A Day in the Life:

I would suggest that, whilst technology can be a major blessing these days, in a working day without much slack, any outages can cause major problems.

Not a particularly radical comment but, when the WIFI goes off, you tell me, what ya gonna do?

Because if you ring your service provider, the automated message is likely to tell you to go online to problem-solve the issue and that, of cause, you can’t do.

So you have to go back a century, press button two on the phone for connection issues, wait a while & then press another button and then another before, after maybe 40 minutes or so, you get a human being who tells you, not unreasonably, to turn everything off and back on again and then asks you to dismantle this gizmo or that gizmo before admitting that they don’t really know what to do and hoping on your behalf that the problem will right itself shortly.

And, much to everyone’s relief, such problems often do simply vanish which, given the level of service on has to expect, that’s not altogether a bad thing.

Updated comments made during the day found on Twitter. Summary on website here. On to the news:

JD Wetherspoon – Q3 Trading Update:

Q3 Update – 13w to 24 April 2016:

JD Wetherspoon has this morning updated on trading for the period comprising the 13wks to 24 April 2016 and our comments thereon are set out below:

Trading:

The group last updated on 11 March when it reported H1 numbers to 24 January and commented on trading for the first 6wks of H2, being the period to 6 March

Hence today’s new trading news comprises the period between 6 March and 24 April, which included Easter in both 2015 and 2016

JDW reports that sales for the 13w to 24 April increased by 3.8%, ‘in line with the most recent 6 week period reported in our interim results.’

It says ‘total sales increased by 5.5%.’

JDW adds that ‘year to date like-for-like sales have increased by 3.2% and total sales have increased by 5.9%.’

The company reports that ‘the operating margin in the 13 weeks to 24 April 2016 was 6.4%, compared with 7.5% in the same 13 weeks last year.’ It says that ‘the margin reflects the increases in the starting rates for hourly paid staff in August 2015, which totalled approximately 8%.’

Perhaps of more relevance than a comparison with margins a year ago, the 6.4% margin compares favourably with the 6.3%reported for the first half of the year (25w to 24 Jan).

Recent sales trends are shown below:

Balance Sheet, Debt & Outlook:

The group reports that it has opened 8 new pubs since the start of the financial year and has closed 19, of which 8 have been sold.

It says ‘we expect to open 16 new pubs in this financial year. There will be around £5m of exceptional non-cash losses in this financial year, associated with the disposal programme.’

Re the group’s finances, JDW reports ‘the Company remains in a sound financial position.’ It adds ‘net debt at the end of this financial year is currently expected to be around £650m.’

JDW reminds investors that it has spent some £37.3m on buying back its shares in the current financial year to date

Conclusion:

Chairman Tim Martin reports that ‘sales during the quarter have continued at approximately the same levels reported on 11 March 2016 in our interim statement.’

He says ‘we are still aiming for a reasonable outcome for the financial year, before the impact of the previously announced £3.8m property gain realised in the first 6 months.’

Langton View: JD Wetherspoon has previously indicated that H2 should see easier comps and this appears to be being borne out by slightly better LfL sales and margin numbers.

The group, in a very short statement, has reiterated that the market remains highly competitive.

JDW has been buying shares back and, at £37.3m and counting in the year to date, it has been more active, at least in ££ terms, than in any year since 2007.

Hence, with the cost of debt so low, EPS numbers will be helped by the buyback, despite more sluggish sales growth.

JDW’s shares spiked down to around 610p earlier in the year before rallying to around 700p. They are currently 679p at which level they trade on around 15.4x this year’s numbers falling to c14.3x next.

The group’s shares yield 1.8% and, as this is a premier operator, we would continue to suggest that any material weakness should present a buying opportunity.

Indeed, the company itself sees it that way. We would suggest that the group is a superlative operator, it has focused on accommodation, drink, food, further day-parts, coffee and a host of other growth areas and, though we acknowledge that this has to come through at the bottom line in order to justify our recommendation, we remain supportive of its shares.

