Langton Capital – 2016-12-02 – Expansion, Domino’s, Starbucks, Brexit & other:
Expansion, Domino’s, Starbucks, Brexit & other:
A DAY IN THE LIFE:
I know the world is moving to a delivery rather than a collection format as we all sink further into our sofas and put on weight, but a survey of one as far as Langton deliveries are concerned suggests that a number of parcels may be winging around London and elsewhere with our name on them.
One didn’t come on Saturday. It then didn’t come on the rearranged Monday and then delivery was scheduled ‘for between 6am and 7am on Tuesday’. It didn’t come, the driver explaining that he had ‘rung at 5am to say he was on his way and nobody had answered the phone’.
Meanwhile a PS4 is ‘sitting with your neighbour’. We’re not clear which one. Some furniture was left ‘in your stairwell’ and a couple of video games have gone adrift. About a quarter of deliveries arrived on time and intact.
Elsewhere, we’re told ‘about 50% of pizzas arrive upside down’ (perhaps a small exaggeration’ and ‘anything with dough in it ‘will sweat like a Bulgarian weight lifter’ if you shut it in a cardboard box for 20 minutes so perhaps, overall, it might be better to heave yourself out of your chair and get down to the pub / restaurant / shops? On to the news:
DOMINO’S PIZZA – THE DOG THAT CAUGHT THE BUS?
Out with the old targets, in with the new…
• It can be uncomfortable when a fast-growing company approaches its long-term targets – if it wants to maintain its rating, it had better find some new ones sharpish.
• Domino’s UK, for example, has just under 1,000 stores and is rapidly approaching its old target of 1,200, and yet it continues to trade on a high growth valuation of 27 times earnings falling to 23.5.
• Luckily it has found some extra space down the back of the sofa and now believes there is room for 2,000 stores, giving it plenty to play for.
Store splitting: lower quality growth
• Domino’s believes there is scope to take UK sites from c950 by the end of this financial year to 1,600.
• This extra capacity will be created by store splitting, reducing average address counts, pushing up items per basket, and increasing frequency of sales.
• Langton might argue that an operator would only turn to engineering growth by splitting stores if the UK market had become pretty saturated.
Step-change in overseas expansion: execution risk
• Domino’s Pizza Group says it can take overseas units in Ireland, Switzerland, Germany, Iceland, Norway, and Sweden from 93 to 405.
• Germany has failed once already, while Switzerland changed hands multiple times as a ‘problem market’ before being snapped up in 2012, highlighting the perils of overseas expansion.
• In four years of ownership Domino’s Pizza Group has managed to open four sites in Switzerland, taking the total to 16. The market is high-cost and bureaucratic, with a 26-canton web of regulation to navigate.
• Yet Domino’s now says it can now open six stores a year here to reach a total of 100.
• Though Domino’s business model remains efficient and profitable, we query whether the risks inherent in its new growth strategy are reflected in its premium valuation.
PUB, RESTAURANT & DRINKS PRODUCERS:
• Domino’s: Is it the dog that caught the bus? Decides it can open more stores than previously targeted.
• Whitbread may have been barking after the same bus. Now says it can also open more Costa’s & P Inns than previously stated.
• ETM Group has reported turnover up 17% to £22.2m (2015: £19.6m) with EBITDA +35% at £2.3m reports Propel. Ed Martin reports ‘we are extremely pleased with the group’s performance – despite tough trading conditions we have delivered positive like-for-like growth. We are delighted to have strengthened our management team and will continue to improve our operation, especially in light of the strong headwinds facing the industry including business rates increases, living wage and food cost pressure’.
• Howard Schultz, the chief executive of Starbucks, will step down next year to become executive chairman and shift his focus to new Starbucks luxury brands. Schultz will be replaced by current number two Kevin Johnson, who has been on the board for seven years. Starbucks has more than 25,000 stores in 75 countries.
