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
DP Poland, VAT raid, retail sales, Byron, costs & other:
A DAY IN THE LIFE:
I’ve thought for some time that, whatever the task at hand, when you think you’re nearly finished, you’re actually half-way through.
It’s true for cutting the grass, for writing a research report, for organising an office or a house move, etc., etc.
Because there’s always all that palaver involved with strimming the edges, putting the mower away, covering it up, clearing up a bit of the mess and, with research reports, you have to spell check, get rid of orphan paragraphs, check font consistency, put the sources on the tables, read the thing through, read it again, coerce one of your colleagues into reading it and, in the bigger houses, speak to the thought police or whoever it is looking over your shoulder and then finally you can put the thing to bed.
Or of course, you needn’t bother. You can always sit back, say ‘I would cut the grass again before winter, if I were you. It’ll only take ten minutes’ or, if you’re a salesman at a broking house you can say ‘pop us out a note on M&B, will you? It’ll only take a couple of hours, you know all the stuff.’
At which point, for the recipients of such comments, it’s sensible to have some sort of breakdown, throw heavy objects around the room & provide the offending commentator with some sort of incentive not to say the same thing again. At least not until the stitches come out. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• DP Poland is celebrating opening its 50th store in Poland. The group says it now has 50 Domino's Pizza stores in 21 Polish cities, 26 corporately managed, 2 under management contract and 22 sub-franchised. CEO Peter Shaw comments ‘the opening of our 50th store is a major milestone for Domino's Pizza in Poland, a milestone that we are celebrating with promotions across the store estate.’
• DPP says ‘store #50 is located in Olsztyn, a town with a population of some 170,000, 200km north of Warsaw. We are now present in 21 Polish towns and cities, ranging from the capital city Warsaw, with a population of c.1.8m, to towns of 100,000. We have 4 further stores currently under construction.’
• DPP reports ‘our second commissary that came on stream in August is fully operational and is supplying a large proportion of our stores. Our expanded commissary capacity has the potential to supply up to 150 stores.’ CEO Peter Shaw concludes ‘we opened our first store in Warsaw in February 2011 and, through the backing of our investors and the hard work of our team and our sub-franchisees, the establishment of Domino's as a national brand in Poland is moving from vision to reality.’
• Tax raid on the self employed a real concern (again) ahead of Budget.
• Concerns that the Chancellor may reduce the threshold for VAT registration has led the Federation of Small Businesses to warn that this would “create a real drag on output”.
• Currently small businesses do not need to register for VAT until their turnover exceeds £83k per year. To reduce this, some say to £25k, would bring a large number of self-employed cleaners, street vendors, small builders and the like into the VAT net.
• The Office of Tax Simplification has recommended a review of the threshold. If it were sharply reduced, street vendors for example, would have to charge VAT on their products (hot food, for example) but, as their major inputs are labour and food, they would not be able to reclaim very much at all. Such businesses would be faced with the choice of either putting their prices up (they currently have the advantage of effectively pocketing the VAT that larger operators would have to charge) or taking a material hit to their margins.
• Nigel Evans, MP for the Ribble Valley, delivered an open letter signed by 50 Conservative MP’s to the Treasury on Wednesday, calling on the Chancellor to cut beer duty and the scrap RPI inflationary increases in beer duty policy.
• Restaurant Group yesterday reported that CEO Andy McCue and connected persons to chairman Debbie Hewitt had purchased 20,000 shares and 17,996 shares in the company respectively. The purchases were made at around 278p per share.
• Bridgepoint has reached an agreement with Restaurant Brands International to become the UK master franchisee of Burger King. The Pret A Manger backer will acquire 500 sites from the deal and in addition will acquire Caspian UK Group, a franchisee with 74 sites. The management team will be headed by Martin Robinson as chairman, former chairman of Centre Parcs and Wagamama.
• Matchpint reports that the first weekend of Autumn International Rugby saw sales up 4% yoy in pubs. Rob Stewart, Head of Operations at Matchpint, said ‘rugby fans spend 17% more than your average punter on a visit to the pub.With England & Scotland facing their biggest tests of the autumn, and Premier League football, this weekend we expect to see even more fans out enjoying games in the pub and keeping the beer flowing.’
• Will Stratton-Morris has been appointed as new CEO of Caffe Nero’s c660-strong UK business. Stratton-Morris’ previous roles were at SSE Retail and IHG UK & Ireland. The MCA reports that Caffe Nero aims to open 30-40 sites in the UK and 80-100 stores in total this financial year, with around 40 sites being opened since June.
• UK retail sales fell by 0.3% in volume terms in October compared with the same month last year reports the ONS. The ONS reports ‘we are continuing to see an underlying picture of steady growth in retail sales, although this October suffered in comparison with a very strong October in 2016.’ It adds ‘unseasonably warm weather and Storms Brian and Ophelia coinciding with half-term saw some shoppers temporarily stay away from the High Street, impacting footfall and sales of non-food items - particularly new season clothing lines. We expect stronger retail sales in November, as many retailers have waited until after Halloween to kick start their Black Friday and Christmas campaigns.’
