Langton Capital – 2017-07-07 – Forward ordering, JDW, real incomes, mergers & other:
Forward ordering, JDW, real incomes, mergers & other:
A DAY IN THE LIFE:
On the tube, are you meant to keep to the right or the left?
I mean the signs, and I have to admit that the tube isn’t somewhere you really want to spend too much time when it’s pushing 30 degrees outside, seem to say the one thing or the other, almost at random.
Meaning that, when I’m righteously pushing my way through an oncoming crowd in the knowledge that I’m walking on the right side of the tunnel, I could easily be wrong and, if that’s the case, it’s a wonder that I haven’t been pushed down a flight of stairs before now.
Anyway, that’s a thought. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• A report by forward-ordering App company Ordoo covered by the PMA suggests that spend at lunch venues is up to 9% higher for those using new technology. Apps make reordering easier and allow menu optimisation. Customers can be targeted and their favourite meals will be logged in the system. Ordoo CEO Tom Dewhurst comments that ‘these venues are simply using tech and business insight to better understand their customers and give them what they want, when they want it.’
• JDW yesterday announced that it had bought back another 87,500 shares for cancellation at 960p.
• ONS reports that real household incomes are falling at their steepest rate since 2011. Real disposable income was 2% lower in Q1 this year than it was in 2016. Real incomes have declined for three months in a row, the first such run of negative results since 2013.
• Fleurets has reported that the licensed property market remains ‘quietly confident’. It says ‘the leisure sector continues to defy pessimistic speculation’. It says ‘confidence is demonstrated by the continued strong levels of activity across all leisure property sectors, with hotels notably experiencing a strong and seemingly growing pipeline of deals, both small and large.’
• The FT reports, however, that ‘mergers & acquisitions among the world’s 50 largest consumer companies fell sharply last year, as political uncertainty depressed deal-making in a sector that has come to rely on M&A as one of its most important avenues for growth.’
• This isn’t comparing apples with apples. But the FT goes on to say that ‘the value of deals fell to $50bn in 2016, according to OC&C, the consultancy, in a report published on Friday. This followed the bumper $226bn in 2015.’ InBev’s purchase of SAB admittedly skewed the 2015 figure.
• The F&B market has ‘cooled’ in the last year, a movement that has been described as ‘concerning’ in the Colliers International Midsummer Retail report. The report went on to say ‘We are seeing less demand for super prime restaurant units paying £175,000pa+ for 3,000-3,500 sq ft. Whilst demand remains, it is only at a rental level of around £100,000-£120,000pa for a restaurant unit – or for the very best pitches’.
• Handmade Burger Co has been put into administration, with nine of its 29 restaurants having closed since yesterday and the rest trading under the joint administrators’ control. MCA writes the joint administrators intend to seek approval from the companies’ creditors to a Company Voluntary Arrangement (“CVA”), which is ‘considered to be the best outcome for all creditors’. If this cannot be achieved then the joint administrators will seek to find a buyer for the business.
• Cheese prices are set to rise by up to 30% due to an increased demand from Europe and currency fluctuations and is ‘worrying for the food and drink industry’, according to purchasing company Beacon. The price of milk is hovering at around 27ppl (+35% on the same period last year) while the price of butter is also experiencing a surge of over 100%. The higher prices are being driven by a ‘significant increase’ in demand for more non-traditional products such as cream, butter, cheese curd and mozzarella. ‘Many manufacturers and suppliers have absorbed price increases for some time, but this is no longer possible.’ said Paul Connelly, managing director, Beacon. ‘The impact of this is now being felt in the UK, with cheese manufacturers pushing prices beyond those experienced in the last quarter of 2016, with forecasters indicating that they are set to remain high for quarters three and
• Marmalade Pub Company, the managed partnership between Ei group and The Marylebone Leisure Group will open its first site in Soho this summer, it will be titled Compton Cross.
• TGI is pushing ahead with its pipeline of openings, with chief executive Karen Forrester telling the MCA that the business is trading well despite the difficult market. The group has opened its sixteenth site this year in Leeds, Ms Forrester said ‘Our planned pipeline is full for next year but we might step up it a bit as we are feeling a little bit buoyant and confident’.
• The ALMR has urged the Low Pay Commission to be cautious on future up-ratings of the National Living Wage, as cost increases for businesses are eating into margins. The Chief executive of the ALMR, Kate Nicholls said ‘We are seeing unprecedented cost pressures eroding eating and drinking out margins, and significant increases could threaten investment and put jobs at risk.’.
• On-demand eating and drinking alongside technological advancements will change the ways pubs will serve food and drink in the future, a report by BuzzBites funded by Nestle has found. Over 60% of respondents to the research said that they had eaten breakfast, brunch, lunch or dinner on-the-go.
