Langton Capital – 2016-06-20 – Evolution, Majestic Wines, holiday sales & other:
A Day in the Life:
So according to one of the behavioural economics books that I once read, work is more important to people than it ‘should’ be.
Work ‘ought’ to be an economic, not to say a cynical relationship entered into by two parties. One supplies his or her brainpower or labour and the other, a faceless entity for the most part, pays for it – but it’s more than that.
A person says ‘I’m a postman’ or ‘I’m a teacher’ and, even if they don’t, then the person with whom they are talking asks ‘what do you do?’ and, in order to make the best of the relationship, people ought to be made to feel that what they are doing is worthwhile.
It’s in all of the books, show workers the end product and things improve. Ask them to prepare reports that you immediately shelve (or tear up), dig holes and then fill them in again or break rocks for no purpose, and they won’t do well which is why, probably, when I broke the screen on my mobile phone on Friday afternoon, had to drop everything and drive into town on my own time and at my own cost, had to pay £2.40 for parking and £149.95 for the replacement screen and then shell out £2.25 for a coffee whilst waiting for the thing to be fitted – all to end up exactly where I had been two hours earlier – I felt so rubbish about it.
It could just have been the financial cost, of course, but I doubt it. Anyway, more football tonight so, whilst we check the odds on our newly-mended but identical-to-how-it-was phone, let’s move on to the news:
RECENT WEBSITE ARTICLES:
• Pubs & restaurants, trading trends – here
• Evolution in the coffee market – here
• London pubs – here
• Other recent notes – here
• Ongoing tweets, older emails found – here
PUB, RESTAURANT & DRINKS PRODUCER NEWS:
• Greene King CEO Rooney Anand said in his key note speech at The Pub Conference that pub operators must be alert to changes in their industry. Anand drew attention to the success of online delivery firms such as Deliveroo and the influence of online reviews as two important technological innovations that are driving evolution in the sector.
• Majestic Wine FY numbers. Says it is ‘on track with its previously announced three year transformation plan’
• Majestic: Says ‘early signs from initiatives implemented to date are encouraging’. Group introduces ‘new Dividend policy’.
• Majestic: FY sales +41.3% (on purchase of Naked) with adjusted PBT of £15.0m (2015: £21.6m) & EPS 19.2p (2015: 25.3p)
• Majestic: Dividend. Group has ‘decided not to pay a dividend for this financial year’. Will aim for 35% pay-out thereafter
• Majestic: Moves to £25.5m debt from £10.9m cash last year. Majestic LfL sales +4.8%. Is ‘first positive performance in 4yrs’
• Majestic: Naked Wines sales +27.3% ‘driven by strong growth in US’. Newly acquired co delivered £1.0m adjusted EBIT ‘ahead of expected breakeven’. CEO Rowan Gormley reports ‘we have taken the first step on a long journey – it was a good start but it is just the first step.’ He adds ‘early signs are that the plan is starting to work. Strong sales figures reflect the hard work being done on the ground by the whole team. The management re-organisation is now complete, I am delighted with the teams we have in place across the Group. At Naked Wines we had a belter of a year – breaking through the £100m sales barrier and delivering a maiden profit.’
• Majestic. CEO Gormley concludes ‘we still have lots to do and although we are on course to deliver our three year plan, it won’t be without challenges.’
• Majestic says ‘trading conditions remain tough in the UK especially, and we expect them to stay that way’. It says ‘volatile currency movements will push up cost of goods’ but says ‘our plan however remains unchanged, as does our goal – £500m sales by 2019.’
• Business leaders back remaining in the EU. Branson & scores of FTSE bosses join the fight.
• Another 200 Punch pubs have been identified for the group’s 21-strong value community division Mighty Local, which has generated an average sales uplift of 70% in converted sites. Speaking at MCA’s The Pub Conference, chief executive Duncan Garrood added that Punch’s attention is currently on the group’s accommodation unit, Punch Inns, while its next format will be in the mainstream value segment.
• Majestic Wines has embarked on a trial with Deliveroo to sell a selection of its wines through its St John’s Wood and Covent Garden units. Majestic must have been listening to Anand’s speech, as it is now selling five fizzy drinks, three rosè, 14 white wines, and 17 red wines in its trial with the online takeaway company. The move marks Deliveroo’s second foray into the drinks market following its trial with BrewDog.
• A study showing the top 10 grievances of diners lists disappointing food, having to ask for service, and speed of service as the three biggest offences.
• A survey of UK hospitality operators by RBPI indicates that 49% are in favour of leaving the EU compared to just 43% who want to remain, while 7% are still undecided. Hospitality professionals in Wales appeared to be the most interested in leaving (64.3%) and those in London and Scotland more likely to remain (62.5%).
