Intercon, sector wage growth, stock picking & other:

A DAY IN THE LIFE:

Dashing around a bit today and Langton is on half term next week. A shortened email will still go out but there will be no Day in the Life. On to the news:

PUB, RESTAURANT & DRINKS PRODUCERS:

• Facebook has teamed up with groups including Deliveroo and ticketmaster to introduce a series of new features allowing users to order food and drinks on the platform.

• Fourth Hospitality has reported that ‘hourly pay in hospitality [is] racing ahead of living wage’. Says average rate now £7.71 per hour. Excluding under-21s, the pay rate rises to £7.92 per hour.

• Fourth Hospitality says industry is facing ‘very strong employment cost inflation’. Fourth’s Mike Shipley reports ‘with actual pay significantly outstripping the legal minimum for all age thresholds, businesses are clearly experiencing very strong employment-cost inflation.’ He continues ‘clearly it is difficult to predict whether this momentum will continue but there’s no sign of a levelling off at the moment. We expect to see the hourly-rate average in hospitality hitting £8 in January 2017, and we could well see average rates approaching £8.50 by April 2017 – when the next incremental increase comes into force. This could see the minimum legal living wage (for over-25s) move up to between £7.50 and £7.65.’

• Fourth Hospitality says Gender pay gap has totally disappeared. Males earned 13p per hour more last year.

• Fourth Hospitality reports the premium paid to London staff is narrowing – this despite crippling accommodation costs. Gap now just 11p/hour. Fourth says ‘it is clear that many of our clients are engaged in productivity programmes and initiatives, such as smarter rota scheduling and driving the amount of revenue taken per worker / per labour hour.  It is one of the key ways that hospitality and leisure companies can combat this era of aggressive labour inflation.’

• Pernod Ricard reports Q1 numbers, says are ‘consistent with existing FY17 outlook’. Organic sales growth 4%. Fourth Q1, total sales came in at € 2,248 million. The group reports ‘solid growth in Europe (+6%), partly favoured by technical impacts.’ Alexandre Ricard, Chairman and Chief Executive Officer, reports ‘we have had a good start to the financial year, consistent with our full year guidance. Therefore, we confirm our FY17 guidance of organic growth in Profit from Recurring Operations of between +2% and +4%. We will continue to implement our long-term growth strategy, focusing investments behind our priority brands, markets and innovations and remaining disciplined on pricing and costs.’

• Krispy Kreme UK has announced sales up 18.2% to £61.7m in year to end-Jan with profits of £11.8m (2015: £7.3m) per Propel.

• CAMRA may delay its final decision on its Revitalisation Programme until 2018, a year later than planned

• World wine output set to hit a 4yr low this year after bad weather hit France and South America

• Imbiba is to raise funds for three existing operations and one new company. EIS eligibility will set the 3yr clock running afresh one existing companies

• MPs have called for Sir Philip Green to be stripped of his knighthood

• ONS reports warm weather in September led to weak sales of food, clothing and footwear

• Carlsberg UK has added the craft lager ‘Celia’ to its premium beer portfolio from 1 November 2016.

• Starbucks is aiming to double its store count in China to 5,000 sites by 2021.

• Nestle has cut its annual growth forecast to 3.5% from 4.2% in August, citing ‘the current softer environment’, which is causing food prices to fall. Nestle’s nine-month sales were 65.51bn Swiss francs ($66.19bn, £53.93bn) up from 64.86bn Swiss francs last year and the group has struggled to increase prices in the face of intense competition from supermarkets.

• China has usurped the US as Australia’s most valuable export market. The value sales of wines to China grew 51% to AUS$474m during 2015, up from AUS$27m ten years ago.

• Pret a Manger’s director of food, Caroline Cromar, says the coffee chain is trialling new delivery models with Deliveroo and Uber Eats. Cromar added. ‘The landscape is definitely changing—it’s not our traditional rivals like Marks & Spencer but street food and disruptive delivery.’

