Langton Capital – 2016-01-14 – Restaurant Group, Wm Hill, Goals, Tesco, B&M & other:
A Day in the Life:
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Bit busy with results and meetings today, comment tomorrow. On to the news:
Restaurant Group – FY update:
The Restaurant Group has this morning updated on trading for the 52wks to 27 December and our comments are set out below:
• Today’s numbers:
• Group says total turnover for the 52weeks to 27 Dec was +7.9% and like-for-like sales increased by 1.5%.
• This is down from the +2.00% for week 45 and suggests that the last 7wks, which coincided with the release of Star Wars, must have been down by perhaps by as much as double digits
• We would caution at this stage about reading too much into that comment as 1) weeks in December are not equivalent to weeks in February and 2) there may be some rounding influence as RTN does not update to the nearest basis point.
• RTN confirms that the Group’s full year results will be announced on 9th March. It says ‘these are expected to show material growth in both earnings and cash flow versus the prior year, with profits for the full year towards the middle of the current range of market expectations.’
• Trading caution:
• However, that group does go on to say ‘it has become apparent from much of the recent data from the retail sector and the wider economy that the trading environment for many consumer facing businesses has been tougher in recent months than it was earlier in 2015.’
• The group adds ‘this has caused like-for-like sales growth to trend lower and accordingly we are more cautious than previously on the outlook for 2016.’
• RTN adds ‘a possible referendum on the UK’s continued membership of the European Union, National Living Wage implementation and global uncertainty are all additional issues that we are conscious of going into the new year.’
• RTN concludes that it ‘has an excellent portfolio of businesses with strong market positions.’
• It says ‘the Company’s move towards a more balanced portfolio is paying dividends and we have a proven track record established over many years of delivering strong financial returns and excellent cash flows, even through more difficult trading periods.’
• Overall, the group concludes ‘therefore, notwithstanding some of the uncertainties described above, we are confident that TRG is well positioned to deliver further profitable progress in 2016 and subsequent years.’
• Balance sheet & other:
• RTN says that ‘during 2015 we opened a total of 44 new restaurants’ and it adds ‘we are very pleased with how these are trading and they are set to deliver strong returns.’
• The group adds ‘we have good visibility on the composition of the opening programme and we anticipate opening a broadly similar number of new restaurants during 2016.’
Langton Comment: Restaurant Group has cautioned that trading is tougher and that the outlook for 2016 may have to be reassessed in that light.
That is what it is though we would add that, because RTN updates in round-quarter-percentage-points, the drop from 2.00% at w45 to 1.50% at w52 may be influenced by rounding.
However, the words used do seem to suggest that the downturn has been real – and that despite Star Wars and the news that, whilst high street footfall may have been under pressure, retail parks were busy over the Xmas period.
Hence, as was the case with Gregg’s earlier in the week, both RTN’s earnings – and perhaps more importantly its rating – may now come under the microscope.
With that in mind, we would expect the shares to surrender some of their recent gains.
We have for some time preferred others in the sector. Asset backing and higher yields can be had elsewhere where, incidentally, we are hearing that trading over the November and December periods has actually been rather good.
Pub, Restaurant & Drinks Producer News:
• Yum Brands same store sales for its China business, which it intends to spin off by the end of this year, rose 1% in December thanks mainly to 5% growth at KFC. In contrast, Pizza Hut same store sales declined 11%. The company said in October that trading in the country would continue to be volatile.
• Pregnant women should not stop eating potatoes, according to the British Nutrition Foundation, despite a US study linking consumption to gestational diabetes mellitus. Researchers claimed substituting two servings of potatoes per week reduced the chance of GDM by 9%-12%.
• Steakhouse group Hawksmoor is preparing to open a 14,000 sq ft site in Tower 3 of New York’s new World Trade Center next year. Co-founder Huw Gott said: ‘While this is obviously a big deal for us and our company, I hope it’s also a small recognition of how exciting the London restaurant industry is. I think the two cities are now on a par in terms of quality, variety and excitement, and I can’t wait to start work on trying to create a great restaurant there, although we’ll never lose sight of the fact that our London & Manchester restaurants are always our main focus.’
