Langton Capital – 2016-07-08 – Pepsi, holiday cancellations, confidence & other:
A Day in the Life:
A very thin response to our question on trading yesterday, much lower than when we’ve asked similar questions about extreme weather, football events, Christmas trading and the like.
One wonders why.
Is trading so wonderful that operators are too busy to drop us a line – or is it something else. Now that ‘talking ourselves into a recession’ has been made a capital crime, perhaps silence was the most diplomatic answer.
However, it is what it is and, at this stage, it may not really be possible to conclude much as to how trading is going.
Perhaps operators are taking a leaf out of Andrea Leadsom’s book and have decided to ‘banish pessimism’. Just what that means – and whether it is necessary, sensible or whatever – we have yet to find out. On to the news:
RECENT WEBSITE ARTICLES:
• Leisure, the Brexit impact – here
• Recent notes – here
• Ongoing tweets, older emails found – here
PUB, RESTAURANT & DRINKS PRODUCERS:
• Fuller’s has bought Docklands gastropub the Gun after current owner ETM Group put the site up for sale as part of a strategic shift. Speaking to MCA, Fuller’s CEO Simon Emeny said: ‘[The Gun] is popular, well-known and held in high regard for its exceptional food and location. Opportunities to buy pubs like the Gun don’t come along every day and we are delighted to add this London gem to our portfolio.’
• Confidence drops sharply – see Brexit comment below.
• Pepsi Q2 numbers, revenues down 3.3%, EPS 138c (+4%). CEO says environment continues to be ‘incredibly volatile’. CEO Indra Noovi reports ‘in what continues to be an incredibly volatile global macro environment, we are pleased with our results for the second quarter. While reported net revenue performance was negatively impacted by foreign exchange translation and the deconsolidation of our Venezuelan operations, we delivered balanced volume growth and positive price/mix driven by relentless execution of our commercial agenda and leading to solid organic revenue growth. At the same time, our focus on driving greater efficiency throughout our operations contributed significantly to attractive margin expansion while we continued to invest in our business.’
• Pepsi sales decline part due to de-consolidation of Venezuelan subsidiary numbers.
• Pepsi CEO says ‘based on our year-to-date performance, we are raising our FY core constant currency EPS growth objective.’
• Pepsi says gross margin expanded 115bps and operating margin expanded 105bps. Says ‘reported and core margin expansion reflects the implementation of effective revenue management strategies and productivity gains, partially offset by a 50-basis-point increase in advertising and marketing expense as a percentage of sales.’
• Pepsi says Europe was ‘negatively affected by higher raw material costs (in local currency terms, driven by a strong U.S. dollar), operating cost inflation, increases in advertising and marketing expenses, adverse foreign exchange translation (6 percentage points) and restructuring and impairment charges (2 percentage points), partially offset by productivity gains.’
• Pepsi now expects 2016 core earnings of around 471c.
o McDonald’s has introduced plans to refranchise 4,000 restaurants and cut costs by $500m by the end of 2018. The group yesterday reported a $235m charge relating to these initiatives for the three months to the end of June, with the bulk of costs expected to come in next quarter.
o Oakman Inns has posted like-for-like Q1 growth of 5.1%, although this growth fell to c2% in recent weeks following England’s exit from the Euros and the EU referendum.
• Northern brewer and pub operator Camerons has acquired Leeds Brewery’s seven-strong pub estate for an undisclosed sum as part of the former’s aim of growing to 500 pubs.
• San Miguel has launched ‘The San Miguel Rich List’ – a consumer campaign to celebrate life’s ‘enriching experiences’. The beer brand is looking for 20 ‘life-rich’ individuals from around the world to form the basis of a series of short films to be aired on Facebook, YouTube, and video on demand.
LEISURE TRAVEL & HOTELS:
• UK consumers are changing their summer holiday plans due to higher costs, with Travelzoo saying 3% of holidaymakers are making cancellations. The group carried out a survey on holiday attitudes in the week following the referendum result and described the 3% figure, driven primarily by currency fluctuations, as ‘minimal’, although 9% of respondents now have concerns about being treated negatively abroad. Travelzoo added that 26% of the people it questioned were now actively considering all-inclusive options.
• Intercontinental hotels yesterday evening briefed analysts on its strategy. It did not update on trading
• There has been a 54% rise in fines issued to parents in England for taking the children out of school during term-time, according to the Department for Education.
• A YouGov survey for minicabit suggests travellers could spend as much as £2.4bn on additional holiday costs this year. The research found that 49% of people spend an average of £100 per holiday on extras such as airport transfers, shopping and insurance, increasing the cost of an average break by 10%.
• International arrivals to the UK continued to register negative year-on-year growth in May, according to the Travel Trends Index.
FINANCE & MARKETS:
• Mortgage rates are inching downwards as the City anticipates another cut in interest rates next week, with economists giving a 78% chance of a cut. Barclays, HSBC, Metro Bank, the Leeds and the West Bromwich Building Society are among other lenders who have cut rates since the EU referendum.
• Think Tank Centre for Cities says the UK has become increasingly reliant on the taxes paid by Londoners over the last decade. The capital generated about 30% of the UK’s tax revenues in 2014-2015, a 5% rise on 2004-2005 figures, while other areas stayed the same, suggesting that ‘more [must] be done to strengthen the economies and tax bases of other city regions such as Greater Manchester, the West Midlands and the North East’.
