More on Marston’s, Domino’s, costs, wages & other:

A DAY IN THE LIFE:

I’m now the somewhat reluctant owner of a backpack.

I felt I should have one & went the whole hog, got one with those annoying little Swiss flags on and all the pockets such that, if I were now ever to want a bottle of water, a tin opener and a torch for some reason on the Underground, I’d know where to look.

I’ll have to be careful going through security at airports, of course but here’s a thing, why have they got so many straps hanging off them?

They don’t seem to attach to anything and they hit pedestrians, lampposts, shop windows and whatever as you’re walking down the street. This can make a range of satisfying noises and physically assaulting fellow commuters can have interesting consequences but is it by design or did they just have some fabric left over.

Anyway, it’s Black Friday, remember not to spend anything. On to the news:

MARSTON’S – FY ANALYSTS’ MEETING:

• Following the release of its numbers for the full year to 1 Oct 2016, Marston’s hosted a meeting for analysts and our comments are set out below:

• Trading & Strategy: Marston’s pointed out that these were record results in terms of revenues & operating profits. LfL growth was c50:50 price & volume

• The offer continues to evolve. Marston’s has more pizza kitchens, rotisserie chicken features & carveries than it had in the past

• Taverns are seeing the same trends as Premium & Destination and tenanted profits are growing.

• Tenanted rents rose by c2% during the period

• Only ‘a handful’ of tenants have asked for FoT terms

• The impact of the Market Rent Only option for the industry as a whole ‘might be less than had been anticipated’

• Some 550 units are now franchised. The group would like to see all its Taverns fall under this model but there is no rush now

• The group has built >160 new pubs and it will continue to build c20 per annum for the foreseeable future

• Marston’s will build 5-10 lodges p.a. and 3 Premium or Destination units (included within the 20 above)

• MARS now ‘has control’ (managed or franchised) of c85% of its units

• Accommodation will feature going forward. The group intends, over an unspecified period, to move from 953 rooms to nearer 4,000.

• This will put upward pressure on margins. Particularly as retailing rooms is brought in-house & the %% sold through Booking.com, Tripadvisor etc. falls

• The group will build larger lodges where appropriate, taking up to 60 rooms vs the current 40

• Beer had an ‘outstanding year’ & now ‘dominates some areas of a fragmented PBA market’. The Pedigree revamp has been received well

• Market, Economy & Trading Environment: Marston’s believes that capacity increases are beginning to abate. It suggests that business rate increases next year could accelerate this slowdown

• There has been no discernible Brexit impact to date

• Prices are ‘beginning to edge higher’. There is some discounting but, even taking this into account, prices are moving up

• Re costs, MARS is largely protected for FY17 and it has contracted for between 50% and 2/3 of its F&B costs for FY18

• The timing of Xmas Day this year is OK but last year ‘was perfect’. Also the weather last year was benign. Comps will be tough-ish as MARS LfLs were +3% for Q1 last year.

• Balance Sheet, Cash Flow & Debt: Fixed charge cover rose from 6.0x to 6.1x. This includes the impact of sale & leasebacks, leasehold properties etc. Debt to EBITDA declined from 5.1x to 4.8x

• Langton Comment: Marston’s has reassured that trading is in line and it has underscored the fact that it has several projects (new build, lodges, move to franchised, new-model beers etc.) underway that should feed through to the bottom line over time.

• Costs will rise a little but MARS is largely sheltered this year and next. Competitor new capacity could be less of an issue going forward. The pricing environment is such that MARS should be able to take a little price.

• Current year numbers may be tweaked down a little to account for the £1.4m (non-cash) of pension interest that will be charged to the P&L this year. Otherwise, they are secure. On a single digit PER and yielding 5.7%, MARS’ shares look to offer very good value. 

PUB, RESTAURANT & DRINKS PRODUCERS:

• Domino’s UK has said that it now expects to grow to c1,600 outlets in the UK. It had previously been targeting 1,200. The group intends to have another 400 or so outside of the UK. CEO David Wild reports ‘this is an exciting time for Domino’s Pizza Group.’

• British wage growth is set to lag inflation for a number of years reports the IFS. It says wage growth prospects look ‘dreadful’.

• The IFS has said that earnings may not now get back to 2008 levels until around 2021 as firms decline to award pay rises. IFS director Paul Johnson said ‘I cannot stress enough how extraordinary and dreadful that is.’ Separately the Resolution Foundation has said that a drop in real wages will be the most significant since 1810. It is likely that such bodies will be dismissed as moaners.

