Langton Capital – 2016-09-05 – YUM Brands, grocery price wars, holiday spend & other:
A Day in the Life:
I think you know you’re losing your grip on the summer when there are only two people wearing short trousers in the supermarket on a Sunday – and one of them is you, the other just a toddler.
Hence, with the mist rolling in from the hills around YO19, it might be time to put away – or more likely throw away – last season’s attire and prepare for chillier nights to come.
However, with new PM Mrs May now saying that there will be no early election, no second referendum, no going back on Brexit but no attempt to renegotiate freedom of movement for EU citizens, there could be plenty of heat, if no light, produced by Westminster.
We look forward to developments there with interest but, whilst we’re still waiting for the corporate world to get back to ‘normal’ after the summer break, let’s move on to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• Alibaba affiliates Primavera Capital and Ant Financial are preparing to buy a $460m stake in Yum China as Yum Brands moves forward with its plans to spin off the business. The investors will receive warrants to buy an additional 4% stake in Yum China in two tranches at valuations of $12bn and $15bn, with part of the proceeds expected to help finance the operator’s ambition of tripling the number of its restaurants in China to 20,000.
• Yo! Sushi could change its name as part of a brand overhaul to better represent the breadth of its menu.
• Comptoir Libanais has announced it is to open 6 new sites over the next 3mths
• Morrison’s is thought likely to cut prices on 160 everyday essentials this week. This may ‘ignite a price war’. It is more certain to put just a little more cash into consumers’ pockets, which can then be spent on other things. Or saved. Prices may be reduced by up to 12%. Retailers may be getting the cuts in early as food price inflation could arrive in the autumn on the back of a weaker pound.
• MCA interviews Drake & Morgan’s COO Dylan Murray, who says the short term priorities are to settle the team and empower senior management ahead of openings in Edinburgh and Manchester.
• Tributes are being paid to veteran publican John Weir following his death from a heart attack on Sunday. Business colleague & friend John Sands is quoted as saying ‘John’s death came as a complete shock and he will be very sadly missed. He was a devoted family man and someone who was my friend and colleague for over 30 years. John will be remembered as a great pubs man. He knew how to build effective businesses which give customers exactly what they want.’ Wear Inns FD Simon Duckworth is to become Acting Managing Director
• The price of French wine is expected to rise in response to a 10% fall in this year’s grape production, driven by adverse weather.
• Sales of sparkling wine continue to rise, according to Liberty’s latest premium on-trade report, which shows value sales are up 58.3% at top UK restaurants and bars. Volume sales were up by 32.9% in the premium on-trade in 2015, with champagne proving particularly popular, and red wine Pinot Noir moving from ‘one to watch’ to being a key player in its market by both value and volume.
• A survey of more than 200 top employers by the Association of Graduate Recruiters suggests the number of jobs for new graduates has declined by 8% in a year.
LEISURE TRAVEL & HOTELS:
• Terrorism, health concerns, and political trouble will affect families’ choice of holiday destination in 2017, according to a study of 1,336 people by FamilyBreakFinder. Egypt was cited as the destination most British families would avoid, with Turkey, Tunisia, Dubai, and Greece also faring badly, while worries about the financial outlook means that most families are expecting to spend the same or less on travel next year.
• The US hotel industry saw occupancy grow 4.3% to 67.5% in the week to 27 August, while average daily rate rose 4.2% to $121.22 and RevPAR increased 8.7% to $81.85.
• Jet2.com has entered a major recruitment drive to add nearly 1,000 new staff in the UK to fill its pilot, cabin crew, and engineering roles.
• The Vietnamese government is proposing to sell off its two largest state beer makers, Sabeco and Habeco, which together control more than half the country’s beer market, for $2.2bn. Possible bidders include Carlsberg and Heineken, which have significant stakes in Vietnam, as well as Thai brewer Boon Rawd.
• Marks & Spencer is cutting 500 head office hobs as the high street retailer attempts to stem losses, according to Sky News.
FINANCE & MARKETS:
• US jobs growth slowed in August. Official data has 151k jobs created in the month, down from (upwardly revised) 275k in July.
• Fed data shows US manufacturing sector contracted in August. Likelihood of a Sept interest rate rise now diminished
• Nonetheless, Richmond Fed president Jeffrey Lacker has said that the US economy is strong enough to warrant higher interest rates. Maybe he is suggesting over the medium term. However, Mr Lacker is fairly direct saying ‘it appears that the funds rate should be significantly higher than it is now’.
