Langton Capital – 2016-09-08 – Dart Group, beer sales, over-building, Brexit & other:
A Day in the Life:
So I think that IT is great and, when it works, it makes life easier – or if not easier, it at least allows you to do more work for the same amount of stress.
However, when it goes wrong, when, for example you hit the ‘send’ button and nothing happens, it can be a bit frustrating as you just try finding a telephone number at Google, Hootsuite, Linked In, Twitter, MS Office or wherever because there just won’t be one.
Hence you have to hit the Help button, outline your problem in print and then get a reply along the lines of ‘have you tried our ‘bug-buster’ suggestions and/or we hope to reply within a number of hours’.
Which is probably quicker than calling out a plumber to your washing machine – but not by much and, if you have just laid an email that’s going cold as the minutes click by, it’s not really good enough, is it?
Indeed, the email yesterday did send. Twice, as it happens but the first comment we got from the email provider was ‘we’re busy, sorry for your wait’ (around 11am) and then the second email (1am this morning, 18hrs after the problem arose) was ‘it appears as though the problem has sorted itself out’. Turn it off and on again, hey?
Technical note: As mentioned above, we had an IT glitch yesterday. The email wouldn’t sent and then sent twice hence just a reminder that, should the email not have turned up by 8am or so, it should be updated and readable on the website by that time. On to the news:
PUB, RESTAURANT & DRINKS PRODUCERS:
• Beer sales poor in July against better weather last year. Down double-digit % in On-Trade. Should reverse in August
• Beer sales also poor in Off-Trade in August. Down by not far shy of 10%. Tough weather comps. Aug should be better
• Accountants Wellers suggest that the hospitality industry should turn its focus away from the cut tourism VAT campaign. It says a cut is unlikely and working towards it represents misdirected effort on the part of the trade. It says ‘the government has yet to yield on this matter’ and adds ‘in fact Brexit has made any relaxation even more distant.’ Wellers says that moves to boost demand, e.g. through lower VAT, are not the main issue. The company says ‘growth has been consistent for the last 20 years despite the financial crisis and terrorist threat. London hotels enjoy 80% occupancy rates, demand remains high and prices are strengthening year-on-year. Given current significant growth it’s difficult to see a case for a tax cut.’
• Barclaycard has reported ‘consumer spending reaches 13-month high as shoppers enjoy best of British summer’. It says ‘consumer spending rose 4.2 per cent in August, the highest year-on-year increase since July 2015 thanks to a combination of good weather and holiday-goers firmly committed to overseas travel plans made earlier in the year’.
• Barclaycard reports that ‘consumer sentiment remains muted with only four in ten feeling confident in the UK economy’
• UK Caffe Nero’s UK MD Neil Riding is to retire from the company after 5yrs in charge. Ex Wagamama director Glyn House is to take over as UK MD. Founder & CEO Gerry Ford comments ‘Neil has been a great asset to this company, we are sorry to see him go, and he will be missed. Nonetheless, I welcome Glyn to my team. He brings a wealth of experience and a great track record.’
• Pernod Ricard has reported that Britain’s vote to leave the EU should add around €30m to annual profits due to increased Scotch exports
• UK coffee shop operator Temptations has launched an equity crowdfunding campaign on Seedrs to help fund the opening of two new cafés in central London. The group comments ‘we are very excited to be offering our loyal customer base the opportunity to invest alongside Seedrs investors, giving them a unique opportunity to play a part in our future growth. Our campaign is a natural progression for the brand, and we plan to use the funds to facilitate our expansion plans across London and become a household name’.
• Stonegate has bought 10 pubs across England from JD Wetherspoon for an undisclosed sum.
• Paul UK has returned to profit on the back of LfL sales growth of 6.3% reports Propel.
• Wagamama has reported a 9.8% increase in LfL sales in the first quarter of its current financial year
• Canadean has reported that the global savory snacks market will rise from US$94.5 billion in 2015 to US$138.2.billion by 2020, representing a compound annual growth rate (CAGR) of 7.9%. Canadean reports ‘big opportunities exist in large, populous developing countries with low per capita consumption levels, such as China (0.8 kg of savory snacks per person in 2015) and India (1 kg), compared to the high levels of consumption in developed countries such as the US (9.5 kg) and the UK (7 kg).’
• Tech start-up Divido, which allows consumers to break up payments while paying the retailer in full straight away, has received £2.5m in seed funding led by Mangrove Capital and DN Capital. The group works as an alternative payment method in the point of sale consumer finance sector by connecting people to its own marketplace of lenders who compete to offer suitable credit.