• Australian Vintage has issued a second profit warning as a result of the decline in the value of sterling, from AUS$7.2m to AUS$3m. The group said in a statement that ‘Every global wine company that sells wine to the UK has experienced similar falls with the GBP declining between 18% and 34% against the various currencies,’ adding: ‘The UK remains a very tough market and we expect conditions to remain challenging for at least the next 12 months.’

IS THIS A STOCK PICKER’S MARKET?

Where are we now?

• Stock prices — when did 25x EPS & a 2% yield become ‘cheap’?

• Recent and regular profit warnings hint at a degree of fragility re. stretched valuations.

• Restaurant Group, Whitbread, Next, and Sports Direct have all seen their share prices come undone after being rated in the high-teens to mid-twenties on a PER basis.

• In such a deceptive market, the discernment of a good stock picker is more important than ever.

Polarised markets: are stretched ratings acceptable?

• Memories are short, leading some to suggest that Unilever deserves to be on a forecast PER of 20.5 because ‘that’s where it’s always been’.

• But the underlying drivers of this premium are arguably as a result of the past few years’ exceptional global markets environment.

• The relentless hunt for yield and a hunger for ‘bond proxies’ with international exposure appear to have turned the issue of valuation into a footnote.

Market distortions and the mispricing of risk:

• At 3477p, Unilever’s shares trade on 20.5x forecast earnings and 13.9 times EV/EBITDA.

• Premier Foods, meanwhile, trades on 5.6 times forecast earnings and 8.5 x EV/EBITDA.

• Of course Unilever is a more operationally resilient and financially robust company than Premier Foods.

• But elephants can’t jump and as a smaller company Premier Foods has the whole world to aim at, leading us to question whether such a substantial discount in terms of valuation is really merited?

LEISURE TRAVEL & HOTELS:

• Intercontinental Hotels Group reports numbers, says has turned in a ‘solid trading and strong signings performance’.

• IHG says Global Q3 comparable REVPAR +1.3% & +1.8% in y-t-d. Implies slowdown but says trading is ‘solid’

• IHG acknowledges REVPAR growth has ‘slowed’ but says fundamentals ‘compelling’ & group remains confident in outlook.

• IHG CEO Richard Solomons reports ‘we delivered a solid performance in the third quarter, leveraging our global scale to drive 3.8% net system growth and 1.3% RevPAR growth.’ Mr Solomons continues ‘we remain focused on executing our commercial strategy to drive competitive advantage. This includes broadening the footprint of our global portfolio of brands, across which we drove our highest signings for eight years, including our best ever third quarter performance for Greater China.’

• IHG CEO says ‘looking ahead, while industry RevPAR growth has slowed, the fundamentals for the sector, and particularly for IHG, remain compelling. This, combined with our winning strategy and the strength of our cash generative business model, will enable us to drive sustainable growth into the future. Despite the uncertain environment in some markets, we remain confident in the outlook for the remainder of the year.’

• IHG Q3 REVPAR. Americas +1.9%, Europe flat, Asia, Mid East & Africa down 0.1%. China +0.9%.

• UK online travel agent Alpharooms has been sold to Teletext Holidays’ parent Truly Group.

• STR reports US hotel market saw occupancy +1.6% in Sept with rate +3.9% and REVPAR some 5.6% higher

• STR reports US hotel industry went backwards in week to 15 Oct. Occupancy down 1.4%, rate down 0.2% and REVPAR minus 1.6%

• City of Culture Hull has secured a £185k grant from the Discover England Fund to develop cultural tourism. VisitEngland reports ‘these destinations [the corridor from Hull, through Leeds & Manchester to Liverpool] will open up the cultural offering of the north of England to the important German and Dutch visitor markets.’

• Spanish hoteliers have been cautioned not to ‘kill the goose that lays the golden egg’ by pushing prices up next summer.

• Inbound tourism to France fell by 7% in the nine months after the 13 November terrorist attacks in Paris.

• A report by the Centre for Economics and Business Research and Premier Inn suggests that face-to-face meetings make an annual contribution of £193bn to the UK economy.

OTHER LEISURE:

• Gala Coral Group has announced an 8.9% rise in net revenue in the 12 weeks to 25 September, thanks in part to strong online growth.

