Langton Capital – 2017-01-09 – Current spending, consumer debt, rising prices & other:
Current spending, consumer debt, rising prices & other:A DAY IN THE LIFE: There have been many tests done on what (if anything) separates man from the lower beasts and one thing that keeps coming up is the ability to delay gratification. Of course, having opposable thumbs and a brain that’s a little more than a lump of jelly on the end of a stick helps as well but the boffins are onto something with the delayed satisfaction thing as I’ve found on several occasions when I’ve asked the dog whether he would like his food now or perhaps prefer twice as much, with bacon on the top, in a couple of hours. Well he hasn’t answered me, as such but, as actions speak louder than words, he either doesn’t know that the ability to delay things is strongly correlated with success or he simply doesn’t care and, as he is stupid and I am, well, less stupid than him, I find the correlation to be in the region of one. Perhaps if you asked me if I’d like one pint now, or two later, you might find me in the same camp as our canine companion but, for the moment, let’s just say that the case has been proven. On to the news: PUB, RESTAURANT & DRINKS PRODUCERS: • Punch has announced that the Scheme Document re its 180p takeover will be published ‘on or before 20 January 2017’. It says ‘it is still expected that the Shareholder and Court Meetings will be held in the first quarter of 2017, and that the Scheme will become Effective in the first half of 2017 subject to the satisfaction or waiver of the Conditions and certain further terms set out in the Announcement.’ • Agreement by shareholders & directors to Punch bid remains irrevocable only in the absence of a rival bid at 200p or above • Supermarkets jack prices in post-Christmas world. ‘Let’s think about it after Xmas’ thinking may dominate elsewhere, too • Supermarket prices rise. Survey of one household (ours) shows prices up since New Year. Beer boxes. Was £8, now £9.50. Was £10, now £12. Kitchen roll was 100p, now 110p. Tissues were 55p, now 60p. • The Grocer reports that Easter chocolate prices are set to rise as shrinkflation hits. Fewer promotions are also expected • Visa points to spending splurge in run-up to Xmas. Sees strongest quarterly growth in spending in 2yrs, spend rises at annualised 2.8%. • Visa says Q4 spending focused on online with hotels, restaurants & bars spend +7.3%. M&S, Tesco, Sainsbury, Morrison’s update this week • Sales in the UK’s superyacht industry have hit their highest level since the 2008 financial crisis, with revenues up 1.6% to £3.01bn in the year to April 2016. Revenue from engine and equipment manufacturing, as well as a jump in sales of hire and charter boats, are believed to have driven the sales growth. However, the report from British Marine, which represents the leisure, superyacht and small commercial marine industry, warns that growth could slow during 2017 as the nation grapples with Brexit negotiations. • ‘Starbucks Evenings’ — where the coffee chain sold beer and wine in over 400 U.S. stores — will end next week on 10 January. The program was an attempt to drive sales beyond the morning rush hour and included food offers such as bacon-wrapped dates. This development marks a change in Starbucks’ goal to expand alcohol to ‘thousands’ of stores, with the chain now saying it will instead integrate alcohol sales into its higher-end retail format. • JDW announced Friday that it bought back another 47,500 of its shares on Thursday at an average price of 883.5p • Sir Charles Dunstone is considering backing the UK roll out of a fast-casual chicken concept, having already played a hand in the introduction of Five Guys and MOD Pizza. MCA writes that Dunstone has been contacted by brands including Chick-fil-A, which is keen to replicate the success of Five Guys. • Six Jamie’s Italian restaurants are to be closed because of tough trading since the Brexit vote, affecting 120 employees, per The Times. The restaurants are in Aberdeen, Exeter, Cheltenham, Richmond, Tunbridge Wells and Ludgate Hill, near St Paul’s Cathedral. Simon Blagden, chief executive of the Jamie Oliver Restaurant Group, was keen to reassure that the business remains ‘in very good shape’. • Pieminister’s profits jumped by 300% to £315k in the year to 31 March 2016 and the group is optimistic about increasing distribution of its pies to supermarkets moving forward. • The Rémy Cointreau Group has finalized its acquisition of French single malt distillery Domaine des Haute Glaces. Valérie Chapoulaud-Floquet, CEO of the Rémy Cointreau Group, commented: ‘The acquisition of the Domaine des Hautes Glaces distillery represents the opportunity for Rémy Cointreau to incorporate into its portfolio a high-end French single malt whisky brand. This acquisition strengthens the group in the segment of single malt whiskies, a category in strong growth across all regions of the world, especially for the very high-end.’ • The average household in the UK now owes a record £12,887 before mortgages, according to the TUC and figures from the ONS for the three months to end September 2016. Total unsecured debt hit an all-time high of £349bn, with a chunk of this growth coming from rapidly expanding student loans. Bank of England data, which excludes student loans, put the total at £192bn up until the end of November, making for the highest figure since December 2008. • Officials at the Bank have indicated they are not that worried about debt levels due to persisting low interest rates, however, with chief economist Andy Haldane saying: ‘Interest rates are still very low, and are expected to remain so for the foreseeable future, so there are fewer concerns on debt servicing than there were in the past.’ LEISURE TRAVEL & HOTELS: • Research from Begbies Traynor indicates that 2,679 businesses in the travel industry are currently experiencing ‘significant’ distress, up 10% on the previous quarter. The travel industry is braced for thousands of insolvencies as the sector comes under increasing pressure from terrorism fears and rising costs, with cruise operator All Leisure the most recent casualty. Of the nearly 7,000 travel agents and tour operators in the UK, some 1,800 (26%) have attracted the ‘warning rating’ of Company Watch, 450 are at ‘real risk’ of going insolvent. • The boss of All Leisure Group denies that he and other directors milked the company before its collapse, adding that the £3m sale-and-leaseback of the Hebridean Princess and its cruise operation was ‘no cosy deal’. • The US hotel industry recorded saw occupancy slip 0.2% to 54.5% during the week of 25-31 December 2016, per STR. Average daily rate rose 2.2% to $132.79, however, helping to drive revenue per available room growth of 2% to $72.38. • London Underground stations are closed for 24-hours today due to strikes by rail workers. The strikes were called after talks about the staffing of stations ‘collapsed’ stated RMT union leader Mick Cash, and are set to cause disruption for millions of commuters traveling within central London. FINANCE & MARKETS: • US businesses added 156,000 jobs in December, down from an upwardly revised 204,000 in November, and below expectations of 175,000 new roles. The jobless rate edged up last month to 4.7% from 4.6%. The figures mark the last release of key economic data preceding the presidential inauguration of Donald Trump, who has promised to create 25 million jobs over 10 years. • PM Theresa May (a.k.a. Theresa Maybe per Economist) has denied that she has no plan for Brexit. She just doesn’t want to tell anybody at this stage, including her senior civil servants & Cabinet colleagues, what it is. • Economic sentiment in the Eurozone is at its highest level since 2011 with Germany feeling particularly upbeat. • Bank of England economist Andy Haldane has suggested that economists as a profession might aspire to getting things right a little more often. He says ‘if you look at how the British consumer performed last year, it is almost as though the referendum had not taken place.’ He says ‘in terms of many of the real things like pay and jobs, not much happened in course of last year, it was pretty much business as usual.’ • Mr Haldane says ‘aggregate borrowing by households isn’t tearing away right now’. He says ‘although the household debt ratio is high by historical comparisons, it has come down in a sizeable way, by 20 percentage points from its high point pre-crisis. Households have been paying back debts on average over that period.’ This may not include student debt which, as it is relatively new, is much higher than it was over the period to which he is referring’. • Low debt service costs may be luring people into taking on too much credit. Rates now edging up. See Sunday Times • UK 10yr gilt yield up sharply from 1.31% to 1.39%. US long bond yield up to 3.00% again from 2.96% on Friday. • Theresa May has said the UK cannot have “bits” of its membership of the EU. She will prioritise border & immigration control over trade. • Sterling fell against 56 of the world’s top 60 currencies last year. It lost around a fifth of its value against the big nine • China is ‘confident’ that its economy grew by around 6.7% last year • World markets: UK hit new records on Friday with Europe & US also higher. Far East is mostly higher in Monday trade • Brent down a little at around $56.90 per barrel • Sterling down to $1.2239 vs US$. Also lower vs Euro at 116.3c TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS: • Punch has announced that the Scheme Document re its 180p takeover will be published ‘on or before 20 January 2017’. • Agreement by shareholders & directors to Punch bid remains irrevocable only in the absence of a rival bid at 200p or above • Supermarkets jack prices in post-Christmas world. ‘Let’s think about it after Xmas’ thinking may dominate elsewhere, too • Supermarket prices rise. Survey of one household (ours) shows prices up since New Year. Beer boxes. Was £8, now £9.50. Was £10, now £12. • The Grocer reports that Easter chocolate prices are set to rise as shrinkflation hits. Fewer promotions are also expected • Visa points to spending splurge in run-up to Xmas. Sees strongest quarterly growth in spending in 2yrs, spend rises at annualised 2.8%. • Six Jamie’s Italian restaurants are to be closed because of tough trading since the Brexit vote, affecting 120 employees, per The Times • Low debt service costs may be luring people into taking on too much credit. Rates now edging up. See Sunday Times • UK 10yr gilt yield up sharply from 1.31% to 1.39%. Was 0.5% in summer. US long bond yield up to 3.00% again from 2.96% on Friday. • The average household in the UK now owes a record £12,887 before mortgages, according to the TUC • Officials at the Bank have indicated they are not that worried about debt levels due to persisting low interest rates. Really?! So rates never rise? • The boss of All Leisure Group denies that he and other directors milked the company before its collapse • PM Theresa May (a.k.a. Theresa Maybe per Economist) has denied that she has no plan for Brexit. She just doesn’t want to tell anybody • Economic sentiment in the Eurozone is at its highest level since 2011 with Germany feeling particularly upbeat. • Later tweets: Look on the bright side. Strong Xmas trading comments still coming through. Run up to Sunday as the big day helpful. • Markit says strong Services suggest y-o-y 0.5% growth in GDP. Still looking good. Debt an issue, says inflationary pressures ‘substantial’ • Jamie’s Italian to close 6 sites. Brexit made life tougher. Maybe site selection, new capacity, product, pricing didn’t help either? • Brexit. Don’t want to minimise impact but it might be in danger of becoming an excuse de jour. Matthew 7:5. Tek the mote out yer eye etc. • Daily email for free on www.langtoncapital.co.uk Original & still the best. Now incl. tweets. News, views & analysis. Sign up & no strings RETAIL NEWS WITH NICK BUBB:
• Saturday Press (1): The bumper sales reported by the privately-owned Mountain Warehouse chain (LFL sales up by 13.6% during the six weeks to January 1st) provided a welcome “good news” story for a few of the Saturday papers, notably the Daily Telegraph, which quoted CEO Mark Neale as saying that the company had benefited from selling “performance and functional products rather than fashion”. The Telegraph also wrapped in the solid sales figures announced by Theo Paphitis for his Boux Avenue, Ryman and Robert Dyas chains (although he warned of a “perfect storm” coming for retailers this year). Otherwise, Sports Direct remained in focus with the Times highlighting a scoop interview with the well-known hedge fund manager Crispin Odey, explaining that he still backed Mike Ashley (because he is a ”natural winner”) and the shares are cheap. The Business editorial in the Times flagged that
• Saturday Press (2): In other news, the Times and the FT noted that the private equity group Carlyle has hired Goldman Sachs to sell its Nature’s Bounty health foods company that owns Holland & Barrett. The Daily Mail profiled Simon Wolfson, the CEO of Next, as its “Big Shot of the Week”, noting his political leanings and concluding that, after 16 years in charge at Next, his career is unlikely to remain confined to the world of High Street retailing. The Guardian had a big article about Philip and Emma Bier, the couple who have just sold their stake in the booming UK business of the Danish homewares retailer Tiger (“Tale of Tiger that came home to triumph”). Finally, the FT had an overview of all the key new products from the recent Consumer Electronics Show in the US, ranging from “folding selfie drones” to “smart showers”, noting that the industry still hasn’t produced