• UK industrial production fell by 0.5% in May vs April. Markit said the decline in May was less painful than expected
• Halifax reports the annual rate of house price inflation eased to 8.4% in June, the lowest rate for a year. Prices rose by 1.2% over the last quarter. Halifax said ‘house prices continue to increase, albeit at a slower rate, but this precedes the EU referendum result, therefore it is far too early to determine any impact since.’
• NIESR has suggested that GDP in the UK rose by 0.6% in the quarter to end-June
• World markets: UK & Europe up yesterday. US down and Far East lower in Friday trade.
• Oil price bouncing from lows yesterday. Now trading around $47 per barrel
LEISURE & ECOMOMIC NEWS – BREXIT SHOCK:
o Aberdeen Asset Management has imposed a 17% ‘dilution levy’ on its £3.4bn property fund.
o L&G has put through a 15% ‘fair value adjustment’ (i.e. cut) on its £2.5bn property fund. Says this is in line with the downturn in real estate prospects.
o Property Week reports that a hiring freeze is in place at most large UK property agents
• Holidays & travel:
o Travelzoo has suggested that up to 3% of already-booked overseas holidays may be cancelled.
o IATA has said that Brexit fallout is impacting the airline industry worldwide
• Other companies:
o Importing companies, e.g. Sports Direct, starting to refer to the increased costs of buying their stock
• Consumer spending:
o Consumer confidence has dropped by the largest amount in 21yrs reports GfK. It fell by 8pts to minus 9. Confidence impacts spending.
• Politics & trade:
o UK has launched a trade mission to India. First job may be to persuade Tata not to close down Port Talbot steelworks
o TheCityUK has held its first meeting to try to ensure an outcome ‘in the best interests of the UK
• On a brighter note:
o Andrea Leadsom says we should ‘banish pessimism’. No details given as to how. Or why.
o 78% chance of a rate cut next week say observers.
YESTERDAY IN A NUTSHELL – SEE LIVE TWEETS ON WEBSITE:
• Some of our morning tweets: Whitbread announces sale & leaseback of 389-room Hub in King’s Cross. Sale is to L&G for £84.5m with £46.5m cash up front.
• C&C updates on 3mths to end-May, says ‘Group made a solid start to the year across core markets.’
• C&C says ‘despite the solid start, we remain cautious on our outlook for the year.’ Points to referendum uncertainty.
• Bowmark Capital-owned Drake & Morgan has purchased Corney & Barrow Bars Ltd for an undisclosed cash sum.
• Caledonia Investments buys Liberation Group from LGV Capital. The latter has owned the group since 2008
• Areas including the Lake District, Cambridge, York, and Edinburgh are set to benefit from a boom in inbound tourist numbers
• Fed minutes suggest policy-makers Stateside will wait to judge impact of Brexit vote before raising rates further
• Six property funds have now frozen redemptions. For better or worse, holders are locked in for the ride
• Other tweets: Commod. prices cont. divergent trends w. 12mth moves now sugar +72%, OJ +55% & soy up but corn, wheat + feeder cattle down 20%, 25% & 33%
• Supermarkets, friend or enemy? SBRY 100 Earl Grey £3 up to £5. MRW sticks at £3 then up to £4.98. Still cheaper but you’re having a laugh?!
• ASDA price war in summer? Could put off the day of reckoning (low ££ => higher food prices) but at a major cost to margins.
• MKS seems happy with its lower sales? Could be discounting less but footfall must have cratered.
• Comm. property market frozen? Where is the marginal buyer coming from? No, seriously? ‘Attracted by lower Sterling’ my eye!
• Cheaper Pound dragging in overseas property buyers? Why would it? Rental stream will also be in Sterling & that’s declined too
• No gov’t, no opposition, no ideas. FT Alphaville ‘we’re in a political age that’s post truth, post logic, post intelligence, post dignity’
RETAIL NEWS WITH NICK BUBB:
o Trade Press: The front cover of Retail Week magazine features a photo of a beaming Jim McCarthy, the retiring boss of Poundland, with the headline “McCarthy moves on” and inside RW have an exclusive interview with the great man. RW also have a look at Monsoon’s “vibrant new branch” in Westfield White City and a feature on the “Culture of success” at companies like Ted Baker, Beaverbrooks, AO.com and the Co-op (“How treating staff differently can deliver results”). In his column, the Editor thunders that although the troubles at BHS, Sports Direct and My Local have grabbed the headlines, “JLP reminds us that values deliver commercial success” (last week “one of UK Retail’s greatest institutions”, the John Lewis Partnership, celebrated its unique business model with Partnership Day). In terms of news
o News Flow Next Week: A busy week kicks off first thing on Tuesday with the BRC-KPMG Retail Sales for June, quickly followed by the ASOS Q3 update and the annual media jamboree that is the Marks & Spencer AGM. Wednesday brings us the Burberry Q1 and the Steinhoff/Poundland “PUSU” deadline…Then on Thursday we get the SuperGroup finals, the Burberry AGM, the Mothercare Q1 and the Halfords Q1, plus the MPC’s decision on cutting interest rates…
o Weather Watch: With the unsettled weather conditions persisting, Fashion retailers will be bemoaning their fate, as usual…but memories about “the weather” are notoriously short-term, so, ahead of Tuesday’s BRC-KPMG Retail Sales survey for June, we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected the High Street. And the headline for June this year was “Rainfall dampens demand for seasonal products”. After a more positive May, with increased demand for seasonal products in warmer and drier conditions, June was more disappointing. While temperatures were relatively favourable (the overall average temperature of 14.4 degrees C in June was 0.3 degrees above “normal” and 0.4 degrees higher than last year), the significantly wetter