• The Resolution Foundation has said that the poorest third of consumers will see their incomes drop

• Ernst & Young Item Club suggests loss to British economy as a result of Brexit will be c4% of GDP. ONS estimates 2.4%.

• Mothercare has said that prices may have to rise by up to 5% next year.

• A company we spoke to saw the cost of its dishcloths & tea-towels rise by 17% last week. Made in India. Perhaps an exception but there was no negotiation.

• A Waitrose representative has claimed the retailer sees ‘no evidence’ of pre-loading in a review of the Licensing Act 2003 at the House of Lords. The review also saw a Sainsbury’s representative give a similar statement about his company. James Broadhurst-Brown, of Waitrose, told the committee: ‘The volumes [of sales increase] purely because more people are doing their shopping at the weekend.’

• MCA writes that Will Beckett, CEO of Hawksmoor, has joined Rockfish to become non-executive chairman.

• Franco Manca won the Breakthrough Brand and Best Concept awards at the CGA Peach Hero and Icon Awards, while Albert Schloss was voted Best Destination Opening. Rupert and Jo Clevely and Karen Jones were presented with Industry Icon awards. Best Power Brand was given to JD Wetherspoon. Other recipients included MOD Pizza (Newcomer), Leon (Evolutionary Brand, Industry Leader), Pret a Manger (Most Admired Brand, Best Company 50 Sites Plus), Pho (Best Entrepreneurial Company sub-50 Sites), Wahaca (Consumer Choice), Jamie’s Italian (Best Quality Brand), The Alchemist (Best Drinks Offer), and Turtle Bay (Best XP Award).

• The MCA reports that Deliveroo is set to open sites at Camberwell and Canary Wharf for their Roobox (remote kitchen) concept. UK & Ireland commercial director Justin Landsberger stated that the concept will roll out throughout the country ‘at speed’.

• The biggest brewer in Wales, SA Brian and Co, is set to undergo one of the largest UK regeneration projects. This means the brewer will have to relocate in the meantime.

• MCA’s Eating Out Panel data show continued sector buoyancy in October, with frequency rising by more than 7% across all times of the day. Average spend grew by 10% at lunch and dinner.

• Tequila brand Jose Cuervo has put off its initial c$1bn public offering in Mexico due to the uncertain political landscape in the region.

LEISURE TRAVEL & HOTELS:

• Plaza Hotels & Resorts is to grow its upscale brand to some 3,158 rooms over the next few months. Greg Hegarty of PPHE reports ‘as London’s tourism industry continues to attract many visitors, and business travellers are being drawn to the capital, we look forward to catering to popular demand while providing the contemporary design and exceptional service that is synonymous with the Park Plaza Hotels and Resorts brand.’

• London hotel capacity growth was earlier this month singled out by STR as a reason for poor October occupancy & REVPAR numbers

• Gatwick is to investment as £250m on expanding both the north and south terminals’ departure lounges and shopping facilities. This is part of a 5yr £1.2bn capital investment plan.

• Gatwick has reported 6mth numbers to end-Sept showing passenger numbers +6.3% to 25m. Stewart Wingate, chief executive of Gatwick, said ‘Gatwick represents the changing face of aviation – demonstrated by today’s results. We continue to grow strongly breaking records as passengers respond to the variety on offer at the airport, low-cost, charter airlines and full services airlines. All are now flying more passengers on more flights to more global destinations than ever. Our long-haul routes have grown 21% with the very latest of these British Airways’ new route to Cape Town starting today.’

• Ctrip, the Chinese travel giant, is taking over Scottish-based online travel search firm Skyscanner in a deal worth £1.4bn. Skyscanner co-founder and chief executive Gareth Williams said: ‘Ctrip is the clear market leader in China and a company we can learn a huge amount from. Today’s news takes Skyscanner one step closer to our goal of making travel search as simple as possible for travellers around the world. Ctrip and Skyscanner share a common view – that organising travel has a long way to go to being solved. To do so requires powerful technology and a traveller-first approach.’

• Thomas Cook has revealed an unexpected recovery in the UK market, which is now the largest contributor towards the travel company’s profits. CEO Peter Fankhauser said the success reflects work to simplify its brands and invest in digital channels, which have powered a 3% increase in the amount of Thomas Cook’s sales on the web to 43%.

FINANCE & MARKETS:

• The ECB has said that shares in the UK look overvalued and perhaps vulnerable to a sharp setback. It reports ‘valuation measures…are in some regions hovering at levels which, in the past, have been harbingers of impending large corrections.’ It says that valuations are ‘stretched’.