• Sushi and bento chain Wasabi saw revenue in the year to 2 January rise 14.3% to £72.7m, although EBITDA tumbled 44% to £4.8m. Like-for-like EBITDA fell by 35.2%. The chain cited growing pre-opening costs as a cause for the decline in profitability, but also pointed to a ‘significant increase in external cost pressures.’
• Convenience store growth is set to slow slightly over the next five years as online sales pick up the slack and larger supermarkets ‘stabilise’, according to a new report. The new five-year forecast from IGD Retail Analysis suggests the overall grocery market is set to grow nearly 10% in the next five years to £196.9bn.
• Luke Johnson has written about the enduring popularity of pubs across generations, concluding that ‘Despite the health risks, it seems intoxication never goes out of fashion.’
• Hedge funds have targeted consumer bellwethers such as Sainsbury’s and Morrisons as market participants take out shorts ahead of the referendum vote. Whitbread has also come in for attention.
LEISURE TRAVEL & HOTELS:
• Shareholders in NH Hotels are set to allege that 29.5% owner HNA, which is buying Carlson Hotels, now has a conflict of interest. Potential complainants Oceanwood (with 11%) is said to have the support of shareholders Henderson (4.2%) and Schroders (2.4%).
• Barrhead Travel has warned that cheap travel insurance is not worth the paper it’s written on, as poor cover can quickly lead to large costs.
• Walt Disney could face a multi-million-dollar claim after a toddler was killed by an alligator while paddling at the Florida theme park.
• PPHE Hotel Group has agreed to sell its Croatian operating companies to Arenaturist d.d., of which it owns 65.63%, for HRK 108.55m (€14.4m). As at 31 December 2015, the companies to be offloaded generated revenues of HRK 61.5m (€8.18m) and EBITDA of HRK 12.7m (€1.69m) and net debt of HRK 15.1m (€2.01m).
• Boris Ivesha, President & Chief Executive Officer of the Company, commented: ‘Arenaturist’s acquisition of these three companies is the next step in the evolution of Arenaturist into a leading European leisure and hotel company and will allow for further growth and development in Croatia and other Central and Eastern European markets. We expect their integration to be seamless and to add value to Arenaturist’s long term strategy.’
• EasyJet Holidays is cutting prices on 20,000 holidays for this summer by as much as 20% for bookings made by midnight, 21 June.
• Moody’s has reported that Crown Resorts’ proposed demerger is credit-negative for the company. It says ‘the proposed demerger and increased dividend pay-out ratio will reduce retained cash flow and the company’s asset base materially, which is credit negative for Crown and prompted us to put its ratings on review for downgrade.’
FINANCE & MARKETS:
• IMF warns a Brexit would cost the UK economy up to 5.6% of its potential GDP by 2019. It has warned that a potential Brexit is the “largest near-term risk” to the UK economy.
• Eurozone releases latest tranche of bailout money for Greece, makes €7.5bn available for as early as this week
• World markets: UK & Europe up on Friday but US finishes lower. Far East higher in Monday trading
• Oil price bouncing, sharply higher Friday and now changing hands at around $49.60 per barrel.
• The Rightmove house price index rose 5.5% year-on-year in June, compared to a 7.8% increase in the preceding month.
RETAIL NEWS WITH NICK BUBB:
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s magazine saw Tesco chalk up its first victory this year, with its £52.28 basket £1.59 cheaper than the embattled Asda…Morrisons was 3rd, on £54.26, almost £2 cheaper than Sainsbury’s, with Waitrose coming in a distant 5th, with a £63.08 basket…There was also good news for Tesco in the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its 50, 000 sq ft superstore in Hockley in Birmingham, topped the rankings, albeit with a relatively modest score of 71 out of 100. In a separate Annual Review of its Service and Availability survey (which Sainsbury won for the 4th year running), the Grocer also highlighted that Asda came bottom, with an average score of just 63.4 (the headline was “Asda’s poor service and availability
• Saturday Press: Tesco’s sale of Dobbies Garden Centres got a lot of coverage in the Saturday papers, with some amusing puns in the headlines: the Daily Mail said Tesco “dumps” Dobbies, the Daily Express said Tesco “lops” Dobbies and the Times said that Tesco “buries” Dobbies (the Times also had a background article about the garden centre market). The FT article on the deal flagged that the Euphorium bakery may be next on the Tesco disposal list and the Guardian article (which also highlighted that one of the private equity buyers of Dobbies is the former Ocado FD, Andrew Bracey) noted that Tesco is also cutting back further on 24-hour shopping in its superstores. The Dobbies news rather overshadowed the trading update on Friday from JD Sports, but the Telegraph took advantage of the photo opportunity provided by Euro 2016 and the Daily