• Data from Vianet and MatchPint has shown that the second test victory of the British and Irish Lions boosted beer sales during match times. Beer sale volumes increased by 8% during match time, with customers staying longer to celebrate the Lions victory.
• Following Franco Manca’s lead, Crussh and Nando’s are to partner up with Debenhams, by utilising underused space in the department store venues, the MCA has reported. The venues will open up later this summer.
• Nearly 3000 new restaurants and cafes are expected to open in the next two years, according to a report by property specialist Cushman & Wakefield. The report says that F&B options will continue to act as the natural successor to clothing stores that are evacuating the high street because of online retailers. The survey said that despite demand per site falling 14% after the EU referendum, it would pick up again 7% in 2017.
• In the NRN’s Top 100 restaurants USA report, chicken was the dominant ingredient in the 10 fastest-growing chains featuring 4 chains; Raising Cane’s Chicken Fingers, Wingstop, Chick-fil-A and Zaxby’s, eclipsing pizza. Starbucks and Domino’s featured in the top 10 with the former increasing from $16bn in sales to $17.9bn and the latter going from $4.8bn to $5.3bn yoy. Panda Express was also a newcomer to the top 10, alongside Starbucks.
A FEW THOUGHTS ON THE MARKET:
• Chicken is a reliable dish. With pizza and burger it forms the core of the casual dining market but can you have too much of a good thing? Chicken is the fastest-growing segment in the US (which has Tex Mex as another staple, a historically difficult sector in the UK) but we report today that Handmade Burgers has gone into administration.
• Hence, the above is not a rhetorical question and the answer is yes, you can have too much of a good thing. Listen up coffee, better burgers and the like. Pizza may outsell Madagascan vegan tapas, particularly in Hull, Hell and Halifax, but new entrants may be putting pressure on the market as a whole.
• And we have a number of horror stories. Our ‘Nought to Sixty’ piece earlier in the year covered some of the perils encountered when expanding too quickly and we have the photographs to prove that if you build it, they will not always come.
• Location is key and the product is important but, overall, not being a rubbish, entitled, arrogant, me-too operator with more money than sense is perhaps critical. And, if you look around the room and can’t spot that operator (there are loads, so don’t worry), then it may be you.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Hilton is launching a ‘digital key’ system in the UK as part of its international technology rollout that will enable customers to access their rooms with a mobile device, the FT has reported. The new system is not without its caveats, with the president of Atmosphere Research, Henry Harteveldt mentioning concerns such as ‘the hotel’s property management system, which stores room data, being hacked [as well as] power failures and the loss or theft of the guest’s phone’.
• Paris City Council voted to make registration mandatory for residents who rent out their property via Airbnb or other similar websites, a move which French hoteliers celebrated. This will allow the Council to track which properties are being rented out therefore making it easier to collect tax on them.
• In the last financial year Atol refunded and repatriated more than 16,500 holidaymakers through the Air Travel Trust at a cost of £14.7m, with the number of failures in Atol holder companies almost doubling yoy.
• TUI Group has reorganised its hotel division in an attempt to drive growth, putting more focus on the company’s hotel and cruise businesses.
• The cabin crew of British Airways might have a further 14-day strike, just as English schools break up for summer holidays, between July 19 and August 1. Unite national officer Oliver Richardson said the strike ‘underlines the determination of our members in their fight for better pay’.
• Forecasted thunderstorms on Thursday forced British Airways to cancel flights and cause delays across three London airports. This was caused by restrictions imposed by the National Air Traffic Services for safety reasons.
• The UK transport minister is bringing Uber under fresh scrutiny as a new probe looking at workers rights has been commissioned. John Hayes said the benefits of Uber “must be balanced against the impact on those who work in these new ways”.
FINANCE & MARKETS:
• CBI calls for UK to remain in single market until standalone trade deal can be negotiated.
• CBI says it will be ‘impossible’ to negotiate a trade deal with the EU before the UK’s planned March 2019 exit. CBI calls for a ‘bridge’ to avoid a cliff edge. CBI says that without such a bridge ‘there will be growing uncertainty for businesses and investment decisions will be delayed.’
• ECB minutes show that an end to monetary stimulus is being discussed.
• Oil down 60c or so at $47.51
• Sterling up vs US$ at $1.2969
• Pound down against Euro on talk of ECB ending stimulus. Trading at €1.1358
• UK 10yr gilt up 6bps at 1.32%. It was 1.01% at the beginning of last week.
• World markets. UK, Europe & US down yesterday with Far East also down in Friday trading
YESTERDAY’S LATER TWEETS:
• Later tweets: Markit says ‘a slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings.’
• Markit PMIs suggest 0.4% GDP growth in Q2. Not bad but rate is slowing. Perhaps choppier waters ahead. MARS & GNK at 4yr lows
• Slowing economy increases risks on downside. Might narrow the B of England’s room for manoeuvre on interest rates.