• Reporting as a part of the Walmart group of companies, ASDA has said it ‘delivered positive comp sales again this quarter.’ Walmart CFO Brett Biggs said ‘turning to the U.K, Net sales increased 3.6 percent, and comp sales increased 1.1 percent.’ ASDA CEO Sean Clarke comments ‘it’s great to see that we have now delivered our 2nd consecutive quarter of positive LFL growth, and the fifth consecutive quarter of continued sales improvement. Right now, we are focussed on delivering value for our customers across all of our ranges this Christmas and ensuring everyone gets a great experience, both instore or online.’ Mr Clarke concludes ‘the market environment will continue to be challenging into next year but we’re well placed with clear plans and a renewed level of confidence.’
• Burgers. Not a panacea. Operators need to be authentic, vibrant, non-cynical, genuine & offer value for money.
• Byron could be sold before the year end, as KPMG gives putative bidders a fortnight to make an offer for the c70-strong chain, the Times has reported. The group is believed to be producing an EBITDA of around £3m, which would value the business at a quarter of the £100m Hutton Collins paid for the group in October 2013.
• The street food trader, Black Bear Burger, hopes to use its permanent residency at Boxpark Shoreditch as a platform for further growth, the MCA has reported.
• Speakers at the Restaurant Finance & Development Conference in Las Vegas have stated that LfL store sales and traffic declines have not stopped investors bidding up prices for companies well beyond historical norms in US. Chad Spaulding, managing director with industry investor Capital Spring said: ‘I haven’t seen an environment like this in many years. There’s a tremendous amount of institutional and private cash flow chasing restaurant assets’
• UK lamb is now cheaper than New Zealand lamb for the first time in six years.
• A survey from the British Hospitality Association shows that the foodservice management industry expects to continue to grow in the short and medium term despite concerns over potential immigration restrictions arising from Brexit. The report, Leading Through Unprecedented Change and Uncertainty: Food Service Management Market Report 2017, also forecasts that this growth will be driven by demographic trends, the ageing population, and rising student numbers.
• Meatailer is shutting its CHICKENliquor restaurant in Brixton and will reopen it later this month under the MEATliquor brand following ‘a nip and tuck’ according to co-founder Scott Collins. Collins added: ‘We are constantly updating our venues and offering to make sure they never get tired, and now it’s CHICKENliquor’s turn. The venue will be given a loving face lift. Once reopened, it will be a fully functioning MEATliquor.’
• Vivi, a restaurant concept by premium hospitality group rhubarb, is scheduled to open in the Centre Point revival next April. The restaurant will be 16,000 sq ft and will be able to fit 290 covers.
• Research by Deloitte claims that consumer spending is forecast to rise by nearly 2% this Christmas with UK customers set to spend £544 on average.
HOLIDAYS & LEISURE TRAVEL:
• The latest round of strikes in France will cause disruption for passengers travelling through French airspace and travelling to or from the country. The strikes are expected to run from 6pm Thursday until 5am Friday and are supported by the USAC-CGT and CGT unions.
• InterContinental Hotels Group has partnered with Opentable and Grubhub in a move that will give IHG Rewards Club members points when they book a table or order food through IHG channels.
• For the week 5-11 November, US hotels reported occupancy up 4.9% to 68.5%, ADR up 4.8% to $128.92 and RevPAR up 10% to $88.26.
• Hollywood Bowl has invested £500,000 into the refurbishment of its site in Tunbridge Wells. CEO Steve Burns said ‘The transformation of this Bowlplex into a Hollywood Bowl is our tenth major investment this year, and demonstrates our commitment to creating new generation entertainment centres.’
• Sky Bet has extended its sponsorship of the English Football League until the summer of 2024.
• Macau Legend Development has sold its casino-hotel, Landmark Macau, for $589m, according to documents filed with the Hong Kong Stock Exchange.
• Viacom has reported that it expects high single-digit declines in revenue from its US cable TV stations & online distributors H1 2018. The group’s shares fell by 8%.
• Vivendi (owner of the Moet Hennessy drinks brands) has missed estimates but has ruled out a hostile bid for games maker Ubisoft for the next six months. Vivendi kept its 2017 outlook for revenue to grow by more than 5%.
FINANCE & MARKETS:
• Bank Governor Mark Carney has suggested that two more rate hikes may be needed in the next few years. Not much detail there.
• Oil down 80c or so at $61.21
• Sterling up vs dollar at $1.3229
• Pound stronger vs Euro at €1.12
• UK 10yr gilt yield up 1bp at 1.30%
• World markets: UK up yesterday with Europe & US also higher. Far East higher in Friday trade
• Brexit etc.
o European regulators have warned again that UK banks will need to ‘have substance locally’ if they are to serve European clients.
o Major border disruption is a concern given that the number of lorries crossing over or under the Channel has risen 5x over the last 3 decades or so. Some border staff might be diverted from "crucial security functions".
o PM still looking for a "unique deal" post Brexit. EU said to be considering a Canada style offer
o Canada deal would exclude services. We would retain our visibles deficit with the EU but would find it tough to generate a surplus in invisibles as we do now
o Liberal leader Vince Cable warns that ‘the exodus of firms would accelerate’ if services companies could not have a frictionless deal with the EU
o Lloyd Blankfein of Goldman Sachs has suggested that a second referendum may be in order. He says ‘why not make sure consensus still there’ when it comes to leaving.
o Russian twitter bots are said to have sent 45k tweets in the days running up to the Brexit vote presumably in an attempt to stir up discord and ultimately break up the EU & weaken the West
PRIOR DAY TWEETS:
• Later tweets: Young’s H1. Managed LfLs +4.6%. Recent trading – last 6wks +4.9%. Trading ‘unpredictable’ with some Brexit staffing concerns
• Could Coke make booze? Some speculation state-side. Why not? Mars makes pet food etc.