• UK construction industry picked up in August after June & July slowdown. PMI moves to 49.2 from 45.9 a month ago. Figures <50.0 imply contraction. Markit reports ‘there were still widespread reports that Brexit uncertainty had dampened demand and slowed progress on planned developments, especially in relation to large projects.’
• Britain has been offered little hope of a fast track trade deal by outgoing US president Barack Obama
• UK pension deficits rose by £100bn last month to around £710bn. This on the back of further falls in medium term gilt rates, the yield on which is used to determine liabilities. See earlier Langton work on pensions, specifically how using the gilt yield to determine long term liabilities may be somewhat misleading.
• Sterling has hit a four-week high and the FTSE made strong gains at the tail end of last week, although the US came out with disappointing jobs growth.
• MPs are to debate a public petition calling for a re-run of the EU referendum, which has gained more than four million signatures. Brexit secretary David Davis has called the referendum result ‘an historic and positive moment for our nation,’ adding that the UK should aim much higher than simply ‘making the best of a bad job.’ Various countries at the recent G20 summit have warned of the turbulence the move might generate.
• Japan’s government has cautioned that Brexit could make Japanese firms relocate their offices out of Britain and into Europe ‘if EU laws cease to be applicable’. Japanese firms including Nomura bank, Hitachi, and carmakers Honda, Nissan and Toyota, employ an estimated 140,000 workers in the UK.
• City may be ‘due for £30bn’ IPO ‘bonanza’ as owners seek to offload holdings into a buoyant market per reports.
• World markets: UK & Europe higher on Friday, Wall Street also up. Far East higher in Monday trade
• Brent crude trading around $46.40 per barrel. Down a shade after weekend rally.
• US average hourly earnings up 0.1% in August, month-on-month. Slightly below expectations
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Asda income tracker reports families have seen a 1.9% increase in earnings since July 2015. Disposable income hits av. of £202 per week
• Asda says ‘growth in spending power has slowed as essential item inflation increased to 0.1%’.
• Brakspear has reported ‘strong results for 2015’ saying that turnover for the year to end-Dec rose by around 13% to £22.4m.
• Stonegate boss Simon Longbottom says his company could add ‘hundreds’ more sites in a fragmented market.
• From the property owners’ point of view, L&G has reported that it now has 5 new Five Guys restaurants across its estate
• CGA Strategy and MatchPint data shows 80% of publicans think Premier League games shown on Sky have v. positive effect on sales.
• South Africa-based Famous Brands has bought the 75-strong Gourmet Burger Kitchen and intends to double no. of units in 5yrs
• All Leisure Holidays has sold specialist operator Discover Egypt as part of a management buyout.
• Younger Brits are ‘more likely to consult a travel agent’, according to a survey for Travel Weekly.
• Sterling up yesterday on back of strong manufacturing data. Aug PMI up from 48.3 to 53.3 helped by lower Sterling
• The number of Americans filing for unemployment benefits rose by 2,000 to 263,000 in the last week
• Other Tweets: Lower oil price, lower metals prices, gold down and soft commodities cheaper. Inflation, where art thou?
• BDO Tracker: LfL non-food retail sales down by 9.6% in week to 28 Aug. OK, so it will be weather-impacted but still, not a brilliant number
• High street footfall down & hot weather in August. Neither good for Costa. Whitbread not updating till 25 Oct H1 numbers
• Online sales growth slowing per BDO Tracker. Says non-store sales only up by 12.6% in week to Aug 28 vs year ago
• Tim Horton’s coming to the UK. Just what we need, another branded coffee chain.