• Formula 1 has ended its €5 million 15-year partnership with Champagne sponsor Mumm, so winning drivers will now spray each other with Moët et Chandon on the podium.
• Supermarket alcohol sales grew by 2.2% in the 12 weeks to 3 January thanks to strong sales in Champagne and Prosecco. Aldi and Lidl continue to outpace the rest of the market.
• The IEA has published a report criticising supposed plans for a sugar tax as regressive, inefficient and unpopular.
• Tesco group LfL sales grew 2.1% over Christmas and 0.4% in the 19 weeks to 9 January on the back of a 3.4% increase in customer transactions and a 3.5% rise in volumes. The strong results were helped by ‘unsustainable couponing in the prior year’ distorting comparatives and mark the group’s first reported increase for over four years. Six further category resets were completed during the period, pushing availability to a record high.
• Tesco’s performance in the Republic of Ireland turned positive to 2.9% following an improving sales and volumes trend – an encouraging response to lower, more stable prices on key lines. International like-for-like sales improved through both the third quarter and the six-week Christmas trading period, thanks particularly to improvements to its food offer. The strategy of bringing together Tesco’s Central European businesses into ‘One Europe’ appears to be bearing fruit, and gives the group: ‘further ability to invest for customers and supporting better availability and improved service.’
• Tesco: In Asia, Thailand performed well, with strong growth in customer transactions leading to its highest ever market share. Tesco Bank continued to see strong growth in lending and an increasing number home insurance products sold. The introduction of European Commission caps on interchange income in December meant that the Bank saw a reduction in sales of 5.2%, however. This followed the initial reduction driven by MasterCard’s agreement with the Competition and Markets Authority in April 2015.
• Tesco: CEO Dave Lewis commented on the encouraging results: ‘Our Christmas performance was strong, benefiting from lower prices on an outstanding range of products. Our customer service improved materially and our colleagues went the extra mile. Put simply, we put customers at the heart of everything we did and they responded by buying more of what they needed at Tesco. International sales have also continued to strengthen, driven once again by improvements across the offer. We continued our strong positive sales momentum in both Europe and Asia, with our Thai business reaching its highest ever market share. We are continuing to focus our efforts on serving our customers a little better every day and I want to thank my colleagues across the Group for their commitment, passion and energy. There is plenty more to do, but we are making good progress and are trading in line with
• McColl’s saw total sales grow 3.3% in the six weeks to 10 January on the back of its store expansion programme, while LfLs improved to -0.7%. Seasonal products experienced LfL growth and the group had a total of 623 stores open on Christmas day (2014: 578). The group also exchanged contracts on 9 stores, which will see the group exceed 900 convenience stores in the first quarter of 2016.
• McColl’s: James Lancaster, Chief Executive, commented: ‘I am encouraged by our trading performance over Christmas and New Year. Our strong sales have been driven by the continued focus on premium convenience stores, with the food to go offering going from strength to strength. I would like to thank all of our 18,142 colleagues, who worked incredibly hard over the festive period to offer great customer service, providing neighbourhoods with access to quality products and services at the most convenient times. I am also delighted to report us approaching 900 convenience stores, another important milestone on our journey to 1,000 convenience stores in 2016.’
• B&M continued its strong growth in the period from 27 September to 26 December 2015, with new store openings pushing total sales up 22.8% to £647.8m. The multi-price point retailer ‘remains comfortable with market expectations for the full year.’ Although UK sales were up 24.4% to £614.5m, the previously reported sub-par performance from its two new distribution centres, coupled with the warmer weather impacting on cold sales products, meant that LfLs were down 0.7% for the quarter. Jawoll saw an increase in its sales revenues in Euro of 7.8% in the quarter, although this translates to a decline of 2.1% to £33.3m on a sterling basis.
• B&M: The rapidly growing group opened some 15 stores over the 13 weeks and has opened a net 62 in the year to date. Jawoll now trades from 55 stores, having opened a further three in the period. Management has been pleased with Germany performance and expects to open another ten units next year.