• European consumers are cutting their shopping bills by ordering on British websites to take advantage of the weak pound. Amazon said exports from UK businesses on its marketplace website were on track to increase nearly 30% this year to £1.8bn, while other internet retailers have noted the same trend. Delivery companies also reported a rise in the number of parcels they collect from British warehouses to ship overseas. Many products listed on UK websites are 10% cheaper in euro terms than they were before Britain voted to leave the EU on June 23.
• Poppleston Allen reports on 10yrs plus of Licensing Act. Says 24.3% of licenses reviewed were revoked over the period. Jonathan Smith, Managing Partner at Poppleston Allen says ‘whilst these findings were from a sample of the Licensing Authorities, the data, if extrapolated, does present some interesting findings. I was slightly surprised at the number of licences that were revoked, being a total of a quarter of all Reviews, and also that more Designated Premises Supervisors were not removed.’
• New consultancy ‘with a difference’ launched. Brewindex ‘is the brainchild of leading professionals’ including Keith Bott and Julian Grocock.
• AB InBev is to open the first pub in what will be a European chain of units based on its craft beer Goose Island in London by Xmas. A second site is due to open in London next year.
• Operators have criticised supermarkets for offering cut-price Christmas deals, which have seen pints of beer sell for as little as 64p a pint. Licensees have claimed the cheap deals, uncovered in an investigation by The Morning Advertiser, are crippling their businesses in the lead up to the all-important festive period. The findings have led JD Wetherspoon CEO and frequent critic of pub VAT rates, Tim Martin, to urge industry figures to push the ‘extraordinarily strong case for tax equality.’
• Hook Norton brewery is soft launching its first site in Oxford today, The Castle Tavern, which will then undergo a major refurbishment in the new year.
• Nestlé says it has made a scientific breakthrough that can cut the amount of sugar in its chocolate by 40% without affecting the taste. The Swiss food giant is patenting the findings, which consist of altering the structure of sugar so that it dissolves more quickly, and it could use the new technique across its range from 2018.
• The ALMR praised the work of industry-led drink drive schemes at the launch of the annual THINK! drink driving campaign.
• Figures by China Association for Imports and Export of Wine & Spirits show the country’s total alcoholic beverage imports jumped in volume by 35% year-on-year in the first ten months of 2016. Some 1.8 billion litres of wines, beers and spirits were imported worth about $3.5bn.
LEISURE TRAVEL & HOTELS:
• The STR has reported a positive performance in the three main hotel industry metrics, during the week of 20-26 November 2016. Year on year an increase in occupancy of 2.7% (to 50.7%); a rise in the daily average rate of 2.8% (to $107.66) and a growth of 5.5% in RevPAR (to $54.62) were recorded by the STR over this time-period.
• Marriott International’s sale of the St. Regis San Francisco hotel has now been completed for a reported $175 million. The buyer, Qatar Investment Authority (QIA), will keep on Marriott to manage the hotel under a long-term management contract. Marriot CEO, Arne Sorenson, stated that: ‘We have a strong and successful partnership with QIA and we are thrilled that this iconic hotel will expand QIA’s collection of Marriott-branded hotels to the U.S.’
• British holidaymakers are turning to ‘safe haven’ destinations such as Spain, Portugal, Cyprus and Greece, per ForwardKeys. France and Turkey forward bookings for the next six months are down almost 15% and 30% respectively, however. ForwardKeys analyses 16 million air reservations daily to support the travel sector and integrates charter booking data from GfK’s Leisure Travel Monitor.
• Tenerife is set to receive more than two million travellers from the UK for the first time in 2016 following unprecedented growth. Arrivals to the island from the UK between January and September rose by almost 20% to more than 1.55 million visitors year-on-year. The UK accounts for 36.9% of all visitors and remains the island’s largest source market, according to Tenerife Tourism Corporation figures.
• Thomas Cook’s director of retail and customer experience Kathryn Darbandi reckons holidaymakers will ‘harden’ and start visiting Turkey again in 2017. Figures from the Office for National Statistics show that UK visitor numbers to Turkey dropped to 272,000 in the second quarter of 2016, compared to 449,000 in the same period in 2015. Visitor numbers from the UK rose in the two previous years.