• World markets: UK mixed, Europe up and US closed yesterday. Far East a little higher in Friday trading

• Brent down a bit at $48.65 per barrel

• Sterling little changed at $1.245. Up a shade at 117c vs Euro

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

• Marston’s has this morning reported FY numbers in line with expectations. Says FY17 started ‘encouragingly’.

• Marston’s has reported sales for the year +7% at £905.8m. Operating profits are +4% at £172.7m with PBT of £98.0m

• Marston’s EPS is 14.0p (up 9%) and the final dividend is +4.4% at 4.7p to make 7.3p for the year as a whole

• Marston’s. Debt down, profits up. Current trading in line, no Brexit impact to date. Steady as she goes. New build doing well

• MEATliquor won Best Restaurant Drinks Offer at the 2016 R200 Awards on Tuesday, while Franco Manca won award also

• JD Wetherspoon chairman Tim Martin has criticised business rates and VAT as the most harmful taxes on pubs.

• UK supermarket prices will rise by at least 5% over the next six months according to former Sainsbury’s boss Justin King.

• Chancellor Philip Hammond has cancelled next year’s planned rise in fuel duty, freezing it for the seventh year in a row at 57.95p per litre.

• The chancellor has ignored calls for cuts to the air passenger tax despite airline executives urging the government to rethink its stance

• NIESR says the immediate fiscal impact of Brexit is now clearer, the OBR thinks borrowing will rise by around £100bn. BBC says £122bn.

• NIESR says ‘the OBR’s latest forecasts make for sobering reading. They expect the economy to slow significantly

• UK car manufacturing fell in Oct for 1st time in 14mths as demand fell. The SMMT said production was down 1%.

• B of England’s Kristen Forbes comments on uncertainty, says it is the modern equivalent of a “whipping boy” for economics

• CBI says that UK manufacturers had a good month for orders last month, highest level of expectations since Feb 15

• Later tweets: MARS’ analysts meeting: Record results in terms of revenues & operating profits. LfL growth was c50:50 price & volume

• MARS’ FY meeting: Impact of the Market Rent Only option for the industry as a whole ‘might be less than had been anticipated’

• MARS’ FY meeting: Co has built >160 new pubs and it will continue to build c20 per annum for the foreseeable future

• MARS’ FY meeting: Accommodation will feature going forward. MARS will move from 953 rooms to nearer 4,000. Margins should rise.

• MARS’ FY meeting: Beer had an ‘outstanding year’ & now ‘dominates some areas of a fragmented PBA market’.

• MARS’ FY meeting: Marston’s believes that capacity increases are beginning to abate. Higher business rates should accelerate slowdown

• MARS’ FY meeting: No discernible Brexit impact to date. Prices are ‘beginning to edge higher’.

• MARS’ FY meeting: On a single digit PER and yielding 5.7%, MARS’ shares look to offer good value.

RETAIL NEWS WITH NICK BUBB:

• Trade Press: To embrace the Online mood of Black Friday, Retail Week has gone all Digital this week and there is no magazine. But Drapers magazine has been published today and its main News stories are that  Selfridges has embarked on a huge overhaul of its Accessories hall (by the time the work is completed in 2018, the hall will have tripled in size to 60,000 sq ft, covering one-tenth of the floor space of the store) and that many retailers started the countdown to Black Friday early this year, either launching week-long deals or offering different discounts every day (to stagger orders and ease pressure on their supply chains). Drapers also flag that the premium accessories brand Coach has opened its new 5,000 sq ft flagship store at 200-206 Regent Street, in a Bloomberg TV interview the Next CEO Simon Wolfson warned the Government against taking a hard-line approach to
Brexit (urging ministers to keep hold of free trade and free movement of people) and Bonmarché CEO Helen Connolly’s plan to revive the ailing fashion chain is based on its core customer, expansion into new categories, exiting menswear and using new suppliers. Drapers also have feature interviews with the bosses of the British lingerie brand Ultimo and the Swedish menswear brand Gant.

• News Flow Next Week: Monday kicks off with the JD Sports share split. Tuesday then brings the Topps Tiles finals and the Motorpoint interims. The monthly GFK Consumer Confidence index is out first thing on Wednesday. The McColl’s Q4 update and the ASOS AGM are on Thursday and the DFS AGM is on Friday.

• Super Thursday Watch: Thursday Jan 12th is shaping up to be THE day to bury bad Retail news after Christmas, with Tesco, M&S, SuperGroup, Dunelm, Debenhams, Booker and Mothercare all reporting.