Langton Capital – 2017-06-14 – JDW, Merlin, Gym Group, Elegant Hotels, inflation & other:
JDW, Merlin, Gym Group, Elegant Hotels, inflation & other:
A DAY IN THE LIFE:
Bit busy, couple of jokes.
Heard on the Tube: ‘I’ll only fly from Heathrow, I’m Luton intolerant.’
Heard from On High: ‘Come forth & be wealthy, come fifth and get nothing.‘
Recently in politics: ‘I’m the sensible voice of Britain’ (Jeremy Corbyn). ‘We’re strong & stable’ (Theresa May) etc. etc.
Leader of the Liberals? Nice but Tim.
On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• JD Wetherspoon yesterday updated on recent trading saying that it ‘has been slightly better than expected.’ JDW reports ‘although there are still 7 weeks left of the current 53-week financial year, we anticipate a slightly better trading outcome than was foreseen at the last update.’
• JDW points to higher costs as a potential drag on profits next year. It says ‘the Company continues to anticipate it will require like-for-like sales of about 3 to 4% in its next financial year to maintain profits at this year’s levels.’ The group’s shares rose by a little over 2% on the news.
• Carluccio Ltd has reported full year numbers to end-September last year showing that revenues rose from £137.3m to £141.0m.
• Carluccio reports pre-exceptional operating profits of £5.3m (2015: £7.9m) but PBT down to £982k from £5.2m last year. Exceptional costs of some £4.054m related to impairment charges for assets
• Carluccio’s reports that it ‘uniquely combines the retailing of high quality Italian food with a full-service Italian restaurant in the same location.’ It says ‘the Company’s strategy is to grow shareholder value by building a business that is capable of delivering sustainable, increasing and long-term cash flows. The Company remains focussed on the casual dining sector.’
• During the year under review, Carluccio opened 11 new restaurants ‘in locations as diverse as Ilkley, Metro Centre in Newcastle and within the Marriott Hotel at Regents Park London.’ It says ‘two locations were closed during the year and on one, the lease was assigned to another party. Since the year-end, two further locations have been opened.’ The group reports ‘following the Brexit vote, economic growth in the UK remains uncertain and therefore discretionary expenditure, including eating out of the home, could be adversely impacted.’ It adds ‘however, the Company’s business model remains principally debt free and the Directors are able to adjust capital expenditure if necessary, to offset any cash impact from softer trading conditions.’
• US operator the Cheesecake Factory has blamed poor spring weather for lower sales in a move that saw the shares fall by nearly 11% yesterday. The group had recorded positive LfL sales in each of the last 29 quarters. It is expecting a 1% fall in the current quarter. CEO David Overton comments ‘we have seen heightened volatility in week-to-week sales trends, indicative of uncertainty on the part of many consumers.’ He goes on to refer to ‘pockets of softness’.
• Merlin’s comments on tourism & terrorism have attracted attention. The group has previously said that business will trend back towards normal after about 6mths in the case of a single incident. The impact of multiple incidents, the group has said, will be somewhat greater.
• London’s Borough Market is to reopen this morning at 10am with a minute’s silence for the victims of the 3 June attack.
• Restaurant delivery in the US. NRN reports that 80% of publicly traded restaurant chains are at least testing delivery. Relatively upscale operators such as steak restaurants seem to be bucking the trend.
• Ongoing debate in the US as to whether delivery sales are incremental or whether they are simply taking what would have been instore sales. NRN comments that many companies believe that it costs too much. Many say that delivery orders are bigger than normal takeaway sales and McDonald’s says that 60 percent of delivery orders come in the evening or late night, when its sales are weakest.
• The Competition and Markets Authority has found that Heineken’s proposed acquisition of Punch Taverns will reduce the competition in 33 local areas. Heineken will have to address these concerns by the 20th of June or face an in-depth investigation by the CMA.
• Managed drink-led pubs as well as managed restaurants produced the largest areas of growth in the year to March, despite a continued fall in the number of UK licensed premises. AlixPartners and CGA Peach data showed that 1.2% of licensed sites closed over the 12 months to 122,200. The number of managed licensed venues increased by 2.5% with new managed restaurants growing by 6% to 5,625.
• Brewhouse & Kitchen has announced it is to open its 17th site this month. The latest venue will open in Nottingham on the 18th June.
• The 145-year-old German beer brand, Radeberger Pilsner, has announced its intention to launch in the UK. A spokesperson for the group said ‘UK consumers reportedly drinking less, but trading up to more premium offerings’.
• The ALMR has encouraged the Government to implement an innovative alcohol duty system that would encourage alcoholic products to be sold and consumed within the supervised environment of pubs and bars. The ALMR is pushing for differential duty rates to be charged, allowing for lower duty to be charged on drinks sold via the on-trade.
• The organisation, New Zealand Winegrowers, has announced that the country’s 2017 grape harvest has been ‘smaller than expected’, dropping 9%. The CEO of the group, Philip Green, said that export growth would be ‘muted’, due to the wet weather over the summer.