• Stonegate aims to add ‘100s of units’. Presumably all by acquisition, not likely to be new-build
RETAIL NEWS WITH NICK BUBB:
• Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s Grocer magazine saw Asda wrestle back victory, having slipped behind Morrison’s in the previous two weeks. But the Asda basket of £70.51 was only £1.67 cheaper than 2nd placed Tesco (so Asda was forced to dole out a hefty £6.38 price guarantee voucher). Morrison’s was in 3rd place on £72.34, but might have won again, but for ending a half-price promotion on a half-leg of lamb, which was in this week’s shopping list. Sainsbury was 4th on £74.29 and poor old Waitrose was a distant 5th, with a basket costing as much as £86.98 (albeit this was skewed by the high price it charged for the half-leg of lamb and for Persil laundry powder). There was better news for Waitrose in the separate Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as
• Weather Watch: Memories about “the weather” are notoriously short-term, so, ahead of Tuesday’s BRC-KPMG Retail Sales survey for August, 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 their headline for August this year was “A warm finish to summer: Great for clearance but tough for transitional”. August averaged almost 1 degree C warmer than last year (at 16.2°C), with the second half of the month a couple of degrees warmer than both last year and normal. Late month heat waves reached the 30s across the South, with London topping out at around 34 C. While the heatwave was ideal for sun lovers (and barbecue lovers…) it was much less favourable for Fashion retailers, as it negatively impacted footfall and stifled demand for
• ASOS: We noted on Friday that we hadn’t heard of the trademark infringement disputes with the high-performance cycle wear manufacturer Assos of Switzerland and the German menswear retailer, Anson’s, but it turns out that they have been dragging on for several years and that if ASOS had not settled there was a risk that it would have had to re-brand its operations in some key markets. The settlement also opens up the opportunity of moving the ASOS own-brand into the booming ‘athleisure’ market, so, whilst the £20.2m cash settlement was quite big, we can see why the City reacted well to Friday’s news.
• IR Watch: The analyst community in the City has become a rich source of Investor Relations Directors for retailers and after the recent move of Fraser Ramzan to Marks & Spencer, we note that another former Retail analyst, James Collins, starts work on Monday at Sainsbury in the same role. Coincidentally, perhaps, after Friday’s completion of the Argos takeover, Sainsbury’s highly regarded CFO, John Rogers, has become the MD of Argos (his former No 2, Ed Barker has become the interim CFO, while Sainsbury’s search for a permanent replacement).
• Saturday Press: The ASOS trademark settlement got lots of coverage in the Saturday papers, not least because it provided some useful fashion model photo opportunities, and the Times had some good quotes from ASOS CEO Nick Beighton about the rationale for the trademark deal. Sports Direct remained in focus, with the Guardian highlighting that some big North American pension funds have joined the call for management change at Sports Direct, whilst the Times flagged, a little implausibly, that Mike Ashley has “softened his edges to win the PR battle”. Another big story was the Marks & Spencer pay and pension deal, with the Times highlighting the cut in the Sunday pay premium and the Daily Mail noting the £150m exceptional pension charge that M&S will incur this year. Talking of M&S, the lead Business story in the Daily Mail was an oddly-timed article noting that
• Sunday Press: The Sky News scoop that Marks & Spencer will cut 500 jobs at its HQ next week was a big talking point in the Sunday papers, and was the main Business story in the Mail on Sunday (which also noted that M&S has yet to set a date for Online boss Laura Wade-Gery to return to work after her maternity leave ended last week). And the news that Morrisons is to cut the price of 130 meat, fruit and vegetable items by an average of 12%, as part of its “Price Crunch” initiative, was widely seen as another twist in the supermarket price war, as highlighted by the Sunday Telegraph, the Sunday Times, the Sunday Express and the Mail on Sunday. The upcoming Sports Direct AGM remained in focus, with the Observer running a full-page preview of the “Burning questions investors need to voice at the Sports Direct showdown”, although the Sunday Times flagged
• Today’s Press and News: We haven’t seen Monday’s papers yet, but we imagine that there will be more about the M&S HQ job cuts, as well as more previews of the Poundland and Sports Direct AGM’s on Wednesday. And note that the so-called independent report on working practices at Sports Direct being undertaken by the law firm RPC is due to published early this week.
• News Flow This Week: The pace of news flow picks up this week, beginning with the BRC-KPMG Retail Sales for August first thing on Tuesday (this should show weak Non-Food sales and strong Food sales, reflecting the hot weather), followed by the Halfords quarterly update. On Wednesday, the Joules finals are going to be massively overshadowed by the Sports Direct AGM/Open Day and the Poundland AGM/EGM on the Steinhoff bid. Thursday then brings the Dixons Carphone Q1. Incidentally, if you were expecting the Topps Tiles pre-close update today, it comes out on October 5th, not Sept 5th (there was a typo on the company website…).