• Four friends who were left seriously injured when the balcony they were standing on collapsed have threatened Airbnb with legal action. The accommodation sharing website has refused to admit liability for the incident.
• The threat of a terrorist event in Europe remains ‘very real’ according to Professor Andrew Silke, head of criminology and director of terrorism studies at University of East London.
• A new £2.5m Hollywood Bowl bowling centre is to open in the new WestQuay Watermark development in Southampton next month. The 17,000 sq ft Hollywood Bowl will create 35 permanent and part-time jobs for the local community when it opens mid-December.
• Steve Burns, CEO at The Hollywood Bowl Group said: ‘We’re very excited to be opening our brand new centre this December. It’s been designed to be our most high-tech and innovative to-date, and we are looking forward to welcoming the residents of Southampton to the opening of our 55th centre. The project is running on time and we’re all set to open pre-Christmas, allowing us to create some fun-filled celebrations for customers over the holiday period’
• Netflix is adding offline viewing for smartphones and tablets via a ‘download’ button that works in a similar manner to Spotify.
FINANCE & MARKETS:
• World markets: UK, Europe & US down yesterday & Far East mostly lower in Friday trading.
• Oil higher at around $53.40 per barrel. Currently easing back a little but sitting around 16mth highs.
• Sterling at $1.26 and Euro 1.18.
• US 30yr bond rates rise sharply to 3.10%. Was around 2.98% in the middle of the week. 10yr bonds also at 18mth highs
• Eurozone unemployment fell below 10% for the first time since 2011 last month. Rate sits at 9.8%.
• UK manufacturing PMI shows slowdown in growth in November. Rate fell from 54.2 to 53.4. Any number >50.0 still implies expansion. Markit reports ‘the concern is that higher costs may in time offset any positive effect of the weaker exchange rate, especially given that export order book growth has already waned markedly from September’s five-and-a-half year high.’
• Annual house price growth is at its lowest since Jan reports Nationwide. Group says prices now up 4.4% on year ago. Nationwide reports ‘there are some signs that, despite the uncertain economic outlook, demand conditions have strengthened a little in recent months, reflecting the impact of solid labour market conditions and historically low borrowing costs.’
YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:
• $GNK reports LfL sales growth was 1.3%. Ex Fayre and Square, which has been a drag, LfL sales were +1.9%
• $GNK says tougher areas now include ‘blue collar food’
• $GNK margins slipped from 18.6% to 18.1% & GNK is guiding for them to fall a little further
• $GNK, along with most pub operators, would rather persuade customers to leave their homes for a night out. Delivery is a real competitor
• $GNK. Brewing had a ‘relatively difficult year’. It still outperformed the industry but, as unprofitable contracts were cut, sales fell
• DP Poland has announced the sale and sub-franchising of 4 corporately owned stores in Krakow to VKF Group.
• Alcuin Capital Partners has acquired a significant stake in Koh Group and plans to provide finance for a further rollout of stores
• Foodservice operators face paying 2% more fore supplies than they did last year, according to Prestige Purchasing
• The Food To Go Tracker Q3 2016 from MCA shows the Food To Go market now comprises more than 2 in 5 eating out occasions
• Canadian coffee chain Tim Hortons is coming to Scotland and has signed a joint venture with Domino’s Pizza franchisee Surinder Kandola
• Britons spent the least on holidays out of four major European countries this year.
• European meetings budgets are expected to remain flat next year although overall activity might decline per Amex
• Mark Carney has warned that household debt levels in the UK may be unsustainably high. Credit card debt is particularly onerous
• Later tweets: OPEC agrees to cut production for first time in 8yrs & oil price spikes. Cuts may hold but seeing is believing
• US long bond rates up 7bps to 3.02%. That & the oil price spike (inflation concerns) led to a bad day for bond proxy stocks
• GNK cautious on demand, supply & costs. F & Square not good, integration will take a little longer. Shares drop 25p
• Gold has worst month in 3yrs but oil strong. Gold price / oil price moves to 22.5x (was 34.5x in March this year). Gold been rubbish
RETAIL NEWS WITH NICK BUBB:
Nick is on holiday.