• Money being bet suggests less than 50% chance of further rate rise in US this year. UK rate setters split on rate rise this year
• JDW buying back more shares, authorises Investec to carry on the programme in closed period.
RETAIL NEWS WITH NICK BUBB:
• Dunelm: Today’s Q4 update from Dunelm for the 13 weeks to July 1st reads quite well, but ends by saying that pre-exceptional PBT for the year is expected to be £109m-111m, down from £129m in the year before…And exceptional cost related to the Worldstores acquisition will be £17m. LFL sales in Q4 were up by 3.8%, despite a poor Easter, helped by strong Online growth, although gross margins were down by 75bps. John Browett, Chief Executive, says: “The Worldstores acquisition will provide a massive leap forward to our online and store offer that we think our customers will love. The integration is going well and we are confident in the benefits it will generate. With around 20% of our sales now generated online, we believe that we have arrived as a significant e-commerce player in homewares…We continue to invest in the business for the longer term to improve our customer proposition and
• Howden Joinery: Big news from Howden today, ahead of its finals on July 20th, that its founder and CEO, the highly regarded Matthew Ingle, has decided to retire in the first half of 2018 after 22 years with the group. He will be succeeded as CEO by Andrew Livingston, who is currently the CEO of Screwfix, the “jewel in the crown” of Kingfisher…Matthew Ingle, who is 62 we think, says “Selling kitchens trade-only to builders was a new concept in 1994 and I must thank Derek Hunt from MFI for having faith in us and for backing the idea…Howdens is well set for the future, and I believe that now is the right time for me to step down and pass the baton on to Andrew”.
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis did pretty well in Fashion last week, given the impact of the first full week of its Summer Clearance Sale, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains flags that w/e July 2nd saw Fashion Store LFL sales slip back by 2.0%, despite quite a soft comp. Including Homewares and Lifestyle chains, total Store LFL sales were up by 1.1% last week and overall Online sales were up by a healthy 27.2% (against 21.8% growth a year ago).
• New Car Sales Watch: With a lot of focus recently in the press on the potential bubble in new car personal finance schemes, we flagged yesterday that the June new car sales figures from the SMMT on Wednesday were weak. Total registrations were down by 4.8% to c243,000 cars. Fleet demand was only 2.4% down, but private demand was 8.3% down. Mike Hawes, SMMT Chief Executive, said: “As forecast, demand for new cars has started to cool following five consecutive years of solid growth but the numbers are still strong and the first half of the year is the second biggest on record. Provided consumer and business confidence holds, we expect demand to remain at a similarly high level over the coming months”.
• Weather Watch: Memories about “the weather” are always notoriously short-term, but they are also very localised and with a pronounced North/South split developing again in the weather, ahead of the BRC-KPMG Retail Sales survey for June, we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected trading on the High Street. And their overall headline for June was “Near record heat”, flagging “Positive demand for summer products”. June 2017 fell a bit short of 1976’s record warmth, but London had its warmest June for over 55 years, although much of Ireland and parts of Scotland missed out on the heat, posting middle-of-the-road temperatures for the month. Overall the UK in June was 1.1 degrees warmer than last year, at 15.4C, but it was also a wet month, although the South trended drier than the North.
• Sports Direct: We have been asked why the Sports Direct share price has held up so well in the 290p’s, despite the recent setback in the JD Sports share price, and has shrugged off all this week’s bad PR about Mike Ashley. The latter, of course, isn’t exactly new news to most people in the City and the key issue is that the company has continued to purse an aggressive “close season” share buyback, regularly picking up c800,000 shares a day, to stymie the bears. The big test now will be what the company has to say for itself with its final results on July 20th…
• Trade Press: The front cover of Retail Week magazine today flags up a feature on how the struggling New Look aims to put product first once again, headlined “Can Zara’s secrets transform New Look?”. RW also has features on shopping centres in Wales and the South-West (as part of its “On the Road” tour) and Manchester’s giant new Top Shop in the Trafford Centre. In terms of News stories, RW focuses on the news that Clarks is to begin volume manufacturing of shoes in the UK again (with the launch of a new manufacturing unit at its global HQ at Street in Somerset) and the prices of many staple items at Sainsbury’s remain cheaper than they were 3 years ago, despite greater food price inflation. The Editor of RW in his column thunders that “Clarks is on-trend with UK factory return”. In Drapers magazine the Editor also looks approvingly at the return of UK shoe manufacturing at Clarks in
• News Flow Next Week: As we head into the second week of July and the second week of Wimbledon (come on Andy!), there are some big updates next week, kicking off with the BRC-KPMG Retail Sales for June first thing on Tuesday, followed by the Marks & Spencer Q1 update and AGM. The Burberry Q1 is on Wednesday and the ASOS Q3 is then on Thursday.