• Sunday Press (1): There were plenty of prominent previews of next week’s bumper bundle of trading updates in the Sunday papers, with the Sunday Times leading with “Tidings of joy for Tesco” and the Sunday Telegraph running with “High Street giants to defy festive retail gloom” (noting that “trading at M&S, Debenhams and Morrisons will defy predictions of bloodbath”), although the Mail on Sunday went with “High Street trounced by Online sales surge” (noting the 30%/40% sales growth expected from ASOS and Boohoo) and the Sunday Express ran with the view that Asda will be again be a big loser amongst the supermarkets. The Business editorial in the Sunday Times highlighted how Dave Potts has brought Morrisons back from the brink since taking over 2 years ago. The Observer had a big article asking the question “Profitable but uninspiring: is Next doomed to be a new M&S?”, noting
• Sunday Press (2): Sports Direct remained in focus, with the Sunday Telegraph (and the Mail on Sunday) flagging that the company may sell more of its brands (like Donnay, Everlast and Lonsdale), to help it focus more on becoming “the Selfridges of sports retail”. Talking of Selfridges, the Sunday Times noted that it has reported bumper 18% sales growth in December. The Observer mocked the embattled Chairman of Sports Direct, former policeman Keith Hellawell (comparing him to the hapless Inspector Clouseau), whilst its Business Leader column argued that it would be a mistake if Mike Ashley retreated into a “bunker mentality”, after “a year, by his standards, of peace, love and reconciliation”. In other news, the Mail on Sunday flagged the interesting news that Dunelm has appointed former George at Asda boss, Fiona Lambert, as its Product Director to help boost growth, whilst the Sunday • BDO High Street Sales Tracker: We flagged last Thursday that that great bellwether John Lewis did badly after Christmas, but, despite the impact of the calendar shift of Boxing Day from a Saturday to a Monday, Friday’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains flagged that w/e Jan 1st was again rather good, with robust High Street footfall. Fashion Store LFL sales were up by 3.8%, despite a tough comp, and although Homewares and Lifestyle sales were a bit soft, total Store LFL sales were up by 2.0%. And overall Online sales were up by an excellent 25.6%, on top of strong 25% growth last year…
• From John Lewis to Marks & Spencer: We think it looks like John Lewis will report on Thursday just under 5% gross sales growth (+3.7% LFL) for the 6 weeks to Dec 31st, so it is clear that trading did strengthen a bit at Christmas, thanks to a pick-up in Fashion sales. The worry is a) that increased discounting and price matching will have cost John Lewis quite a bit of gross margin and b) that the skewing of sales growth to Online will have been expensive in terms of fulfilment and distribution costs, so John Lewis profits may be underwhelming again. On the same day, M&S will have a better story to tell on gross margin than sales in Non-Food, ie gross margin will be up (because of less discounting, as well as the supply chain work) but we suspect that underlying sales will be down, again (-2% LFL?), despite the very soft comp and the buzz about the chance of seeing a bit of
• News Flow This Week: The pace of company updates picks up significantly this week, culminating with “Super Thursday”…Tomorrow morning brings the BRC-KPMG Retail Sales for December, the Morrisons update, the Majestic Wine update, the Boohoo update and the Topps Tiles Q3, whilst the latest Kantar/Nielsen grocery market share data should be out at 8am (for the key 4 weeks to Dec 31st/Jan 1st). On Wednesday we then get the Sainsbury update, the Shoe Zone finals, the Ted Baker update, the Joules update and hopefully the JD Sports update, plus the Signet Xmas update out in the US. And then…“Super Thursday” brings the Marks & Spencer Q3, the Tesco Q3, the SuperGroup interims and Q2, the Mothercare Q3, the Debenhams AGM update, the Booker Q3, the Dunelm Q2, the Moss Bros update, the ASOS update and the AO.com update, as well as a McColl’s update, the ABF (Primark) update and the John |
|