The News:

PUB, RESTAURANT & DRINKS PRODUCER NEWS:

• AB InBev reports on Q1, says revenue +3.1% with revenue per hl growth of 4.9% ‘driven by strong premium brand volumes’

• AB InBev Q1: Reports ‘total volumes declined by 1.7%, with our own beer volumes down by 1.4%.’ This was partly driven by Brazil. Says this region ‘faced challenging macroeconomic conditions and a difficult comparable’.

• AB InBev Q1: Says Mexico strong, global brands Corona, Stella Artois and Budweiser, grew by 5.9%. Cost of sales +1.8%.

• AB InBev Q1: EBITDA +2.5% to $3.462bn. EPS decreased to 51c from 140c in Q1 last year but underlying earnings flat. Group says re the proposed combination with SABMiller ‘we are making good progress towards obtaining the necessary regulatory clearances for the proposed combination with SABMiller, and continue to expect the transaction to close in the second half of 2016’.

• Last week we commented on a tougher trading environment (here).

• Comments on Conviviality and the move away from B2C towards wholesale, distribution etc. (here).

• Whitbread has acquired a 49% stake in London-based Healthy Retail Ltd, trading as ‘Pure’, for £6.8m, with the option to buy the remaining 51% within the next five years. Pure is an eight-strong food-led grab and go online delivery concept that specialises in fresh, healthy meals for the individual consumer. Whitbread CEO Alison Brittain comments ‘I am very impressed by Pure, which appeals to health conscious busy people, offering a choice of natural fresh food. As the UK’s largest hospitality company, it’s vital that Whitbread has its finger on the pulse of consumer trends and that we innovate with new formats and concepts.   I see considerable opportunities to grow the brand and by taking a stake in Pure we fast become part of a business that specialises in the exciting growth market for natural, healthy takeaway food and drink.’

• DP Poland yesterday updated on Q1 trading saying that it had now registered 14 consecutive quarters of >10% LfL sales growth

• DPP reports it is continuing its store roll-out beyond Warsaw & has signed a 3rd sub-franchisee

• DPP reports LfL sales in Q1 +23% with 26 stores now open in 6 cities. It says ‘new store openings in new cities are performing well’

• DPP has 3 stores under construction and a ‘pipeline of openings planned for H2 2016’. CEO Peter Shaw reports ‘the first quarter of 2016 has opened strongly with like-for-like system sales up 23% on Q1 2015. While the existing store estate is performing well the sales performance of our latest store openings outside of Warsaw is particularly encouraging.’

• Enterprise Inns announced yesterday that it bought back for cancellation 98k of its own shares for cancellation at around 88p. Yesterday it bought back a further 102k at around 87p

• Just Eat updates on Q1. Says ‘strong momentum continued throughout the First Quarter of 2016’ w. LfL orders +41%.

• Just Eat reports Q1 actual orders (including acquisitions) +57%. Says ‘all our segments continued to deliver strong growth’. Says UK orders are up 40% year-on-year.

• Just Eat Q1 re outlook. Says ‘Board increases its expectations for full year revenues to £358m at current exchange rates’ (was £350m)

• JE: Says ‘underlying EBITDA for the full year is expected to be within the range of £102-104m up from…£98-100m’. CEO David Buttress reports ‘we have had an excellent start to 2016 and I am delighted with the Company’s performance and the momentum in the business. The team has continued to work hard to deliver increased value and ever more orders to our restaurant partners. Our focused strategy and improvements to both our consumer offering and restaurant support are working and we are well positioned to continue benefitting from channel shift in the category.’

• iNTERTAIN has completed its second refurbishment of 2016, with a £400,000 investment in its Walkabout in Reading.

LEISURE TRAVEL:

• PPHE Hotel Group saw a 500 bps decrease in occupancy to 72.5% in the three months to end March but revenue was down only slightly after driving up ADR. Average room rate at the group increased 5% to £101.90, mainly driven by double digit growth in The Netherlands, Germany, and Hungary, while total revenue fell from £45.2m to £44.7m. Commenting on the results, Boris Ivesha, President and CEO of the group, said: ‘We were pleased to maintain a flat overall revenue during the first quarter, which is usually our weakest and which was impacted by the timing of Easter.’

