Langton Capita – 2018-04-26 – Domino’s, Ten, Chipotle, more on Whitbread & other:
Domino’s, Ten, Chipotle, more on Whitbread & other:
A DAY IN THE LIFE:
So, with diesel cars and carrier bags having previously taken a battering, it might be time to spare a thought for manufacturers of plastic straws.
And disposable coffee cups for that matter because it looks as though they’re to be targeted and blamed for the world’s ills in a move that, though beneficial at the micro-level, might kid us into thinking that we’ve done our bit.
But perhaps such is life. Baby steps etc. but still, maybe the humble plastic straw company in Rotheram or Warrington or Gateshead or wherever should learn from big tobacco, the arms companies, the gaming stocks etc. and either find a way of staying below the radar or sell their products overseas. On to the news:
WHITBREAD F.Y. NUMBERS & COSTA DEMERGER – ANALYSTS’ MEETING:
Following the release of its preliminary numbers to end-February earlier this morning, Whitbread hosted a meeting for analysts and our comments are set out below:
Strategy & overview:
• Whitbread pointed out that its strategy remained to grow what it has, to expand internationally & to be efficient
• There have been moves in all three areas. The group has expanded Premier Inn & Costa in the UK, it has made acquisitions in Germany (19 hotels) and China (one of two JV partners) and has added £100m (to make £250m) to its intended cost savings.
• Demerger within two years, two businesses thereafter, some replication of cost ‘but it will give investors a choice of investment’
• The group has ‘strong operating momentum’
• There were few details of where the additional £100m of cost savings would come from. There are a ‘raft of projects’ being undertaken
• Overall Q4 last year was better than Q3 but less good than had been hoped.
Trading & growth – Premier Inn:
• Total revenue is up 5.2%. LfLs +2.2%. Revenue is now >£2bn.
• Accommodation sales were +7.1% (not LfL) and food sales were up a more pedestrian 2.5%. Since the room stock increased by 6.4% over the year, food sales moved backwards, at least on some measures
• Trading was ‘softer in H2, particularly in London’
• Supply growth ‘should moderate in H2 FY19’. The increase will still have to be digested in a market where demand is growing more slowly
• £100m has now been invested in Germany over the last two years. Returns there ‘could approach. The role of OTAs in Germany is yet to be decided upon
• FY19 is distorted at the moment by the shift of Easter (and snow). No figures given. London ‘is soft’.
• Growth will continue as independents are squeezed. The group will effectively ‘split stores’ (Domino’s Pizza parlance) in order to grow.
• The group is ‘enhancing its offer’. This may equate to facility creep. It does open up a space for EasyHotel (or for its own Hubs) etc.
Trading & growth – Costa:
• Whitbread reports LfL sales in corporate stores fell by 0.4%
• UK profit was down, despite a good performance from machines, travel hubs etc.
• The average lease on the UK High Street is 10yrs with a 5yr break. Costa can reposition if it needs to. It believes High street footfall could fall by 3% to 4% per annum for some time.
• Express and new store formats are opening up areas such as hospitals, educational establishments, travel hubs etc.
• Poland was good & French losses have gone.
• Costa UK returns on capital could move towards 40% from the current 46% on the back of IT and other investment
• Re FY19, Whitbread is currently ‘cautious’. It should add 100 to 150 net new stores with another 100 in China. Express should add 1,300 machines.
• The group is trialling its click-and-collect service.
• It does not want to put prices up further in the UK
Balance sheet & other:
• Whitbread says there will be further sale-and-leasebacks to come
• Whitbread has said this will be as ‘fast as is appropriate’. It says 2yrs is reasonable given the operational programmes underway at both businesses
• The group would not comment on any (or no) bid approaches for Costa
• There will be some dis-synergies. Group says the split will cost ‘low tens of millions’. There could be some additional ongoing head office costs (across the two companies) going forward
• Whitbread was not prepared to give details on splitting the pension fund, allocating debt to each company etc.
• It is not envisaged that either company will have a stake in the other
• Whitbread’s numbers have been overshadowed by the confirmation that the company intends to demerge its Costa subsidiary.
• The timing, cost and benefits of such a demerger are as yet unclear.
• The company insists that it will dual track (run its combined businesses and invest in them etc.) whilst at the same time preparing a split.
• That will be possible but challenging. Perhaps think in terms of a marriage breakup.
• A third track may emerge if Costa attracts bid interest. Pocketing a big cheque may be an option. The group would not comment on whether this might happen and what, if it did, the proceeds might be spent on.
• To say that it is all over bar the shouting is misleading. There is a lot of detail to be ironed out and there is some execution risk. Not distracting the operational management is easier to say than do.
• All of the above said, Whitbread has two very good operations in Premier Inn and Costa.
• But they may both be facing headwinds at the moment. And overseas growth is not without risk. And demerging is similarly not an easy task. And the PER is over 16x, there could be short term reductions in profit estimates, cost savings are not nailed on (whilst cost inflation is), the High Street is in a mess etc. etc.
PUB, RESTAURANT & DRINK PRODUCERS:
• Nice quote. Whitbread wakes up and sells the coffee.