• Yo! Sushi is preparing to open its first site in New York and seventh in the USA in November, an 1,800 sq ft unit in the Flatiron District.
• Islington Borough Council has revoked iconic nightclub Fabric’s license for good after the drug-related deaths of two teenagers. The decision form stated that the teenagers and their friends were ‘able to conceal drugs on their person and get through the search and entry system without the drugs being detected’ and that people entering the club were ‘inadequately searched’. Following the earlier temporary removal of Fabric’s license , an online petition addressed to London mayor Sadiq Khan gained almost 150,000 signatures in support of keeping the club open.
• Amazon Restaurants now allows Prime members in certain postcodes across London to order food from selected restaurants for free delivery within the hour. The enterprise is available under the Amazon Prime Now app and competes with other online delivery operators such as Deliveroo. Amazon Restaurants currently boasts a range of operators, including Pizza Pilgrims, Red’s True Barbecue, and Absurd Bird and is promoting its new service with a £10 promotional code available on its app.
• Artisan coffee chain Grind & Co has launched its own roastery, which will help underpin next year’s roll-out of three to four sites, writes MCA.
• The ALMR has warned that local authorities need to communicate better and work more closely with the sector in light of Fabric’s announced closure. The trade body says councils risk unnecessarily shutting down more venues, which would harm the UK’s night time economy and its vibrant music scene.
• ALMR Chief Executive Kate Nicholls commented: ‘Management at the club were acutely aware of their responsibilities and had practices in place to ensure the safety of their customers, as highlighted by Finsbury MP Emily Thornberry, who was happy with the club’s best practice. Mayor of London Sadiq Khan called for a “common sense” solution, which is exactly the kind of working relationship the licensed hospitality sector is trying to foster, and exactly what we did not get from Islington Council.
• ‘The ALMR has been a vocal champion of the UK’s late-night economy and we believe that nightclubs such as Fabric are not just crucial economic drivers, but an integral part of the country’s social zeitgeist. Both local and national authorities need to work closely with the sector, not fight against it, or we risk losing more venues and doing irreparable damage to the UK’s music culture.’
• Increased food sales (+13.4%) helped petrol forecourt retailer Applegreen grow first half profits 5.5% year-on-year. Revenue for the group, which operates 220 forecourt sites across the UK, Ireland, and the US and has partnerships with Subway, Costa, and Greggs, saw revenue rise 7.4% to €556m as EBITDA increased 15% to €13m. Applegreen opened 17 new food outlets during the period.
• The number of jobs provided by the convenience store sector has declined for the first time since 2012, down from 407,000 to 390,000 in 2015. The figures from the Association of Convenience Stores’ (ACS) 2016 Local Shop Report shows the price of growing wage costs across the sector as retailers cut back on job numbers and staff working hours. ‘This is consistent with the feedback from other ACS surveys showing retailers cutting back on staff hours to cope with the big increases in wage costs, not least because of the National Living Wage,’ said the ACS.
• Chipotle shares rose yesterday as it was revealed that activist shareholder Bill Ackman had built a 9.9% stake.
• Asda has reported higher profits last year despite a fall in sales. Costs had been cut.
OVER EXPANSION, CHEAP MONEY & FRAGILE DEMAND:
Restaurant Group & Ed’s Easy Diner have said that they are to dispose of units:
• Restaurant Group has said that it is taking ‘catch up action on underperforming sites’
• It is to close 33 units
• Ed’s has also said that it is to consolidate its position & exit 3 units
• RTN and Ed’s are unlikely to be the last operators to trim their estates
• But it’s one thing to announce an exit from (presumably underperforming) leasehold sites and quite another to achieve it
• Having said that, having a tail of poor or shut sites didn’t do Spirit much harm in the end
If sites are available, better we have them than the competition:
• That (and cheap money) has got us where we are now
• Operators may well have scrambled for sites that they would not otherwise have sought out
• Retail parks with 8, 10 or 12 casual dining outlets arguably have too much cutlery on site
• Poor operators (undifferentiated, entitled and/or lazy) will do least well but all operators will suffer as the cake is sliced more thinly
So what’s the answer?
• Here’s the thing with answers, there sometimes isn’t one.
• Macro and micro incentives may remain out of line for some time.
• The market may not have a braking mechanism. It may only have a crashing mechanism.
