Langton Capital – 2016-09-14 – Trading monitor, over-expansion Stateside, Brexit & other:
A Day in the Life:Do you ever find yourself baffled by the boiler man, confused by your computer, discombobulated by your doctor etc.? And do you think it’s as old as the hills to stamp your authority by using long words, sticking in a bit of Latin or Greek and/or mumbling when trying (not) to communicate (including writing illegibly) and getting syllables the wrong way around just for good measure? Because I believe that may be the case. In fact it’s quite likely that 10,000yrs ago the guy in the cave next door would have been telling you ‘you don’t want to do it like that, you want to do it like this’ and adding for good measure ‘who on earth did you get to do this job (mend you cave door, re-shoe your mammoth or cut your hair), what a cowboy (or bandit/pirate/Neanderthal etc.)?!’ Hence when the heating engineer tells me that my splange sprocket is worn and my didactometer is running at half speed I’m wont to simply nod and pay him along with everyone else out there. It’s the law. On to the news: The News:RECENT WEBSITE ARTICLES: • Summer trading – here • Over-expansion issues – here • JD Wetherspoon numbers – here • JD Wetherspoon analysts’ meeting – here • Greene King trading update – here PUB, RESTAURANT & DRINKS PRODUCERS: • The latest CGA Peach AlixPartners Multi-site restaurant group survey says that the sub-sector ‘continued to see strong growth’. The period covered is the 12 months to June this year. • Monitor says no. of units rising at perhaps 10x rate of inflation or 5x current rate of GDP growth. Branded restaurant sites +5.6% y-o-y. • Monitor adds ‘it is not just casual dining that has benefited from the public’s search for new food and drink experiences. The managed, branded food pub sector has remained buoyant too, largely driven by the conversion of existing wet-led sites to food-focused formats. Overall, managed pub groups, and in particular branded concepts, expanded by 8.7% in the 12 months to June and the number of food-led pubs grew 2.0% to just under 10,500 in the same period.’ • Higher supply meets lower demand. Result, well, you tell me. Is only half the story as there are more branded but fewer indie units. • Monitor says ‘upbeat growth comes against the background of an otherwise softer eating and drinking-out market.’ It adds ‘the slow-down in the overall UK economy seen in the run up to the EU referendum is reflected in the latest openings and closures numbers for licensed premises.’ • Monitor suggests ‘community drink-led venues continue to struggle in many parts of the country, and the country’s overall supply of food-led licensed premises has fallen by 0.3%, due largely to a fall in numbers of independent single-site businesses.’ • Ocado still talking about cash-burn 16yrs after the group’s foundation says influential FY alphaville session. • Telegraph says ‘Ocado rarely fails to disappoint’ & adds ‘there is always some reason why the pot of gold at the end of Tim Steiner’s digital rainbow remains just out of reach.’ Margins now lower and under pressure, Telegraph’s Questor column ‘has long been an Ocado sceptic.’ New competition (Amazon and the food retailers themselves) has been and remains a major problem. Questor says ‘after 16 years in business, the company trades at a lunatic price to earnings ratio of 142, falling to 103 in 2017. It yields nothing, never has and is unlikely to for the forseeable future yet still draws faith-based investors.’ • Ruby Tuesday announces President & CEO JJ Buettgen is to leave the company with immediate effect. Board of Directors has appointed F. Lane Cardwell, Jr. as Interim President and Chief Executive Officer. Chairman Stephen Sadove reports ‘we would like to thank JJ for his dedicated service to Ruby Tuesday.’ • Ruby Tuesday reports preliminary Q1 numbers, says same store sales fell by 2.7%. Group has closed 95 units under its ‘asset rationalization plan’. • Ruby Tuesday prelim. Q1 numbers suggest loss per share of between 67c and 74c. Adjusted net loss should be around 11c. • Over-expansion bites? Ruby Tuesday says poor LfL numbers exclude performance of 95 units now closed under rationalisation plan. • JDW yesterday bought back 70k shares for cancellation at an average price of 918p. • BBC suggests that never retiring at all could be the solution to the country’s demographic benefits time-bomb • James Dyson has said the UK should leave the EU pronto and negotiate trade deals at its leisure • Convenience-hungry consumers are increasingly buying from operators savvy enough to integrate click-to-buy features directly onto social media as opposed to their own websites. The online arena is measured in milliseconds, and the difference between user-friendly and inaccessible can be as slim as being able to buy straight from Facebook, Instagram, or Snapchat versus having to