• Domino’s Pizza has updated on trading saying that it has had an ‘encouraging start to the year’.
• DOM reports system sales of £311.1m in Q1, up 18.3% in total and up 10.4% organically. Sales in the UK were +10.4%
• DOM says it is benefiting from ‘broadly-based growth’. It now has 1,203 stores worldwide with 11 opened in Q1 (including 9 in the UK). The group completed £21.1m of share buybacks in the quarter.
• DOM CEO David Wild comments ‘the year has started well, with continued good growth in all of our markets. In the UK, customers are responding very positively to our clearer value proposition, with strong scores for value for money and overall satisfaction. We have also made excellent operational progress, with the rapid roll-out of GPS continuing. I am encouraged by our international operations, which are gaining scale as more customers grow to love our great tasting pizzas.’
• DOM reports UK online sales +16.2% year-on-year in Q1. This medium now represents 78.9% of system sales. The group says ‘we have also completed our new supply chain centre in Warrington.’ ROI sales were +5.2% on a constant currency basis.
• In international sales, DOM reports Switzerland ‘achieved constant currency system sales growth of 17.6%, with like-for-like growth of 12.0% driven by successful promotions and strong online momentum.’ In Iceland, constant currency system sales were up 5.5%, with like-for-like growth of 2.0%.’
• The group says ‘in Germany, we completed the acquisition of Hallo Pizza and the integration process has begun.’ The group will report H1 numbers on 7 August.
• Dr Pepper Snapple has reported an increase in Q1 sales. JAB bought the company last year for nearly $19bn.
• Chipotle Mexican Grill in the US announced Q1 numbers showing LfL sales +2.2%, the fifth consecutive quarter of growth
• Chipotle increased Q1 sales by 7.4% to $1.1bn. Profit was $59.4m against $46.1m last year. The group reports ‘we are in the process of forming a path to greater performance in sales, transactions, margins and new restaurants.’ The group continues ‘this path to performance will be grounded in a strategy of executing the fundamentals while introducing consumer-meaningful innovation across the business.’
• Chipotle opened 35 new restaurants (a net 33) during the quarter to take its total store count to 2,441
• Nichols has reported that UK revenue increased in Q1 of 2018, with the group stating that guidance for 2018 trade is currently anticpated to remain in line with market expectations.
• Global wine production fell to its lowest level in 60 years in 2017, data from the International Organisation of Vine and Wine has indicated. Global production was shown to fall 250m hectolitres in 2017, an 8.6% fall from 2016.
• Heineken has invested Brixton Brewery allowing the group to open a new brewery in south London.
• UKHospitality Chief Executive Kate Nicholls has commented about the upcoming local council elections, stating: ‘The key to the future success and health of the UK’s hospitality sector is a positive and proactive working relationship with local authorities. Councils around the UK are in a position to support their local hospitality venues and enhance their neighbourhoods by promoting fun and vibrant community businesses. Hospitality businesses are key to regenerating high streets and supporting valuable jobs, but too often businesses don’t seem to receive the support they deserve’.
• McDonald’s workers at two stores on Watford high street will strike next month as the Bakers, Food and Allied Workers Union (BFAWU) calls for wages for staff of £10 an hour.
• Fuller’s is hosting the inaugural London Brewers’ Alliance Craft Beer Festival on Saturday 23 June at its Griffin Brewery in Chiswick, West London. The festival will be attended by over 40 of London’s best breweries, each of whom will be pouring two lines of beer. John Keeling, Fuller’s Global Ambassador and Chairman of the LBA, said: ‘I am proud to be the Chairman of the LBA. The enthusiasm of the members to work with all London breweries to improve quality, share information, and ultimately help each other make better beer, strikes a chord with me and I am eager to ensure London continues to grow its reputation as a hub and centre of amazing UK craft beer.’
HOLIDAYS & LEISURE TRAVEL:
• Overseas holiday bookings have increased 6% in March compared to last year in the UK, according to research from GfK. GfK senior client insight director David Hope said: ‘There is clear trading down, with 14-night holidays in decline for the month and seven-night holidays in double-digit growth for families’.
• The Australian specialist global investment manager, AMP, has purchased a 49% stake in the Luton airport. The group already owns Leeds Bradford and has a stake in Newcastle airport. Luton airport has seen passenger numbers grow from 9.7 million in 2013 to 15.8 million last year, making it one of the UK’s fastest growing airports.
• Eurostar now offers access to a range of hotels with special rates when booked with train tickets. Properties featured in the collection include Hotel Square Louvois in Paris, the Pulitzer in Amsterdam, the Augustin in Brussels and Dukes Palace Hotel in Bruges.
• Millions of electronic door locks have been found to be vulnerable to a hack, which involves using the equipment’s software to create ‘master keys’ from an activity log. The F-Secure team said it had worked with the locks’ maker over the past year to create a fix.
• Hilton and Pebblebrook Hotel Trust’s pre-released results have led analysts to predict stronger performance for hotels in Q1, following conservative Q4 updates.
• US-based Comcast has bid £22bn for Sky, beating Fox’s £18.5bn bid and raising expectations of a bidding war.