• MeatLiquor has announced it is to close its W1 site, near Oxford Street, as the building housing the restaurant is to be demolished. The site opened in 2012 and has been dubbed the ‘world’s longest running pop-up’. Co-founder and managing director of MeatLiquor, Scott Collins said ‘We are shutting the doors of W1 as a heart-breaking necessity’ but the company was looking forward to the ‘next chapter’ as it looks at further UK expansion.
• Toys R Us saw same-store sales fall by more than 4% in the three months to 29 April as baby product sales weakened. The private equity-owned US toy chain saw net sales of $2.2bn, a $113m decline from the same period a year earlier. Its net loss also widened by $38m to $164m for the quarter, from a $126m loss a year ago.
Trump is scheduled to announce changes to the US policy towards Cuba on Friday and could reveal a tightening of travel restrictions between the two countries.
HOLIDAYS, LEISURE TRAVEL & HOTEL
• Elegant Hotels reports H1 numbers. Group says it ‘is pleased to report that the Group continues to trade comfortably in line with market expectations and that the Directors are confident that the Group will meet its full year expectations.’
• Elegant Hotels, which reports in US$, has acknowledged that the weakness of Sterling has impacted its translated numbers. The group says ‘although revenue has been broadly maintained, Average Daily Rate (ADR) and Revenue Per Available Room (RevPar) have both been lower, partly as a result of market factors, and partly as a result of the inclusion of Waves Hotel & Spa at a lower ADR.’
• Elegant Hotels reports H1 occupancy of 66% & REVPAR of $279. H1 revenue is $35.8m with PBT of $12.2m and EPS of 11.0c vs 12.9c last year. CEO Sunil Chatrani says ‘the business has performed in line with our expectations for the first half of the financial year, against the backdrop of a difficult market that has been rebased due to the ongoing weakness of Sterling.’ He concludes ‘as a result, we remain confident in the Group’s prospects for FY17 and beyond.’
• The increasing cost of foreign package holidays contributed to pushing the UK inflation rate to the highest level in four years in May. The rate of inflation was pushed up to 2.9% last month from 2.7% in April – the highest since June 2013, and above the Bank of England’s 2% target.
• Holidaymakers aged 18-39 are most likely to change their holiday habits as a result of Brexit, according to a poll commissioned by financial services firm The Money Shop. The study found that 18-39 year olds are much more likely to stay in the UK for a holiday in the next 12 months as a result of the Brexit decision, while half admitted that any increased expense would be a major factor on their holiday decisions. Caroline Walton, chief customer insight officer, said: ‘Interestingly, our survey has shown there is a polarising view on the effect of Brexit between the age groups, especially when it comes to its potential negative results. Tourism is a huge industry in the UK and Europe, so it will be interesting to see if these results actually become a reality as we leave the European Union.’
• Wyndham Vacation Rentals has said the UK’s hung parliament has done little to dampen people’s enthusiasm for a summer break following a ‘buoyant’ week of bookings across sister self-catering brands Hoseasons and cottages.com. Bookings for self-catering specialist Hoseasons were up 20% last week compared to the same time last year, with bookings since the election up 37% and sales through third parties, including agents, up 42%.
• Kuoni’s parent company Der Touristik Group expects to acquire more travel businesses in the next 5-10 years. ‘We are investing in the existing portfolio and we will have even more companies in the next 5-10 years,’ said Soren Hartmann. He added that the next five years will see a focus on getting ‘the right platforms for the future’ and bringing senior management together.
• The decision to block US president Donald Trump’s revised travel ban on people from six mainly Muslim nations was upheld yesterday by a US appeals court. The 9th US circuit court of appeals in San Francisco cited a tweet from June 5 in which Trump had said: ‘We need a TRAVEL BAN for certain dangerous countries.’ The tweet formed part of a ruling that Trump had not provided a legally necessary ‘rationale explaining why permitting entry of nationals from the six designated countries under current protocols would be detrimental to the interests of the United States’. Trump is now expected to ask the US Supreme Court to finally rule on the dispute.
• Uber boss Travis Kalanick plans to take time away from the company, and could return in a diminished role. In an email to staff, Mr Kalanick said the decision to take leave is part of an effort to create ‘Uber 2.0’. He added: ‘If we are going to work on Uber 2.0, I also need to work on Travis 2.0 to become the leader that this company needs and that you deserve.’
• Gym Group has updated on trading ahead of its capital markets day saying ‘trading for the first five months of the year has met the Board’s expectations and profit for the full year 2017 is anticipated to be in line with consensus market expectations.’
• Gym Group confirms that it will open 6 gyms in H1, taking its total to 95 sites. CEO John Treharne says ‘the Group continues to trade strongly with membership increasing by nearly a fifth year on year to over 500,000. Six new gyms will have opened in the first half of the year and we are on track to meet our guidance which is towards the top end of our 15-20 range. There remains a substantial opportunity with strong fundamentals underpinning our growth and we are confident in delivering continued profitable progress.’
• Hollywood Bowl Group has invested £250,000 in the refurbishment and rebrand of Bowlplex Cwmbran into a ‘new generation’ Hollywood Bowl including an upgraded bar, new décor, and a Hollywood diner concept. Steve Burns, CEO, Hollywood Bowl Group said: ‘Cwmbran marks the sixth Bowlplex centre to receive considerable investment and be rebranded to Hollywood Bowl, since our acquisition of the 11 centres, last year. Customer reaction has been very positive, so we’re extremely excited about the future for Cwmbran, following this investment.’
