A Day in the Life:

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Find previous emails at http://www.langtoncapital.co.uk/daily-notes/ 

Don’t some ‘final, final reduction’ offers remind you of the boy who cried wolf?

Because I find it a little difficult to take at face value any operator, say a printer ink vendor, who says that an offer is to be extended ‘for one day only’ and who then rolls that over, day after day, for the next fortnight.

I mean how’s that meant to make you feel?

It’s like the investor who buys Anglo American at £13 (for the bound), then tops up at £6, at £4 and at £3, I mean where’s it going to end?

And that’s a semi-serious point because ‘framing’ becomes an issue (see Gladwell, Ariely, Kahneman or any of those other behavioural economics-type brainboxes) and would-be purchasers can never see the ink (or the share, for that matter) as good value at anything other than the price at which it last transacted.

All of which should be taken on board by those offering discounts, vouchers, two-for-ones etc. in the F&B market because where’s the road back? No, seriously. Where is it? On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Sugar tax, previously ruled out, is no longer ruled out. PM Cameron says “obesity crisis” may warrant action. The devil, as always, will be the detail. A sugar tax of around 10% in Mexico is reported to have cut purchases of soft drinks by 6% in its first year of introduction but by as much as 12% towards the end of the year.

• New guidelines on alcohol have cut recommended drinking limits and claim there is no such thing as a safe level of drinking. The new advice says regular drinkers should consume no more than 14 units a week (equal to six pints of beer or seven glasses of wine) and that pregnant women should not drink at all. The changes mark the first full review of alcohol guidance since 1995.

• The price of premium bottled ale continues to plummet in the off-trade, according to December’s Premium Bottled Ale Report. The standard price of premium bottled ale on supermarket shelves was at an all-time low over the Christmas period, increasing the pressure on pubs that struggle to compete with supermarket margins. A higher proportion than ever of beers were on ‘special’ offer.

• Ruby Tuesday reports Q2 numbers, LfL sales +0.8% in only the second consecutive quarter of growth. Margins +175bps.

• Ruby Tuesday, total revenues down by 0.6% to $261.0m due to net reduction of 20 corporate-owned restaurants. The co made a loss of $15.8m or 26c per share versus $9.3m last year. JJ Buettgen, Chairman of the Board, President, and Chief Executive Officer, commented, “We are pleased that our positive performance continued for a second straight quarter with an increase in same-restaurant sales of 0.8%, which outperformed the Knapp Track industry benchmark by 60 basis points. As our top-line continued to stabilize, we also delivered solid year-over-year improvement in restaurant level margins and Adjusted EBITDA during the quarter. We believe we have the right strategy in place to achieve our guidance for the fiscal year and remain focused on our primary goal to deliver profitable and sustainable same-restaurant guest count growth which we believe will lead to more consistent
same-restaurant sales performance.”

• Ruby Tuesday. Says “Going forward, we will continue to lead our brand transformation, executing on our new key priorities which include enhancing the menu offerings, testing our new Garden Bar initiative and remodel program while communicating more effectively with our target customer through digital and social media.”

• Constellation Brands Q3 numbers, EPS $1.42 vs$1.33 last year. Says FY16 outlook improved on back of strong beer business. Co says ‘we are increasing free cash flow guidance for fiscal 2016 to a range of $475 to $525 million. The anticipated increase is being primarily driven by higher earnings for the beer business, timing of capital expenditures and lower income tax payments.’

• Be At One has reported a 37% rise in group net sales to £3.6m in December and LfL sales growth of 16% for the five weeks to 27 December, writes M&C. The 28-strong group said that the week of New Year’s Eve was also strong and confirmed it is on track to achieve its full year LfL target sales growth of over 9% for the fourth year in a row.

• Spirits company Beam Suntory has purchased a 50% stake in South African-based ABV Brands from FIX Wine & Spirits.

• London-based Spanish restaurant chain Camino has reported December like-for-likes up by 19% across its four sites.

• JDW CEO Tim Martin has drawn attention to the high rate of tax paid by the pub industry in the UK and has echoed Luke Johnson’s call for a ‘sensible rebalancing’. The outspoken Wetherspoon chairman has called on consumers to join the debate, adding: ‘The question for politicians is a simple one — do you believe that pubs play a valuable role in the economic and social life of the nation?… Wetherspoon, as an example, pays around £650,000 of taxes of one kind or another per pub per annum- let’s preserve these golden geese, not kill them. The main question for the pub trade itself is how well do you, or does your company, understand these numbers and how well are these punishing tax inequalities highlighted to customers and staff?’

