for the March quarter were £245m and that on a like-for-like trading basis across the quarter, “customer participation, as measured by transactions, increased by 2.2%”. The Bunnings UK MD PJ Davis said “trading during the quarter was negatively affected by the continued repositioning of the kitchen and bathroom offer, while the performance across other core home improvement and garden products was pleasing”. In other words, LFL sales were well down in the quarter because of the decline in “big ticket trade”, despite helpful weather for seasonal ranges pre-Easter. The focus on rising transactions is silly, given the shift to lower prices, but, needless to say, a few journalists lapped the statement up and reported that LFL sales actually rose in the quarter…
• Pendragon Used Car Watch: We flagged yesterday that the leading motor dealer Pendragon (aka Evans Halshaw and Stratstone) had highlighted remarkable 16% growth in used car revenues in its trading update for the first 4 months of the year. In fact, it was used car gross profits that rose by c16% and used car revenues rose by an even more remarkable 23%, helped by growing Online business. The company said “Our used car business model provides the customer with choice, value, customer service and convenience. We are progressing with our additional investment in new stores to provide further convenience to our expanding customer base”.
• Sale Watch: John Lewis has been price matching “a competitor’s promotion” over the last couple of days, which we assume to be the House of Fraser “Up to 30% off Brand Event”. The timing of that is the same as last year, ahead of the Bank Holiday, but we are not sure whether this week’s Debenhams “New Season Spectacular” Sale mirrors last year…
• Trade Press: The front page of Retail Week magazine flags up a feature on BHS: One Year On and the consequences of the chain’s collapse. RW also have a column by Boohoo’s Chairman, Peter Williams, on why it doesn’t make sense for etailers to open stores. In terms of News stories, RW focus on the announcement that Marks & Spencer is to open 36 new stores over the next six months as it reshapes its estate and builds its Food business, the former Woolworths director Tony Page hopes to revive the famous retail name and relaunch it on the High Street almost 10 years after its collapse, Debenhams posted a drop in pre-tax profits as new boss Sergio Bucher unveiled a digitally focused strategy and Top Shop trading director James Mooney is leaving the business, dealing a fresh blow to Philip Green’s struggling Arcadia empire.
• News Flow Next Week: After the Bank Holiday, things get quite busy next week. In the US the Apple Q2 is out on Tuesday evening and then back in the UK the shopping centre giant Intu Properties has a trading update on Wednesday and mighty Next issues its Q1 update on Thursday. Otherwise, it’s the Food Retailers which are in focus, with the latest Kantar/Nielsen grocery market share figures coming out on Wednesday, just after the Sainsbury finals, whilst the Morrisons Q1 is on Thursday.