• Verizon Communications Inc. has stated that it has closed its $4.48bn acquisition of Yahoo’s core business, marking the end of Yahoo as a stand-alone internet company. Yahoo will be combined with AOL, which Verizon bought two years ago.
FINANCE & MARKETS:
• UK CPI has risen to 2.9% in the year to May from 2.7% in the prior month. This represents the highest rate in around 4yrs. The NIESR reports ‘we expect inflation to rise further over the course of this year and to reach a peak in the final quarter of 2017. This spike in inflation will exert further downward pressure on real household disposable income, at a time when wage growth remains modest, and in turn squeeze consumer spending.’
• NIESR suggests the spike in inflation, which will reduce real incomes, will be seen as a spike by the MPC. This presupposes that it does not trigger a wave of pay rises. If the NIESR is correct, then interest rates should not rise unduly quickly.
• UK 10yr gilt yields rose by 7bps yesterday to 1.03%.
• Inflation has been driven by the rising cost of foreign package holidays and imported computer games amongst other things. Fuel prices fell.
• Mortgage Lenders & Administrators reports £60.4 billion of new residential loans was advanced to individuals during January – March 2017, a 3.8% decrease against the previous quarter and a fall of 5.6% from the same quarter last year.
• The ONS has reported that the average house in the UK now costs £220.1k, up around 5.8% on the prior year. This will not be strictly speaking a LfL measure.
o Reuters poll suggests chance of the UK remaining in the single market have receded post last week’s election. The ‘four freedoms’ seem to be the problem.
o Michael Gove has said ‘we will be outside of the customs union as it is understood.’
o EU is drafting laws to move Euro trading out of London post Brexit
• Oil down around 30c at $48.26
• Sterling up vs US$ at $1.2746
• Pound also higher versus Euro at €1.1362
• World markets: UK FTSE100 down yesterday but midcap higher. European & US markets higher yesterday with Asia mostly down in Wednesday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: CPI up to 2.9% in May from 2.7% in April. Estimates have been for no change. Rate is highest in 4yrs.
• Business confidence in 34ppt negative swing post hung parliament. Labour said to lead Tories in Survation poll by 5%
• Credit agencies taking critical look at UK, Queen’s speech ‘may be delayed’. Mrs May still PM (at time of writing)
• Ted Baker shows power of online with cyber-sales +32%. High street footfall in general said to be on downward trajectory
• MERL points out recent incidents have depressed visitor numbers. Says is cautious re short term outlook
• RPI hits 3.7%. So, we don’t talk about that one any more. Labour 5 points ahead in the polls & we wonder why
RETAIL NEWS WITH NICK BUBB:
• WH Smith: Today’s trading update (for the 15 weeks to June 10th) follows a familiar pattern, with the fast-growing Travel Division delivering strong LFL sales (+5%) and the “profit focused” High Street Division clocking up yet another LFL decline (-4%). Needless to say, gross margins are up in both Divisions, in line with plan and WH Smith say that “we remain confident in the outcome for the full year”. And visitors to Rome will be pleased to hear that 6 WH Smith units will open in Rome Airport next month.
• John Lewis Partnership Sales Watch: The weekly John Lewis sales figures continue to look rather lacklustre, but total sales were 3.9% up gross (about 2% up LFL) in w/e June 9th and that left John Lewis running up only 0.9% gross (c1% down LFL) on a cumulative basis over the last 19 weeks. Fashion sales were up by 7.9% gross last week, helped by price matching a competitor’s promotion, but Home was only 1.3% up and Electricals were 2% up gross. Over at Waitrose the cooler weather in w/e June 9th depressed trade a bit and total sales were only 0.5% up gross (nearly 1.5% down LFL) and so over the last 19 weeks combined Waitrose is running up by 1.7% gross (down a tad LFL).
• News Flow This Week: Tomorrow brings the Majestic Wine finals, the Morrisons AGM and the ONS Retail Sales figures for May. Then Friday brings the Tesco Q1/AGM.
• Power Watch Part 2: We flagged yesterday that Online retailers did well in this year’s Retail Week Power 100 List, but “things” rather than people also did well (although we disapprove of this practice). That old chestnut of “The Weather” slumped from 44th to 61st place and was overtaken by two new entries, Brexit (!) in 5th place and Business Rates in 44th place. And “The Administrators” was another new entry, in 71st place. Amongst real people, the 2 highest new entries were Paula Nickolds of John Lewis in 17th place and Christian Hartnagel of Lidl in 22nd place.
• “Grocer Gold” Watch: Last night the prestigious “The Grocer” Gold Awards for the food industry were held, in the impressive surroundings of the Guildhall in the City, and as this year we were one of the judges we can say that it was an excellent event, hosted by Rory Bremner. Last year the key “Grocer of the Year” Award was won by Aldi UK, but this year Tesco fought off Iceland and Morrisons to win the Award and CEO Dave Lewis was there himself to receive it.