• Making the best of a bad job entails having a superlative & relevant offer, attractively priced
• Ultimate takeaway may be to slow leases, buy freeholds. That’s what JDW/MARS are doing
LEISURE TRAVEL & HOTELS:
• Dart Group says results to be ‘slightly behind current market expectations despite good trading performance achieved in year to date.’ This due to ‘the significant investment which will be committed in the second half of this financial year to launch our London Stansted and recently announced Birmingham Airport bases’. , it is likely that Group operating profit will be slightly behind current market expectations despite the good trading performance achieved in the year to date.”
• Dart Group (Jet2) updates on trading saying ‘the good start to the financial year as reported [at our full year] has continued’.
• Dart says trading ‘with summer Leisure Travel bookings showing no signs of slowdown.’ It adds ‘demand for our higher margin package holiday products continues to grow and as a result the number of package holiday customers, as a proportion of total departing customers, is also increasing. Though airline ticket yields and load factors are slightly lower than those achieved in summer 2015, this is against a backdrop of a 13% increase in seat capacity. Leisure Travel bookings for winter 2016/17 are satisfactory at this early stage.’
• Dart says ‘the Board is also pleased to announce London Stansted Airport as our ninth UK base. We expect to welcome customers on board our holiday flights from this new base in spring 2017.’
• Las Vegas is the fastest growing long-haul city break for Southall Travel with bookings up by circa one third over the last year.
• Barclaycard says ‘spending on experiences and holidays boosted growth in August.’ It adds ‘travel spend grew 3.2 per cent to a three-month high, driven by spending on hotels which rose 14.9 per cent, recording its highest year-on-year increase in 24 months.’ However, Barclaycard adds ‘the growth was primarily due to the rising cost of overseas accommodation in line with the depreciation of the pound.’ The card administrator reports ‘spending peaks in travel and hotels indicate that most consumers were firmly committed to their summer plans, and spent on trips and excursions they booked months in advance. Yet confidence continues to be shaky as the wider economic picture remains uncertain, suggesting it’s too soon to tell if this lift in spending will last once everyone’s holiday tans have faded.’
• News of locally-transmitted zika virus transmissions in the Miami area led to a 20% drop in airline bookings to the destination last month reports ForwardKeys
• STR forecasts that the US hotel industry will continue to grow in 2017 ‘albeit at a slower rate’. It is saying that ‘rate will be the driver of REVPAR growth this year’.
• More than 80% of Britons did not avoid booking a holiday until they knew the results of the EU referendum vote, according to a poll of 2,000 people. However, more than a third of respondents say concerns over exchange rates would make them less likely to travel. A total of 79% claim that value for money is a major factor to consider, meaning ‘all-inclusive’ options proved the most preferred board basis (34.7%).
• More than 45% of those surveyed worry that the country they are travelling to may become unsafe, with ‘terrorism’ referenced as the key fear, while the reassurance of booking with a trusted brand also proves to be a big draw, particularly with millennials. Just under half of respondents (45.7%) said that they would be less concerned about holidaying following the referendum if they knew that they were travelling with a well trusted brand.
• Europe is still the number one people’s booking choice for 2016 and 2017 travel (57.27%), however there was an increase in Caribbean (5.18%) and US bookings (16.83%) year-on-year.
• The Scottish government’s move to formalise plans to cut Air Passenger Duty from April 2018 has been welcomed by Abta.
• Uber and Lyft have announced partnerships with healthcare providers to allow clients to use their services without needing a smartphone.
• Shares in Nintendo rose by as much as 18% yesterday on the back of the launch of a new version of its Super Mario game.
FINANCE & MARKETS:
• B of England Governor Mark Carney has defended the Bank’s move to cut rates last month, suggests it headed off a recession. Carney said he feels ‘comfortable with the decision I supported and that the committee took in August to supply monetary policy stimulus.’ The Bank now expects growth of around 0.1% in Q3 this year. Carney adds that the Bank’s actions have been ‘validated’.
• NIESR reports British economic growth slowed in the three months to August & says there is a significant chance of a recession next year. It says ‘the evidence on the current state of the economy post-referendum is limited, but on balance these data suggest that the UK economy is in the midst of a slowdown.’
• UBS has said that up to 30% of jobs in the UK could be at some risk post Brexit.