• London has lost its tag as the ‘most expensive place to stay in Europe’ after average room rate across the capital’s hotels fell by 2% in the last year. Bern in Switzerland now has the honour, charging an average of £116.62 for a hotel room compared to London’s £108.98.

• STR analysis into the impact of terrorist events on the hotel market shows that, on average, European hotel markets stabilised within three months. STR studied four instances of terrorist attacks in Madrid, London, Paris, and Brussels.

• Passengers leaving Brussels Zaventem airport have been advised to arrive at least three hours ahead of departure as it reopens this week.

• IAG is scaling has ‘moderated its short-term capacity growth plans’ following the attacks in Brussels last month.

OTHER LEISURE:

• Paddy Power Betfair updates on Q1 trading, says revenues +16%, online revenues +17%, EBITDA +27% at £59m.

• Paddy Power Betfair Q1. Operating profit +36% at £43m. CEO Breon Corcoran reports brands all continue to trade well’. Says the market is ‘highly competitive’. Mr Corcoran adds ‘this good start to the financial year is a credit to our colleagues, particularly at a time when we are bringing together two businesses. Our marketing, technology and operations performed well throughout the key spring racing period and we are now focused on preparations for Euro 2016.’

• Paddy Power says ‘the post-merger integration is on-track.’ CEO Corcoran adds ‘a strong leadership team is in place and restructuring of the business has commenced. We are working to bring the best of each business to the combined Group and customers are starting to see some early benefits as we roll out product features across the brands.’

• The number of LinkedIn members grew by 19% in its first quarter as revenues surpassed expectations, increasing by 35% to $861m. Chief executive Jeff Weiner attributed the strong results to growing mobile usage among its 433 million members.

• Bookmakers are counting their losses following Leicester City’s Premier League triumph, whose 5,000-1 success has een labelled as ‘the biggest sporting upset of all time’.

FINANCE & MARKETS:

• British manufacturing output unexpectedly contracted to its lowest level in three years in April, as the economy slows ahead of the EU referendum. The Markit/CIPS manufacturing PMI fell from 50.7 to 49.2 – the first time since March 2013 it has fallen below the 50 mark.

• The European Commission said yesterday that Eurozone growth is likely to slow slightly this year as investment has yet to pick up despite ultra-low interest rates. The EU executive arm now forecasts a 1.6% expansion this year, down from 1.7% last year, growing to 1.8% in 2017.

Retail Roundup from Nick Bubb:

Next:
We flagged yesterday that, given the impact of the cold weather on trading in April, City expectations were quite low ahead of today’s Q1 sales update from Next (with overall sales expected to be flat to down a bit), but that we would be surprised if CEO Simon Wolfson lowered full-year earnings guidance again, so soon after his cautious outlook with the finals on March 24th. Well…at first sight the Q1 sales look in line with expectations at -0.2%, but full-price sales are down by 0.9% (and though Directory has thankfully improved, to +4.2%, Retail has slumped to -4.7% gross). And Next go on to say that “We believe it is unlikely (but possible) that sales will deteriorate further, and we have seen a significant improvement over the last few days as temperatures have risen”.  However, the killer statement is that Next go on to say that “the poor
performance of the last six weeks may be indicative of weaker underlying demand for clothing and a potentially wider slow-down in consumer spending.  Given this uncertainty, we think it is prudent to widen and lower our full price sales guidance range to -3.5% to +3.5%.  The lower end of this range is based on sales for the rest of the year continuing to run at the rate of the last six weeks”. The bears will leap on this further nudge down to guidance and, having the seen the shares sag below £50 yesterday, it will be interesting to see if “Mr Share Buyback Man” can do anything to stop the rot today…