FINANCE & MARKETS:

• Net selling by financial institutions hit its highest level since the financial crisis in Q3 this year reports Lambert Smith Hampton

• ECB holds rates, will discuss how to extricate itself from its bond-buying programme in December.

• Mortgage lending at highest Sept number since 2007 but down on August number. Most action is re-mortgaging

YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:

• September Peach Coffer Tracker has overall LfL sales +1.8% in the month, casual diners +2.2%, pubs +1.6%

• Tracker: Better performance from casual diners to be welcomed. Pubs up against Rugby World Cup comps last year.

• Tracker says ‘consumer spending on eating and drinking out continues to hold up post Brexit vote’. Says underlying trends strong

• Tracker has provinces performing more strongly than London in September. London +0.9% LfL but provinces +2.2%.

• Something of a trend emerging in house prices, consumer confidence, hotel occupancy & F&B spend with provinces outperforming London

• Tracker: New capacity still an issue. Total sales across contributing companies +5.0% but LfL sales just +1.8%

• Wilson Drinks Report suggests champagne prices could rise by around £3 per bottle. Other reports have wine prices +29p

• The UK jobless rate held steady at an 11yr low of 4.9% in the 3mths to August per the ONS.

• ONS reports that average weekly earnings grew by 2.3% on an annual basis in the 3mths to August.

• Brexit campaigners suggest relative stability of jobs market proves ‘resilience’ of the UK economy since the 23 June Brexit vote

• Later tweets: Commodity prices worth looking at. Oil +100% in US$s but +130% in Sterling. Ditto sugar +68% in US$ but +100% in Sterling. Inflation cometh…

• Oil hit 15mth high overnight. Is +130% in ££ terms. Also Q3 going well in terms of profit reports in US. Valuations secure for the moment?

• UK post Brexit vote. No panic but some cracks. Markit has UK household finance survey for Oct at 5mth low w. fears re jobs, inflation etc.

• Kantar. Food price deflation easing. You can say that again. Deflation soon to be a thing of past w. sugar +100% etc. etc.

• Kantar has Aldi, Lidl revenues up ‘only’ 8%. The caution is right, though, given the lagging capacity that has gone on over last few months

• Tracker has capacity going on. Total sales +5% but LfLs only +1.8%. Low interest rates encouraging over-investment? Not sure but ask Ed’s…

RETAIL NEWS WITH NICK BUBB:

• Planet ONS Watch: We noted yesterday, ahead of the Office of National Statistics Retail Sales figures for September, that although the City consensus was for a 0.3% rise in “seasonally adjusted sales volume” month-on-month (+4.7% year-on-year), including petrol, our friends at Capital Economics thought that volumes could be only flat…and they were right! And after revisions to previous figures, year-on-year volume growth was only 4.1%. Sales value growth dropped back from 4.1% in August to just 2.4% (not seasonally adjusted) and that owed a lot to a suspiciously high estimate for the sales growth of “Small Retailers” (+6.0%, versus only +1.5% for “Large Retailers”…) and notably strong Non-Store sales growth (+17.7%, versus only c1% growth for both Predominantly Food and Predominantly Non-Food retailers…). The response rate for September’s survey was unusually low, representing
only 80% of the industry by turnover, so even bigger than usual revisions are likely next month…

• Toy Watch: It will soon be time for all the much-vaunted and very expensive Christmas TV ads from Marks & Spencer, John Lewis, Boots, Tesco etc etc, but last night the UK’s largest independent toy retailer, The Entertainer, unveiled its biggest ever Christmas TV campaign, entitled ‘The Tale of the Magical Penny’, featuring the voice of the iconic actor Brian Blessed, at the beginning of the ad break during a dramatic episode of the leading TV soap, “Emmerdale”, on ITV1. The Christmas campaign also includes The Entertainer’s first venture into cinema advertising and launching tonight the commercial will screen for four weeks across movies which target a family audience and include “Trolls”, “Swallows And Amazons” and “Asterix: The Mansions Of The Gods”.