• Constellation Brands has announced plans to build a $1.5bn 10m hectolitre brewery in Mexicali, Mexico and expand its Nava Brewery in the region. The Nava brewery expansion is already underway and will increase production capacity from 25m to 27.5m hectolitres by early 2018, at a cost of c$250m. Rob Sands, president and chief executive officer of Constellation, commented: ‘We are investing in infrastructure that will provide long-term flexibility and capacity needed to support the expected future growth of our high-end Mexican beer portfolio. Our Mexican beer business continues to significantly outperform the U.S. beer market and is exceeding our sales volume and depletion expectations, driven by strong consumer demand. We anticipate these capacity investments will equip us with the production necessary to continue to be a leader in the high-end segment of the U.S. beer market,
which has consistently grown in the mid to high single digit range and is expected to continue to grow at these levels into the foreseeable future.’

• Lidl has partnered with Surrey-based producer Denbies in its first foray into selling English wine in its UK supermarkets. The discounter will launch three Denbies wines under its Broadwood’s Folly label in March — a rosé and white wine selling at £7.99 and a sparkling English wine to be priced at £14.99. The Wine and Spirit Trade Association (WSTA) recently hailed 2015 as a record year for the English wine category and growth is set to accelerate further in 2016. Ben Hulme, the head of beers, wines and spirits at Lidl, said: ‘The English wine industry is growing and is something we as a retailer are keen to support, therefore we are excited to have partnered with the Denbies Wine Estate to stock three delicious English wines; a white, rosé and a sparkling wine.’

• The Guardian has run a story suggesting that Sainsbury’s largest shareholder, the QIA ‘could be prepared to block a £1bn bid for Home Retail Group’. J Sainsbury put an RNS out last night saying that the QIA was not the souce of the story and saying that ‘like any other shareholder, the QIA would consider any such proposal in detail before making a decision on its position.’ The Guardian says ‘it is understood that the QIA’s position, which it has made clear to the retailer, is that it doesn’t want its stake to be diluted but nor does it wish to invest more in the company at the present time.’ This would appear to rule out either support for a rights issue or the placing of stock with third parties (such as the current shareholders of Home Retail.

Leisure Travel:

• The peak booking season has started well, with independent agency groups reporting strong demand for ‘safe’ destinations such as Spain and the US. Agents are also reporting a rise in average selling prices.

• UK bookings at Hoseasons were up 27% in the first five trading days of 2016, three of which surpassed its best-ever sales performance.

• The Aviation Safety Network says last year had one of the fewest number of fatal airliner accidents on record with 16 deadly crashes. ASN President Harro Ranter commented: ‘Since 1997 the average number of airliner accidents has shown a steady and persistent decline, for a great deal thanks to the continuing safety-driven efforts by international aviation organisations such as ICAO, Iata, Flight Safety Foundation and the aviation industry.’

• HVS has said that increased demand for hotel assets could provide exit opportunities for investors in 2016. It says ‘strong demand for hotel acquisitions prompting private equity investors to sell their assets ahead of the usual investment time-frame, continued consolidation amongst the branded hotel chains, and the impact of recent terrorist activities are the key issues facing the European hotel sector into 2016’. It says ‘property in London, Paris, Rome and Amsterdam is expected to be most in demand, but increasingly hotel investors will start to look at secondary and tertiary cities in order to diversify their investments.’

Other Leisure:

• Sportech has announced that its Spot the Ball VAT appeal has been scheduled for either 7 April 2016 or 8 April 2016. It adds that the Group will provide shareholders with any further updates in due course.

• Samsung Electronics has warned that it may miss market expectations, with Q4 operating profit likely to rise 15% year on year to 6.1tn won (£3.5bn). Analysts had expected a figure of 6.6tn won but the group’s sales have been affected by weak demand in China and currency troubles.

Finance & Markets:

• UK chancellor George Osborne has said that the UK faces a “cocktail” of serious threats from a slowing global economy in 2016. He said “2016 is the year of mission critical”.

• UK house prices up by 9.5% in 2015 reports Halifax. Nationwide said they rose by only 4.5%. Halifax has them rising by as much as 1.7% in December alone

• World markets. UK sharply lower yesterday, ditto Europe & US. Far East up in Friday trade. China is to suspend its new stock market circuit-breaker mechanism from today.