Rich Watch:
Reading a press article yesterday about the billionaire Chris Dawson, the colourful founder of the discount chain The Range, and how he aspired in younger life to be “another Philip Green”, we were reminded of the role that the Sunday Times’ annual “Rich List” played in the rise of Philip Green in the early 2000’s…Basically, by engineering a dramatic rise in the gross margin of BHS (after buying it in May 2000) he managed to move its profits over the £100m mark and on the back of that (and the Arcadia acquisition of 2002) the Sunday Times, in its infinite wisdom, decided in May 2004 that Philip and his wife were worth as much as £3.61bn (which put them 4th on the list). With that feather in his bow, he bid for M&S a few weeks later…Twelve years on and the latest Sunday Times’ annual “Rich List” estimates Philip’s
wealth at a mere £3.22bn (which puts him only 29th on the list). The fast-rising Chris Dawson is in joint 58th place, with an estimated fortune of £1.75bn.

News Flow This Week: The Ocado AGM is being held this morning at 11am in the hallowed portals of Goldman’s offices in Fleet Street (good luck if you want to try and go along…), but no statement is expected, despite the lack of news on the much-vaunted Overseas licencing deal…Coincidentally, tomorrow brings news from Ocado’s UK partner, via the Morrisons Q1 update. Nick Bubb – nicholas_bubb@hotmail.com

Yester-tweet – Yesterday in a Nutshell:

(SOME OF OUR) EARLY TWEETS:

• Warren Buffett says public health campaigns blaming obesity & diabetes on fizzy drinks (incl. on Coke) are ‘quite spurious’.

• Horizons reports American-style restaurants poised for further expansion in the UK. Says could replace Mexican outlets as fastest-growers

• Bank of Mum & Dad will lend £5bn to its children in 2016 in order to help them get on the property ladder reports L&G

• AB InBev has updated details on the package of commitments it has made to the EC in order to gain approval for SAB deal

• The government has revealed its proposals to change the way tips are distributed in restaurants

• Conviviality Retail has bought wine wholesaler Bibendum for £60m and has announced an accompanying £32m rights issue

• Coffee chain Le Pain Quotidien has stopped paid breaks for staff, offsetting the National Living Wage.

• RCL reports nearly tripled Q1 numbers EPS

• Shorting Thomas Cook? Seems like a risky strategy with shares having halved over last year. Fosun upside could be considerable

• Sterling down markedly over last few days against Euro. Not yet a trend but such moves are good for Merlin, less so UK hotels

• UK market down after level opening. Had been above 200dy moving average for first time in 9mths. Not for long, sell in May…?

• Gold up vs Oil. Gold/Oil (no. of barrels per ounce) up to 28.6 (was 26.6 last week) in ‘risk-off’ move. Gold briefly > $1300

• Weather set to warm up but Spring has been cold. Snow last week. Good for (otherwise distracted) Premier Foods. Reports FY 17 May

RESTAURANT GROUP COMMENTS:

• Restaurant Group. The ‘un-darling-isation’ of the company reached a new level Friday when shares dropped around 26%.

• RTN: Shares now lost around £930m of shareholders’ money since peak.

• RTN. See Langton 2015 and earlier comments comparing and contrasting group with JDW. High margins can get you only so far

• Restaurant Group. Press suggesting private equity bid for the company now relatively likely, further downside limited.

• Restaurant Group to track moves in food retail? Shock followed by lower prices, management change, dividend cuts?

• Restaurant Group. With the best will in the world, there must be an operational lag. See food retail). Could be several tricky quarters

RESTAURANT GROUP – LATERAL THINKING:

• CINE fell Fri in sympathy w. RTN. Comment on retail/leisure parks or comment on unsustainable margins?

JUST EAT Q1:

• Just Eat updates on Q1. Says ‘strong momentum continued throughout the First Quarter of 2016’ w. LfL orders +41%.

• Just Eat reports Q1 actual orders (including acquisitions) +57%. Says ‘all our segments continued to deliver strong growth’.

• Just Eat Q1 re outlook. Says ‘Board increases its expectations for full year revenues to £358m at current exchange rates’ (was £350m)

• JE: Says ‘underlying EBITDA for the full year is expected to be within the range of £102-104m up from…£98-100m’