• Leeds Watch: The impressive new John Lewis Leeds store that anchors Hammerson’s new Victoria Gate development is almost twice the size of the recent Chelmsford store (at 170,000 sq ft, spread over 5 floors) and has some terrific visual merchandising, according to the review on the Retail Week website by their estimable Store Design correspondent John Ryan. The Victoria Gate development is a spectacular arcade linking the new John Lewis with the upscale Victoria Quarter arcade (which is home to over 70 fashion and lifestyle brands such as Louis Vuitton, Paul Smith, Vivienne Westwood, Mulberry, LK Bennett, Reiss, Liz Earle and Harvey Nichols). The premium retailers and restaurants in the new Victoria Gate arcade include Le Pain Quotidien, Neom Organics, Hackett, Tommy Hilfiger, Anthropologie, GANT, Calvin Klein and Cath Kidston.

• Boots Watch: It used to be fun trying to work out the interplay between the impact of the weather and supermarket competition on Boots UK quarterly sales (and the growth of discount rivals like Home Bargains would now be an additional complication), but, alas, their results are now buried within the amorphous Walgreen Boots Alliance drugstore and wholesaling behemoth in the US. Yesterday’s Q4 results from Walgreen (y/e August) didn’t exactly shed much more light on the subject, as mighty Boots UK is subsumed within the Retail Pharmacy International Division (which includes big chains in Mexico and Chile etc), but Walgreen did flag that the overall 1% LFL sales decline in Q4 on a constant currency basis was “due to weaker performance in the UK”.

• BDO High Street Sales Tracker: We flagged yesterday that John Lewis did very well again last week, with LFL sales nearly 7% up (including Online), but that was driven by Electricals and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for w/e Oct 16th flags that Fashion Store LFL sales were only up a tad (0.1%). Boosted somewhat by robust Homewares and Lifestyle sales, total Store LFL sales were up by 1.6%, with overall Online sales up by 16%.

• Trade Press (1): The front cover of Retail Week magazine today is a series of photos of the new Sainsbury’s flagship store at Nine Elms, with the headline “Armchairs to avocados: Sainsbury’s store of the future opens its doors” and the lengthy article reviewing the store concludes that “It makes sense”. By contrast, the column by their Store Design correspondent John Ryan is headlined “Apple’s Regent Street store shows it is boring to the core”. In terms of news stories, RW focuses on the news that Tesco’s resurgence continued as it recorded its best quarterly sales rise in years, according to the latest Kantar figures, and that the Gap-owned Banana Republic fascia is on the verge of being binned in the UK. And in his column the Editor thunders that “As the golden quarter gets under way, Tesco looks the best placed it has been in years to celebrate a happy Christmas”, ending with the
deceptively simple words of the great Harry Selfridge: “People will sit up and take notice of you if you will sit up and take notice of what makes them sit up and take notice”.

• Trade Press (2): The front cover of Drapers magazine today is a photo of “Shopkeeper Extraordinaire”, Victoria Suffield, flagging a feature on how she made The Hambledon lifestyle store in Winchester into Drapers’ “Independent Retailer of the Year”. The main feature, however, is the result of Drapers’ Brexit survey, setting out the four key issues the industry believes should be the priorities in the negotiations as we prepare to leave the EU. And in her column, the Editor thunders that “Let’s fight for a Savile Row Brexit – British and bespoke”. The main News story is that the reality of an impending hike in shop prices hit home this week, as experts warned that it may be the only way for fashion retailers to offset rising import costs. Drapers also flag that the department store chain Fenwick is gearing up to relaunch its group ecommerce site (more than two years after it suspended
Online trading) and that Susan Saideman, Amazon’s new vice-president for Fashion in Europe, needs to establish the Online business as a “destination for fashion” and improve the browsing experience, according to industry observers.

• News Flow Next Week: The Carpetright Q2 update is on Tuesday morning (followed by analyst’s store visits to Purley Way Croydon and Epsom in the afternoon), with the Debenhams finals and the Inchcape Q3 following on Thursday.