• Harwood Capital and Ten Entertainment Group’s senior management team are together selling up to 9.74 million shares in the company, representing around 15% of TEG’s existing issued share capital. The Harwood Funds intend to sell up to 8.94 million TEG Shares, Nick Basing up to 0.45 million TEG Shares, Alan Hand up to 0.22 million TEG Shares and Graham Blackwell up to 0.13 million TEG Shares.
• Facebook’s quarterly sales jumped by nearly 50% to $11.9bn in the tech giant’s first results since its data privacy scandal. Chief executive Mark Zuckerberg said: ‘Despite facing important challenges, our community and business are off to a strong start in 2018.’ He added that the firm is ‘taking a broader review of our responsibility’.
• Twitter has confirmed its second consecutive quarterly profit of $61m (£44m) as more users joined the platform. In the same period a year earlier, Twitter made a loss of $61.6m. It made its first profit in the fourth-quarter of 2017 after 12 years of losses. First-quarter revenue rose 21% to $664.9m (£476m), beating analysts’ expectations, and ad revenue also soared 21% to $575m (£412m), the company said.
FINANCE & MARKETS:
• The number of cars made in the UK in March fell by 13.3% on last year reports the SMMT. Jaguar and Nissan have announced layoffs.
• The SMMT reports that cars made for the UK market fell by 17.7% with exports down by 11.9%.
• World markets: UK & Europe down. US up and Asia up in Thursday trade.
• Sterling down vs dollar at $1.394
• Sterling up vs Euro at €1.1449
• Oil up at $74.45
• UK 10yr gilt yield up 1bp at 1.54%. US 10yr bond now up through 3%. UK likely to follow over time.
o David Davis has said that the Brexit timetable could slip. It’s not clear if the remainder of the EU agrees with this.
o David Davis has conceded that the UK could not extend the timetable unilaterally.
o David Davis has said that he would view remaining in the Customs’ Union as a personal failure.
o SMMT and others have said that remaining in the Customs’ Union (even if by another name) is critically important
PRIOR DAY LATER TWEETS:
• Later tweets: No surprises but Whitbread announces numbers in line, challenging consumer, Costa to be split off and growth rates to slow
• Whitbread. Curate’s egg of an announcement. Something for everyone but some bits most definitely better than others
• Whitbread. Just what didn’t it talk about? Little mention of restaurants. Nothing on Hub, little on balance sheet etc. Attention is elsewhere
• Whitbread in London. Adding capacity as it bemoans the fact that others are adding capacity.
• US restaurants join the party. MillerPulse says ‘negative traffic is the new norm’ for US restaurants.
• Staycations to be a thing this year says research commissioned by staycation aspirant Travelodge. Prob true but he who pays the piper?
START THE DAY WITH A SONG:
Yesterday’s song was Gotye’s ‘Somebody That I Used To Know’. Today’s song has stood the test of time:
My mother was a tailor,
She sewed my new blue jeans
My father was a gamblin’ man
RETAIL NEWS WITH NICK BUBB:
• N Brown: Back in January, the reliance of the Online shopping business N Brown on Financial Services income went down badly in the City, so it will be interesting to see how the market reacts to today’s finals (for the 52 weeks to March 3rd). The headline of the statement boasts about “profit growth in a challenging retail market”, although overall adjusted PBT of c£82m was only 1% up…However, shareholders may take comfort from CEO Angela Spindler’s comment that “March was a challenging month for fashion retail, however, trade is improving through April, and at this early stage in the new financial year our overall expectations are unchanged”. Analyst’s meeting 9.30am.
• Boohoo.com: We flagged yesterday that the finals from Boohoo delivered a small beat to City forecasts and the subsequent upgrades for the new-year helped the shares rally by as much as 16.5% on the day. The main news otherwise was that management have moved on from their “super-site” plan for a big new warehouse in the North of England and decided instead to move the fast-growing Pretty Little Thing (PLT) operation into its own warehouse in Sheffield, via a partnership with the fulfilment business Clipper Logistics. Given the investment in the current warehouse in Burnley, in due course that will help the group have enough distribution capacity to cope with its planned £3bn of future sales. Inevitably, any new warehouse brings execution risk, but the huge success of PLT is driving the overall growth of the group and next year it is likely to account for at least 35% of total Boohoo
• News Flow This Week: “Down under”, the giant Wesfarmers conglomerate has revealed that LFL sales at Homebase/Bunnings UK slumped by 15.4% in the Jan-March quarter…Today also brings the Carpetright CVA meeting, the French Connection/Toast EGM and (at 11am) the infamous CBI Distributive Trades survey for “April”, plus the Amazon Q1 in the US. Then first thing tomorrow we get the monthly GFK Consumer Confidence index, closely followed by the Travis Perkins (Wickes) Q1 update.
• Shopping Centre AGM Watch: As with the Hammerson AGM on Tuesday, there was very little sign of any shareholder revolt at the Intu Properties AGM yesterday, but there was at least some form of a statement, confirming that the transaction with Hammerson has been officially terminated (to save wasting any more time and money) and insisting that “the Board of intu is entirely confident of intu’s stand-alone commercial future and prospects, as evidenced by the trading update issued on 17 April”.