• B&M: Simon Arora, Chief Executive, said: ‘I’m delighted to report a record Christmas season for B&M, once again demonstrating the popularity of our model, despite a challenging trading period for the whole retailing industry in the UK. At our Christmas peak, we served over four million customers in a single week and we continue to gain market share. The business has delivered a resilient performance through peak trading despite the operational challenges of commissioning two large new distribution centres so late in the year.
• B&M: ‘Our German business Jawoll has also performed well and we are taking our first steps towards a faster pace of expansion with our distribution centre extension progressing well, and with our trial stores trading in line with our expectations. The move up to 10 new stores planned for 2016/17 is a significant step in our long-term strategy for growth. Overall we are on track with our plans for the year as a whole and remain comfortable with market expectations for the full year.’
• EasyHotel has announced that it has conditionally acquired 3-5 Northgate Street in Ipswich, which it intends to convert into an easyHotel. CEO Guy Parsons comments ‘we are delighted to be investing in the vibrant cultural centre of Ipswich which is a gateway to the UK’s highly popular east coast. We expect to benefit from growing local business and tourism in the area as we extend our owned brand presence in the UK.’
• All Leisure Group has confirmed that it is to make redundancies following a consultation with staff at the end of 2015. Travel Weekly reports a spokesman for the business as saying “All Leisure Holidays can confirm that following a consultation period the company has made some internal change. All Leisure Holidays is working closely to support those employees impacted during this time. Customers of All Leisure Holidays can rest assured that these internal changes will not affect the award-winning holidays and cruises that All Leisure Holidays is renowned for delivering.”
• The Travel Trade Gazette notes a positive but slow start to peaks as customers express concerns over terrorism. Thomas Cook’s UK managing director Chris Mottershead admitted that it ‘was always going to be challenging’, but said the travel giant was happy with current sales. ‘We’ve made significant capacity adjustments to our western Mediterranean destinations. We’ve matched the capacity [we had in Tunisia and Egypt] with Balearics, Spain, and we’ve even gone back to Benidorm.’
• Year-on-year profit per room at full-service hotels in Paris dropped by 19% this month, according to the latest data from HotStats. The 13 November terrorist attacks continued to weigh on demand for hotel accommodation, with occupancy levels falling to 64.4% from 75% in the same period a year earlier.
• Gatwick CEO Stewart Wingate has called his airport the only ‘legal solution’ to expanding South East aviation capacity. Gatwick announced its 34th consecutive month of traffic growth and its busiest ever December with 2.7 million passengers travelling through the airport, a 4.7% increase on the previous year.
• William Hill updates on Q4, says FY numbers are in line with expectations. CEO James Henderson says ‘I am pleased that we have delivered results in line with the market’s operating profit expectations for 2015. Online has seen some disruption around the implementation of Project Trafalgar but we are rapidly addressing that. I am optimistic the advantages that Trafalgar gives us will drive growth, particularly as we gain flexibility and increase our ability to differentiate. Retail has delivered another resilient performance, our US business continues to grow strongly and I am encouraged by the performance of the William Hill brand as the growth engine of the Australian business.’ Mr Henderson concludes ‘looking forward, 2016 is an exciting year for us. With EURO2016 ahead, we will capitalise on the investments we have made on Trafalgar, the SSBTs and the William
• Goals Soccer has updated on FY trading saying ‘trading for the year was in-line with revised market expectations’.
• Goals says ‘sales for the year were £32.9m (2014: £34.7m) with UK like-for-like sales of -7%.’ US business in growth, sales +9%
• UK boatbuilder Sunseeker International has taken £14m in sales in the first three days of the London Boat Show. The group is predicting a 36% increase in sales on 2015 after record sales in Spain and a strong start to 2016.
• US consumer stocks sold off yesterday with Home Depot and Netflix down by 4.8% and 8.6%, respectively.