• Saturday Press on BHS and Philip Green: There were more revelations in the Saturday papers about the latest evidence provided to the inquiry into the collapse of BHS, with the FT highlighting that Goldmans advised the embattled Philip Green not to rescue the BHS pension fund because the cost would be too great, whilst the Guardian flagged, in similar vein, that Philip Green sold BHS because the cost of sorting out the BHS pension deficit was too high and it also set out 5 unanswered questions that MPs will pursue Philip Green about. The Daily Mail went so far as to say that Philip Green is likely to be hauled back in front of MPs given the tax benefits enjoyed by his offshore companies, with the City Editor highlighting the “Green taxes” enjoyed by his wife Tina. The Times took a different line, emphasising that the disgraced Dominic Chappell took £17m out of BHS,
• Sunday Press on BHS and Philip Green: The Sunday Times kept up the heat on the embattled Philip Green by highlighting that he refused requests from Dominic Chappell’s representatives to speak to the Pensions Regulator before he bought BHS, following it up with a detailed background article about the BHS pension situation, headlined “Oi, Sir Philip! That pensions watchdog just won’t stop staring at you”. The Sunday Telegraph flagged that documents have revealed that Arcadia warned BHS’s pension trustees in 2009 that the business was “being stripped to the bone” and that it did not have the cash to plug a widening pension deficit and its Business commentator Jeremy Warner thundered that MPs should keep up the pressure on Philip Green and tell him that he will he lose his knighthood if he doesn’t cough up. The Business Leader in the
• Other Sunday Press: Apart from BHS, Tesco was in the spotlight in the Sunday papers, given the likelihood that it will report a second consecutive quarter of LFL sales growth this week, with the Sunday Times flagging that it is fighting back against the discounters, although the Observer mocked the fact that super-bullish analyst Bruno Monteyne has been wrong about the Tesco share price. The Sunday Times and the Observer also had bullish previews of tomorrow’s Majestic Wine results, noting that the growth of Naked Wines in the US will be a highlight. In other news, the Sunday Telegraph noted that the struggling US fashion chain Forever 21 has appointed agents to review its remaining 4 UK stores and reduce their size. The Sunday Telegraph also flagged that Sainsbury’s and Morrisons are the target of more short-selling by hedge funds. Finally, the Sunday Times had an
• Majestic Wine: Today’s finals from Majestic Wine show that total sales pushed over the £400m mark in y/e March and the target remains to achieve £500m of sales by 2019, but profits have gone backwards, partly because of the funding costs of the Naked Wines acquisition, and the dividend has been withheld. There is also a cautious comment about “tough trading conditions” persisting in the core UK business and the impressive new CEO Rowan Gormley is honest enough to list “a few things that we haven’t got right this year”. But the overall message is that things are on track in terms of the turnaround programme and, with a strong management team now in place, City confidence in the business remains high, so it will be interesting to see how all this goes down with the analysts at the results meeting at 9.30am.
• News Flow This Week: The uncertainty about the outcome of the EU Referendum on Thursday will obviously be the big talking point for most of this week, but meanwhile Retail life goes on. In terms of company news, the Debenhams IMS trading update is on Wednesday, whilst Thursday (which looks like a classic day to bury bad news) brings the Tesco Q1 update and AGM…
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Key Early Tweets. AlixPartners CGA Peach pub & bar monitor reports that pub numbers continue to decline whilst casual dining outlet numbers are rising
• Pub & Bar Monitor says closed pubs are predominantly wet-led community pubs with numbers for this sector down 12.6% in 6yrs.
• Pub & Bar Monitor says restaurant numbers rose by 1.6% last year. Langton has suggested that some growth is at the expense of LfL sales
• UberEats has launched and delivers food from 150 restaurants that do not typically deliver in central London via a network of bikes & mopeds
• DP Poland reported yesterday that NE Director Chris Moore bought another 100k shares in the company at 33p each.
• The price of sugar is touching 30mth highs as concerns over supply impact the price. It remains an important input.
• Hard Rock International and GLH Hotels have announced plans to convert London’s Cumberland Hotel into a 900-room Hard Rock Hotel
• Bank of England votes unanimously for no change, says 12mth inflation (at 0.3%) ‘remains well below 2% inflation target’.
• Oil price up around 50c from yesterday’s lows. Brent Crude now trading at around $47.75 per barrel
• Other Tweets: Sterling bouncing on lower Brexit fears. Take the necessary action. That is, do nothing. Vote will be over by next Thurs evening.
• Sugar price at 30mth high. You heard it here first. Oil off the top, down 10% from last week’s recent highs.
• Restaurant Group down 7% yesterday on trading concerns. Bouncing a little this morning but Tracker stats remain a concern
• Study (see email) shows more restaurants opening than pubs. That’s true but is it a good thing? Restaurant LfL sales down near 6% in May
• Uber now delivering hot food, Amazon said to be trialling same in London. Deliveroo, Hungry House, Just Eat likely to face more competition
• Money where your mouth is. JDW & ETI buying shares back. DP Poland director buying material amounts of stock.