open up a browser to track down a brand website from which to order. • Since 2012, social media platforms including Twitter, Facebook, Instagram, Pinterest, Tumblr, and Snapchat have integrated click-to-buy features. In the food marketplace, Domino’s Pizza was predictably near the front of the click-to-buy trend back in 2012, launching Facebook in-app ordering in Australia and New Zealand, while Burger King and Pizza Hut have pursued ordering via Facebook Messenger. • Online delivery hubs such as Deliveroo, Uber Eats, and Amazon Restaurants have also proliferated, with delivery expanding by 69 million orders in the US over the past four years as drive-thru traffic fell. The trend towards consumer convenience is manifesting in other ways as well, for example McDonalds UK’s current roll-out of touch-screens for orders, and the ongoing rise of food courts, which, while not exploiting tech per se, provide a range of experiences in a small space. • US restaurant group Red Dog Saloon has bought its first site outside of London, in Nottingham, with additional sites to be announced in Liverpool and Southampton. The barbecue chain intends to grow by five sites a year until it reaches 60 sites in the UK. • The latest Wilson Drinks Report shows a mixed of performance, with total sales value down 3% for the 13 weeks to 26 March 2016 after falls across both still and sparkling wine. Tim Wilson, Managing Director of WDR, explained, however that the 3% fall ‘doesn’t tell the whole story as 11 out of the 14 retailers taking part in our study saw sales value and the total number of transactions increase compared to the same quarter for last year. • ‘In fact 6 retailers out of 14 saw sales value increase by at least 10%. We believe that the online channel is still increasing in size and that it won’t be long before the overall numbers start showing consistent, double digit growth. Some of the KPIs in our report show retailers achieving significant growth, large average basket sizes and high average selling prices per bottle. For instance, the overall still wine selling price is nearly 50% above the average for the off trade.’ • Andrew Griffiths MP will step down as chairman of the All-Party Parliamentary Beer Group following his appointment as a member of the Government Whip’s Office. • The WSTA has warned members that the wine industry must act now to work out ‘model’ trade agreements rather than waiting for Brexit. The trade body said that industry participants must seek to direct talks with government and push for the best deal for consumers and the industry in any free trade agreement. A recent YouGov poll conducted for the WSTA’s market report found around 87% of people polled wanted to see free trade agreement with non-EU countries, while 86% of people said they want a free trade deal with the EU. • Lego will open its largest store ever in London’s Leicester Square on 17 November, clocking in at 914 square metres over two floors. • The average cost of everyday household goods and services rose by 0.6% in the year to August, leaving the UK inflation rate unchanged from July. Cheaper hotel rooms partially offset rising food prices and air fares, according to the ONS, although the second month of raw material inflation from the weaker pound shows ‘little sign of feeding through to consumer prices yet.’ LEISURE TRAVEL & HOTELS: • A crew member of the world’s largest cruise ship has died after being injured in a lifeboat drill. Royal Caribbean International, operator of Harmony of the Seas, said: ‘We are sorry to share the sad news that a crew member aboard Harmony of the Seas has died of injuries suffered during a lifeboat drill conducted while docked at the port of Marseille, France. Four other crew members received medical treatment in the same incident.’ FINANCE & MARKETS: • UK house price inflation fell to 8.3% in the year to July from 9.7% in June as the average house rose to £217,000 in the first full month after Brexit. The eastern region of England saw an annual rate of inflation of 13.2%, while prices in London grew at 12.3%, although they fell in parts of Central London. The Royal Institute of Chartered Surveyors recently said the housing market had settled down in the aftermath of the referendum and it now expects prices to continue to rise by an average of 3.3% a year for the next five years. • HMG reported to be close to abandoning pledge to deliver 200,000 starter homes by the end of the decade • ECB should hold off on fresh stimulus measures says board member Sabine Lautenschlaeger. The relative hawk said ‘instead of new and always more extreme measures, we need a little patience. We will therefore need to be patient for a while before being able to make a final assessment of the purchase programme. That’s why I see no reason at the moment to change the key design elements of the purchase programme.’ • World markets. UK & Europe down yesterday, US also lower. Far East mixed in Wednesday trading • Brent crude trading at around $47.30 per barrel YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE: • JD Wetherspoon is offering its 24,000 workers the option to move from zero-hour to permanent contracts following trial • JDW yesterday bought back 35,000 of its own shares for cancellation at an average price of 916p. • A Visa & Markit Expenditure survey has suggested that consumer spending grew at its weakest pace in 15mths in August • Pragma Consulting reports that domestic tourism is ‘shining through the gloom’ post the Brexit vote • British holidaymakers may have to apply for visas to visit Europe once the UK leaves the EU should member states so choose • Goals Soccer reports H1 numbers, says ‘recovery well underway’. Revenues £17.0m (2015: £17.1m), profit £3.8m (2015: ££4.5m). • Goals reports ‘the rate of like-for-like sales decline slowed significantly from minus 11.4% in H2 2015 to minus 2.0% • Sportech has announced a proposed sale of The Football Pools for a total cash consideration of £97.25m to Burlywood • Rating agency Standard & Poor’s has said that the signs of a UK recovery post the Brexit vote may be a ‘mirage’. • Corporate activity is said to have ‘chilled’ post the Brexit vote. Reuters suggests deals are at the lowest level in 20yrs • Manpower Employment Outlook Survey suggests employment plans of bosses have been cut back in 9 of 10 sectors surveyed • Other tweets: Wall St has its best day in 2mths. But it’s not good enough to extinguish Friday losses, Far East rally fizzles & Europe unchanged • ABF’s Primark slows down, co goes ex its rocket fuel leaving it as what, a sugar company? • Staycations on the up. Brexit good for caravans, Hi-De-Hi camps, tents & toffee apples. Less good for wider economy… • Ocado down 14% on no overseas news, thinner margins etc. Morrison’s sidling up to Amazon, Ocado business plan unclear. Still heavily shorted • JDW still buying back shares >£9. Putting its shareholders’ money where its mouth is. Group on 22x earnings, however • Need a visa to go to Spain? Probably unlikely but wouldn’t be good news for outbound tour operators. Prefer Cooks with its China option… • Brexit ‘good news’ a mirage, says S&P. Sept. will be a more ‘normal’ month to judge but could be into next year before clearer view emerges RETAIL NEWS WITH NICK BUBB: • Dunelm: Today’s finals from Dunelm (for the 52 weeks to July 2nd) are headlined “Delivering on our plans and increasing sales, profits and dividends” and there is a lot of trumpeting about increased market share in homewares, although total sales only increased by 7% (up 2.5% LFL) and PBT of £121m was only up by 6%. The CEO John Browett gushes that his first year in office has been “extremely busy”, but most analysts will jump over the long list of strategic initiatives and “enablers” to the warning that “hot weather can have a dampening effect on footfall, so the start to the new financial year has inevitably seen some impact here”. However, the rest of the statement is perfectly confident so the shares are unlikely to come to too much harm ahead of the 9.30am analysts meeting.
• John Lewis Partnership Sales Watch: The continued hot weather did not hinder the cause of John Lewis as might have been expected last week, as delayed “back to skool” business kicked in to boost the outcome, so the sales rise of 9.1% gross in w/e Sept 10th (up about 7.5% LFL) was surprisingly strong. Electricals had a very good week, at +15.8% gross on last year, the Home category saw sales up by 5.2% gross and Fashion was up by 6.8% gross. Over the last 6 weeks, gross sales at John Lewis are cumulatively now up by 2.0% (marginally up LFL). At Waitrose gross sales were up by 7.1% (c4.5% up LFL) in w/e Sept 10th, boosted by the fine weather and more promotions (the “Half-Price Event”). Over the last 6 weeks, gross sales at Waitrose are cumulatively now up by 5.0% (about 2.5% up LFL). So the trading update statement from John Lewis Partnership with their
• Today’s Press and News: The big story is the margin warning from Ocado yesterday, given the big fall in the Ocado share price, and this tends to crowd out coverage of the excellent interims from the booming JD Sports, although the FT flags that “JD Sports ‘athleisure’ fuels record profits surge” and the Business editorial in the Telegraph looks at the subject of “Athleisure – an excuse to not get changed or the saviour of the High Street?”. The FT article on Ocado is headlined “Warning over price war delivers blow to Ocado” and it also notes our view that the silence about the much-vaunted Overseas licencing deal is “deafening”, whilst the Ocado FD Duncan Tatton-Brown is widely quoted as saying that “it would not be a surprise” if analysts trimmed their earnings forecasts for 2016…In other news, Ikea |
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