• Oil price a little off its lows, trading at around $34.30 per barrel

Retail Roundup from Nick Bubb:

Signet: Wall Street was pleased with yesterday’s Signet Xmas update for the core US business, but Signet UK also did well, with sales up 3.9% LFL in the 8 weeks to Dec 27th: “driven primarily by branded bridal, diamond fashion jewellery and beads: most notably at Ernest Jones”. The more upmarket chain, Ernest Jones, was up 6.9% and the massmarket H Samuel chain was up 1.6%.

Poundland:
The M&S analysts call at 8.45am yesterday morning dragged on until 10am…so we missed the 9.30am Poundland analyst’s conference call, but we caught up with the replay on the company website last night and can report that it also went on for quite a long time, with interest clearly sparked by the 10%/12% share price collapse and the mild profit warning…The big interest was in how much LFL sales were down in the key Q3 period (the 13 weeks to Dec 27th) and, unwisely, Poundland did not give a figure, but, in response to the questions about why total sales were only up 6% for the core Poundland business (ex the luckless 99p Stores acquisition), management insisted that the performance of all the new stores was broadly on budget and that the problem was a LFL sales/footfall issue, which left the impression that LFL sales were not just 2%/3% down (in line with the H1
outcome of -2.8%), despite softer comps, but could have been as much as c4% down. Of course, that stimulated more focus on how far Poundland is exposed to continuing weak High Street footfall and the answer was that, even if that is the case, LFL sales could still be slightly positive in the future if the business increased market share, with better ranging and marketing etc etc. The other new news was that Poundland confirmed that they would trial a multi-price format in the spring, taking 6 of the Family Bargains stores inherited from the 99p Stores deal…

Today’s Press and News:
There is saturation coverage in the papers of the Marks & Spencer trading and CEO news and, although some of the headlines are cruel (the Evening Standard last night ran with “City rejoices at Bolland’s shock exit from M&S”), there are some supportive comments: the veteran City Editor of the Daily Mail thunders that “the speed with which Marc Bolland’s critics moved to dance on his grave with his departure from M&S was unedifying”, arguing that his legacy is “mixed but by no means dire”. Interestingly, the Daily Mail claims separately that the elevation of Steve Rowe to be M&S’s new CEO could trigger the departure of both Laura Wade-Gery and Belinda Earl. After yesterday’s drama (which included the news that Atterley, the fashion website backed by Terry Leahy, has entered administration and that Blue Inc is
putting more than a quarter of its stores into administration) the only Retail news today is a profit warning from Games Workshop. But John Lewis report very strong sales in w/e Jan 2nd.

Trade Press (1): The new-look Retail Week magazine now has a picture on its front page (rather than any news stories), promoting a feature on “The consumer in 2016: From spending to sentiment, analysis of the forces that will shape shopping habits in the new-year”. RW also has features on why Sainsbury’s CFO John Rogers thinks that “2016 could be grocery’s year of recovery” (!) and why “the disappointing Next update casts a winter chill across the sector”. And in his column, the Editor-in-Chief looks back at Christmas and looks ahead to the new-year and thunders that “The winners in 2016 will be those that can master the challenge by understanding their customers better than ever in order to offer experiences and connections that truly stand out”.

Trade Press (2):
The front cover of Drapers magazine features Drapers’ selection of “30 under 30” young Fashion executives, as it is their annual “Next Generation” special. The main News story is that Fashion retailers faced a “perfect storm” at Xmas as result of the mild weather and the unprecedented level of discounting. Drapers also flags that the future of footwear chain Brantano UK looked uncertain this week (after it emerged that restructuring specialist PwC is reviewing the business), Sports Direct has taken an indirect interest of 9% in the US-based Iconix group (which owns and markets brands such as Umbro and Lee Cooper), Arcadia is stepping up the expansion of its Outfit retail park store format, Fashion retailers are bracing themselves for high volumes of returns this month after more shoppers opted to buy Online over Christmas and the BRC
boss Helen Dickinson received an OBE in the New Year Honours List. Drapers also has a list of “Executive Predictions” for the Retail outlook for 2016, “from those in the know” in the industry. And in her column, the Editor looks ahead to 2016 and thunders that “a remaining challenge for all retailers is how to balance the level of discounting against the damage to margins”. 