• Theresa May does not have the mandate to take a part of Britain out of the EU suggests SNP leader Nicola Sturgeon
• CBRE’s latest property index shows that returns slowed in August to 0.8% from 0.9% in July
• Halifax reports a further slowing in the rate of house price growth. Values fell by 0.2% in August but are +6.9% on a year. The Halifax says ‘house price growth continued the trend of the past few months in August with a further moderation in both the annual and quarterly rates of increase. There are also signs of a softening in sales activity.’ It adds ‘the slowdown in the rate of house price growth is consistent with the forecast that we made at the end of 2015. Increasing difficulties in purchasing a home as house prices continued to increase more quickly than earnings were expected to constrain demand, curbing house price growth.’
• The RICS reports that activity in the UK housing market has now ‘settled down’ post the Brexit vote. Says prices & volumes should rise from here. Expects prices to increase by around 3.3% per annum for the next 5yrs due to housing shortage. What will happen if 1m Poles go home or if interest rates ultimately start to rise is not so clear. The RICS does say ‘buyer enquiries did dip again in August but only modestly, and more significantly, sales expectations are beginning to edge upwards once again. It is likely the swift response from the Bank of England has played a role in helping to support confidence.’
• World markets: UK & Europe up yesterday but US lower. Far East mostly down in Thursday trade
• Oil price up a bit, Brent trading around $48.70 per barrel
• UK industrial production up by 0.8% in July against expectations of a c1.7% rise
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• Pret a Manger is to retain its veggie shop after the trial in which it sold veggie only food in Soho proved to be a success
• Restaurant Group expands presence on Deliveroo, now available at 12 Chiquito sites since May, to include Coast to Coast brand
• The CEO of Ed’s Easy Diner has admitted the chain is ‘pausing for breath’ after expanding too quickly. It is in talks to hand back 3 sites
• London City airport was forced to close yesterday morning after activists occupied the runway in protest at expansion
• Hotelplan said in its trading update that the Brexit vote has caused uncertainty and the fall in the pound is posing challenges
• Lego sales grew by 11% in the first half of this year to 15.7bn kroner (£1.8bn), although net profit fell from 3.6bn DKK to 3.5bn DKK (£393m)
• Other Tweets: Brexit, try to keep emotion out of it. Good news so far has been exporters (pound down but now strengthening) & over-spending by consumers
• Some observers say ££ could go back to 140c. Would remove the tailwind that exporters have thus far benefited from. £ also at 4wk high v €
• Pig prices extremely low. Albeit in US$ terms. But £ is strengthening. Good news for producers, Cranswick etc.
• Weak soft commodity prices. No wonder BRC saying food prices fell be record amount in August.
• Sports Direct shares down on downgrade. FT says ‘Mike Ashley is thumbing his nose at the City’. Bit harsh?
• Sports Direct. Perceived logic not helpful. FT says ‘odd governance means it now trades at a discount.’
• Sports Direct. Entrepreneur makes billions then sees the light; not the other way around then?
• Overexpansion. Restaurant Group to shut 33, Ed’s to shut 3, probably more to follow. Tails are normal but too much cash => too many units?
RETAIL NEWS WITH NICK BUBB:
• Dixons Carphone: We flagged yesterday that ahead of today’s Q1 update from Dixons Carphone (for the 13 weeks ended 30th July), the hard-working IR team had circulated this LFL sales consensus: UK up 2.5%, Nordics up 2.0% and Southern Europe up 3.0% (to give a Group average of +2.5%). Inevitably, the outcome was better than expected, with the UK up 4% LFL, despite store refurb disruption, the Nordics up by 2% and Southern Europe up by as much as 13% (driven by strong growth in Greece), to give an average of 4% overall. The estimable CEO, Seb James, says “thus far, we continue to see no detectable impact of the Brexit vote on consumer behaviour in the UK” and, although the year is yet young, “looking forward, we are optimistic about the future and about our ability to continue to outperform, without in any way being complacent”. Doubtless, some more
• Today’s Press and News: There is, inevitably, saturation coverage of the AGM and “Open Day” at Sports Direct HQ yesterday and the news that the Chairman Keith Hellawell has refused to resign after more than half of shareholders voted against his re-election and that Sports Direct wanst to become the ‘Selfridges’ of sports retailing. There are also lots of photos of the extraordinary moment when “Mad” Mike Ashley demonstrated the new warehouse security arrangements by digging a thick wad of £50 notes from his pocket at the checkpoint…The veteran City Editor of the Daily Mail says the continued fall in Sports Direct’s share price is unsustainable and that if Goldman Sachs can’t persuade Mike Ashley to ditch Keith Hellawell then they should “jump off the clattering train”, whilst the Business editorial in the Guardian