Langton Capital – 2016-02-04 – Daily Wrap: Big ticket spending, emerging markets, UK economy & other:
Leisure Wrap & Other:
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. As always, contact us if you’d like further details:
Big Ticket Spending:
• Early last year we were told that consumers, though better off on the back of cheaper oil, petrol etc. and rising real incomes, were spending their money on big-ticket items
• That remained the story through most of 2015 but Sainsbury and others had suggested earlier in the year that the process should have worked its way through by year end
• That message got a little lost as we approached Christmas.
• The mild weather, flooding and the like took over as the main stories and spending over Xmas, at least in pubs & restaurants, was good
• But here we are now in a new year & we decided to dust off the ‘big-ticket’ story.
• Today DFS furniture said that it had grown gross sales in the H1 to end-Jan by 7%.
• This followed on the back of rival ScS saying that it had increased sales by 8.8% over broadly the same period.
• DFS says that its sales were ‘reflecting a healthy furniture market environment’.
• As regards smaller ticket spending, MARS, JDW and others have suggested that volumes remain good – whilst that is not meant to belittle the efforts of the companies involved to keep the plates spinning (groan), it does suggest that operators have been pushing on an open door
• The phenomenon hasn’t perhaps ended as cleanly as we might have expected but smaller-ticket retailers (and even the large grocers) look to be making progress of a type
• Greene King updates on Q3 trading next Wednesday and Enterprise and Thomas Cook (the latter big ticket) update the following day
• What goes on in emerging markets (EMs) is perhaps only of passing interest to operators such as MARS, JDW, GNK, ETI, PUB, RTN etc.
• But it is much more important to the spirits groups, the hoteliers, food manufacturers and the like
• With that in mind, it is worth noting (alongside movements in commodity prices, the US$ etc.) that a slightly chillier wind seems to be blowing through the markets in question
• Britvic last week reported ‘as anticipated, market conditions in Brazil remained very tough’ and today we have cautionary comments from Mondelez and, to a lesser extent, from Compass Group and from YUM!
• It is likely that SAB, ABInbev, Heineken, Carlsberg and the like will be facing some similarly less-buoyant markets
Random information, hopefully not all of it useless:
• Economic stats yesterday suggested a modest uptick in rate of UK GDP growth. With the markets in something of a schizophrenic mood (and mindful of the fact that it’s hard for the UK market to break out of its lock-step moves with global trends) that was perhaps enough to persuade some that we won’t be entering another recession in 2016.
• Risk on day today. Miners & oils up, health care etc. down.
• Commodities. Oil and gold up (they haven’t often been moving in tandem) and cocoa, coffee, soybeans & now sugar, moving down.
• Sterling down a bit vs both US$ and Euro.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. YUM Brands reports Q4 numbers, sees EPS growth of 11% (to 68c per share) & FY EPS growth of 3% (to 318c per share)
a. YUM: Says Q4 worldwide system sales grew 6%. Worldwide restaurant margin +240bps to 13.6%, operating profit +17%.
b. YUM: Q4 sales +7% in china (7% new units & 2% LfL growth). Margin there was up by 430bps to 11.4%.
c. YUM: New global restaurants opened: Total 1,160, including 384 in China, 374 at KFC, 270 at Pizza Hut, 109 at Taco Bell +23 in India.
d. YUM: KFC Q4 sales +7%, Pizza Hut sales +2%, Taco Bell sales +7%. India sales down 9% (LfL down 13%).
e. YUM full year numbers. Worldwide system sales grew 5%. Worldwide restaurant margin increased 1.5 percentage points to 16.0%.
2. Compass Group updates on Q1 trading, says ‘Compass had a strong first quarter’ with organic revenue +5.9% in Q to end-Dec
a. Compass Group: Says has continued to ‘focus on organic growth continues to drive good levels of new business and high retention rates
b. Compass says North America grew organic revenues by 7.9%. In Europe, organic revenue grew by 3.6%.
3. A new report concludes the pub industry still needs help in its ‘fragile recovery’ leading Camra to call for a cut to beer tax.
4. Oreos + Ritz-maker Mondelez warns investors it is preparing for a further deterioration in economic conditions in emerging markets
5. Sajid Javid has said the pubs code will be amended to ensure that a Market Rent Only (MRO) will not be dependent on a rent increase
6. Numbers from the ONS show alcohol-related deaths have fallen once again having peaked in 2008.
7. England’s chief medical officer has urged women to consider the risk of breast cancer whenever they have a glass of wine
8. UK inbound tourism figures for July to September 2015 show 10.5 million visits, up 5% YoY and setting a new record for any quarter.