News Flow Next Week:
This has been a very busy week, one way or another, even though we haven’t had any unscheduled trading announcements, but next week ought to be even busier… The big focus will be on the Food Retailers, with the Morrison’s Xmas update on Tuesday (just before the latest monthly Kantar and Nielsen Grocery market share data), the Sainsbury Q3 on Wednesday and the Tesco Q3/Xmas update on Thursday, whilst Sainsbury’s target, Home Retail, is also due to report on Thursday. However, on top of all that, Tuesday brings the BRC-KPMG Retail Sales for December, the long-awaited Debenhams IMS, the Boohoo update and the Greggs pre-close. Wednesday also brings the Dunelm Q2 update and the Game Digital AGM update. Then, on “Super Thursday”, we also get the ASOS update for Q1 (4 months), the Burberry Q3, the Mothercare Q3, the Moss Bros Xmas update, the ABF
(Primark) Q1, the JD Sports Xmas update and the SuperGroup Xmas update, whilst we may also get the AO.com Q3 that day and the Debenhams AGM is being held that day. Then Friday brings the Bonmarche Xmas update and the Booker Q3. Phew! Nick Bubb – nicholas_bubb@hotmail.com

Thursday Wrap:

This was produced for distribution yesterday afternoon: So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following:

Capacity & the UK on-trade:

• See earlier email for detail. Horizons’ article – here

• We have been suggesting for a while that, in an innovative industry with limited barriers to entry, new entrants were always likely to be an irritant (or something more serious) to established players

• M&B has said ‘we’re the market leader, we’re there to be shot at’ and operators such as Reds and Franco Manca are capable of doubling their outlet numbers over a 3yr view

• And there are few secrets

• If food is the future for pubs, then pubs will introduce food – see the HRZNS numbers.

• Of course this is 1) not a surprise and 2) not new news.

• And even if it were new, it wouldn’t change the necessary competitive response from incumbents, which is to keep your pencil sharp on prices & offer your customers (and more importantly your would-be customers) a good product that they want to consume at a price that they are willing to pay.

Oil prices, impact on the consumer, etc.

• Perhaps the Goldman target of c$20 isn’t so unlikely after all.

• Trading at around $33 (and with the gap between West Texas and Brent at near zero), we’re in new trading territory.

• Prices were at $100 little more than a year ago.

• Lower prices are clearly good for transport stocks – including the holiday operators.

• Many of these companies will have locked in their fuel needs for summer 2016 but, as the spot price carries on falling, any top-ups will be at lower prices and, at some point, the operators will lock in FY17 and beyond.

• The shenanigans (established oil producing countries vs the shale-oil frackers, Iran vs Saudi etc.) may be of only passing interest to the holiday companies’ bean counters, all of whom will be trying to produce packaged holidays at a price that maximises profits

• Global moves may be of even less interest to the average motorist but, with prices now below 100p per litre and surely set to stay there for some time, there must be more money left for the average family at the end of the week

• It’s marginal stuff but each 3p move in the price of a litre of petrol moves the family budget by around £40 p.a.

• To the extent that the price of oil impacts 1) shops’ delivery costs and 2) the cost of gas (and other energy), the move may be a factor of 3-4x that given above.

• It’s worth bearing in mind that this move will work both downwards and, in due course upwards

Random information, hopefully not all of it useless:

• Poundland shares down. Am I missing something or is the business model straight-jacketed by that word ‘pound’? Prefer B&M. Chart below shows Poundland has not been the world’s greatest IPO. Share chart was struck yesterday, shares now down another 23p (down 12%) to trade at c169p.

• M&S at one point the only FTSE100 stock in positive territory. And that after worse than expected Xmas General Merchandise numbers and the jettisoning of the group CEO. A reverse instance of ‘it’s better to journey than arrive’?

o M&S. For the record, online sales were +20% (vs John Lewis +21% but from a higher base) and GM store sales were down LfL by more than 8%.

• The market? Well, it’s not very good, is it?

• Sterling modestly lower against the green-back. Will impact commodity prices but, as they’re all falling, the net-net impact likely to be minimal.

• Commodity prices still low. Higher prices (e.g. cocoa) moving lower.

• Input soft commodity prices still sliding. Corn prices down 9% on the last year (after failed bounce) and soybean prices (down 18% on year) apparently heading to zero. Best advice, buy at one.

• Gold said to be ‘bouncing’. But frankly you’d need a magnifying glass to work this out. Still down 14% over last 12mths