• NPD says burgers an area of growth. Langton, GBK, Byron, Handmade Burger etc. not so sure
• Premier Foods’ good H1 meand it could shed its image as a zombie company says Telegraph. Most indicators pointing in right direction
• Game Digital goes experiential. D&M opens 22nd bar. United Chip opens in Clerkenwell. See email.
• Dart Group will ‘materially exceed expectations’ but cautions re ‘emergence of certain cost pressures’
• EasyHotel announces two new franchise hotels in The Netherlands. The developments will add 162 rooms. Maybe more to come
• UK retail sales down 0.3% in Oct per ONS. First fall in 4.5yrs. Up against strong comps but real wages to remain negative for some time
• UK av. wages edge up. Sept number strong. Good or bad? Real wage growth would be good but, without prod. gains, will lead to inflation
START THE DAY WITH A SONG:
Yesterday’s song was Going Underground by The Jam. Today who sang:
I see the stars come out tonight,
I see the bright and hollow sky,
Over the city's ripped-back sky
RETAIL NEWS WITH NICK BUBB:
• Asda Watch: On the back of the Wal-Mart Q3 yesterday lunchtime, Asda’s CEO Sean Clarke boasted that “we have now delivered our 2nd consecutive quarter of positive LFL sales growth, and the fifth consecutive quarter of continued sales improvement”, but, truth be told, they didn’t have much to beat, to notch up +1.1% LFL, helped by food price inflation. A year ago they were trumpeting that the -5.8% LFL in Q3 (excluding petrol) showed an improvement in the supermarket’s performance on the previous quarter, which was -7.5% LFL…As Brett Biggs, Wal-Mart’s CFO said in yesterday’s press release, “While the business has improved, we still have more work to do”. The Wal-Mart analyst’s presentation revealed that Q3 customer traffic was 1.4% down LFL at Asda and the gross margin rate was down, so that operating income still declined in Q3.
• Planet ONS Watch: We flagged yesterday that “in the real world”, October (the 4 weeks to Oct 28th) was a poor month on the High Street for Non-Food, as per the recent BRC-KPMG Retail Sales survey, but life was not so bad on that strange parallel world, the Planet ONS, as revealed by the Office of National Statistics Retail Sales figures for October…City economists were pleased that month-on-month seasonally adjusted volume was up by 0.3%, even though year-on-year it was down by 0.3%. Foolishly, the ONS highlighted that “sales volume growth month-on-month in October was particularly strong in the second-hand goods sector, which includes auction houses and antique dealers” (which is buried in the anonymous “Other Non-Food” category), but this did not show through in the year-on-year, non-seasonally adjusted, sales value figures. The news here was mixed, with overall October sales up by 2.6% (after +4.7% in September), which split +2.0% for Large Businesses (the sort measured by the BRC-KPMG survey…) and +5.0% for Small Businesses…
• BDO High Street Sales Tracker: Moving on to November trading…we flagged on Wednesday that, after a poor October, John Lewis has continued to have a very tough November, with LFL sales about 4% down last week. And today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains last week flags that w/e Nov 12th saw Fashion Store LFL sales slump by 6.5% (versus quite a tough comp of +5.8% LFL a year ago), despite colder weather and more discounting activity. Including Homewares and Lifestyle chains, total Store LFL sales were down by 4.3% last week (versus +4.3% a year ago). And overall Online sales were quite muted, at +10.7% (versus +18.3% a year ago).
• Trade Press: The front cover of today’s Retail Week magazine flags up a feature about M&S entitled “New day or false dawn?” or “How Archie Norman and Steve Rowe aim to ring in a new era at Marks & Spencer”. RW also have an exclusive extract from Andrew Jennings’ new book about Retailing (“Staying Relevant”) and an article about “How great retail design can play its part in Making Experience Meaningful”.
• News Flow Next Week: Next week is dominated by that annual discounting bonanza imported from the US called “Black Friday”…and on Monday evening the MD of Amazon UK, Doug Gurr, is holding a briefing for analysts on his plans. But there is plenty of other stuff going on, with Monday also bringing the Bonmarche interims. On Tuesday we get the Kingfisher Q3 update, the AO.com interims and the Signet Q3 (in the US). Wednesday brings the Quiz interims and the Budget and then on Thursday we get the Majestic Wine interims, the Mothercare interims and the Hotel Chocolat AGM.