Finance & Markets:
• Oil prices fell Weds post reports of rise in weekly US crude inventories. Brent once again tested $30.00 & now trades at around $30.10
• World markets: UK up yesterday, Europe better too. US sharply lower, however, with consumer stocks selling off. Far East lower Thurs.
• Eurozone industrial production down 0.7% m-o-m in November.
Retail Roundup from Nick Bubb:
Other “Super Thursday” News: The big news today, in the Tesco Q3/Xmas update, is that Tesco actually saw LFL sales increase by 1.3% over the last 6 weeks, which is quite a turn-up, but there is tons of other news. The ASOS update for Q1 (4 months) looks fine, with UK sale sup 25%, and there is a 7.45am conf call. We haven’t had time to look at the Burberry Q3, but the Mothercare Q3 is in-line overall (although it is a case of UK good and International bad) and so is the SuperGroup Xmas update (although there has been a big slowdown in Retail LFL sales growth, against tougher comps). The best news, however, is in the JD Sports Xmas update, via another profit upgrade, despite the weather etc, with LFL sales up 10.6% at Xmas in the Core Sports Fashion business! Nick Bubb – firstname.lastname@example.org
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:
Technology, innovation, evolution & change:
• We make what are meant to be a few serious points in today’s Day in the Life
• Because change is the only constant and, though there may be room for the odd retro-pub or 1950s restaurant, the market won’t sustain thousands of them suggesting that the vast majority of backward-looking F&B outlets need over time to either refocus their attention onto what the consumer wants or to leave the industry to those who already do so
• Hence not taking contactless cards is a poor idea
• And charging 50p for card transactions below a certain level is not sustainable – I mean what do you want to do, persuade people to hog the bar whilst they write out a cheque?
• And charging for WIFI (admittedly not in pubs & restaurants but more so in hotels, on trains and the like) may cause more harm than it does good
• Products must also evolve.
• Our grandparents may never have eaten a curry, sliced a pizza or even, for that matter, drunk a pint of lager – but that’s not to say that customers don’t expect to be offered the above now
• And there’s a bit of a Goldilocks think going on here.
• Because if you attempt to be too avant garde and offer a Bolivian vegetarian sharing platters in Barnsley or a skimmed rhino-milk Frappuccino’s in the Dog and Duck, you run the risk of ruin.
Momentum, perfect markets & Gregg’s etc.
• The Efficient Market Hypothesis would have it that all shares reflect all information at all time. Prices are thus ‘perfect’.
• There’s a great deal of argument about definitions, of course but, under the EMH, such things as fear, greed & momentum do not exist.
• But here on planet earth, the above exist in spades.
• Shares are oversold, overbought and everything in-between and momentum investors, to add insult to injury, buy shares simply because they are being bought by other people.
• And that can lead to the occasional ‘the King has got no clothes on’ moment as with Gregg’s yesterday.
• Because the pie chain did nothing wrong, did not shock the market.
• It simply said that Q4, though still up healthily in terms of LfL sales, was slower than the rest of the year and that comps were now tougher.
• But that led analysts to scramble for their slide rules and, when they saw that the group’s shares, this for a sandwich shop chain, were trading at around 24x EPS (admittedly falling to 22x FY16), they made a dash for the exit.
• And that, though the shares are up a little at time of writing, leaves various observers wondering what the ‘right price’ should be
• Though we like Gregg’s, rate highly Roger Whiteside and believe that the coffee market can expand a little further, we would consider that this is more likely to be ultimately below today’s level than it is above it
Random information, hopefully not all of it useless:
• Istanbul. A reminder if any were needed that terrorism & tourism do not mix well.
• Sainsbury. Busiest ever C-Store day on Xmas Eve. Delivery good. The Argos logic is apparent but still leaves one wondering why SBRY does not avoid paying the goodwill and build further distribution capacity itself
• Retailers & especially food retailers particularly strong yesterday.
• Gregg’s, not so much.
• Sharp Sterling bounce re Euro will bring some relief to those heading off to the slopes this weekend. Helps cut tour operator costs into the bargain.
• Oil below $30 at one point.