Langton Capital – 2017-08-07 – Consumer spending, YUM, MLC, Gfinity, Paddy Power etc.:
Consumer spending, YUM, MLC, Gfinity, Paddy Power etc.:
A DAY IN THE LIFE:
Back from the beach & the weather is awful.
Twelve degrees, rain, leaves turning brown and, is it just me, or does it appear now as though June and July are where the action is and August is fast becoming an Autumn month?
It’s likely that nothing’s changed & that my memory’s playing tricks on me but I remember the dog-days of August being long and hot and, with the central heating coming on and the dog putting on a thicker layer of fur for the winter, it would appear that’s no longer the case.
Maybe our MPs have got the right idea in that their summer break lasts until October or November during which time they hope to pick up the odd warm day here and there. Or perhaps it’s just that they need the break in order to come up with the steady stream of good ideas that is keeping the UK moving in the right direction. It must be exhausting being so professional, far-sighted and good at everything.
Anyway, it’ll be Christmas soon. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Hotel & restaurant spending (up 1.3%) one of the few bright areas as Visa reports UK consumer spending fell for the 3rd month in a row in July. It says spending was down by 0.8% in July having fallen by 0.2% in the year to June.
• Visa reports transport and communications spending fell by 6.1% year-on-year in July and clothing and footwear spend fell by 5.2%.
• Visa reports food & drink spending down 0.5% in July on a year ago. Visa does point to ‘an early surge in summer staycations, as the weak pound made holidaying at home more attractive’ as something of a bright spot. Overall, the credit card operator reports ‘the drop in spending was felt across a broader range of retail sectors last month, with clothing, household goods, food and transport among the worst hit.’
• YUM last week reported Q2 numbers saying core operating profit was +19%. The group maintained its guidance for the full year. CEO Greg Creed reported ‘I’m pleased Yum! Brands’ intensified focus on our four distinct growth drivers helped deliver another successful quarter. Core operating profit grew 19% and EPS excluding special items grew 21% during the second quarter. We are maintaining our full-year 2017 guidance and are on pace with our multi-year transformation strategy designed to further unlock shareholder value.’
• YUM reported Q2 EPS down 10% at 58c. Same-store sales continued to grow at both KFC and Taco Bell but Pizza Hut sales were down. CEO Greg Creed said on the company’s earnings call ‘we’ve taken bold steps that should pay big dividends for Pizza Hut long term.’
• YUM reported KFC LfL sales +3%, Taco Bell +4% but Pizza Hut down 1% globally and 3% down in the US. Journal NRN reports ‘the U.S. is a critical market for Pizza Hut, which has more than 16,000 locations worldwide. Nearly half of the company’s system sales come from the U.S.’ it says ‘the results disappointed Wall Street. Yum’s stock, which had been up 21 percent on the year entering trading on Thursday, was down about 2 percent in early trading.’
• The Department for Transport has reported that the number of people seriously injured in drink drive accidents rose 9% in 2015 over 2014. The data, which is admittedly historic, was described as “statistically significant” by the DfT.
• Over half (64%) of small businesses that have been impacted by the national living wage have suffered lower profits, research from the Federation of Small Businesses has found. Two of every five affected small businesses put up prices, with 22% reducing staff hours.
• Innis & Gunn has seen turnover increase 22% to £14.3m during 2016. The Scottish brewer reported gross profit up 25% to £8.5m, with the company describing 2016 as a ‘transformative year’ for the group.
• Subway has opened its 2500th store in the UK, the new site is only the group’s second ‘Fresh Forward’ restaurant concept store.
• Chairman of Davy’s wine-bar, James Davy, has told the MCA that he sees no reason to be overconfident in a post-Brexit Britain.
• Gruppo Campari has reported ‘solid growth’ in H1 2017, a year that has seen the group through major streamlining. Sales increased 13.5% to €844.7m, with the Americas leading the way with growth of 26.1%.
• Yelp has announced it will sell Eat24 to GrubHub for $287.5m, on the back of Q2 results that saw revenues climb 20% to $208.9m.
• The Japanese brewing giant, Sapporo, has confirmed that it has bought one of California’s leading craft brewers, the Anchor Brewing Company, for $85m.
• Shake Shack has announced that same store sales decreased 1.8%, with traffic falling 4.3% in Q2 ended June 28. The group has lowered its expected same-store sales guidance for the year, estimating a 3% fall instead of 2%. Net income for the group rose 48% to $4.9m, however, with the group operating 136 locations across the globe.
• Sainsbury’s is considering cutting 1,000 head office jobs in an effort to save £500m in costs. The UK’s second biggest supermarket is expected to announce the figure of job cuts next month, with the firm saying HR and staff training jobs are being targeted.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Sterling officially €1.10. Tourist rates between €1.05 and €1.005 in resort.
• Henderson Park is reported to have offered more than £500m to buy the London Metropole and Birmingham Metropole hotels from Tonstate.
• Millennium & Copthorne reported H1 numbers on Friday saying total revenue, aided by currency translation, was +16.0% with PBT up 12.5% at £63m and EPS +37.6% at 12.8p. Chairman Kwek Leng Beng said ‘group results improved in the first half of 2017 on both a reported and constant currency basis, by 12.5% and 1.6% respectively. However, there is continuing pressure on the profitability of our hotel operations, particularly in North Asia and New York.’
• MLC comments ‘the Group recognises that its New York region is under-performing. As part of our regional strategy, the Group has agreed a contract with Hilton for the management of ONE UN New York which will be re-branded as the Millennium Hilton New York One UN Plaza from 30 August 2017. In addition, management changes are currently underway, with increased focus on sales, costs and controls. These are significant steps in our strategy to strengthen our US operations.’
• EasyJet (8.9%) and Norwegian (15%) both reported an increase in passenger numbers last month compared to the same month last year. EasyJet carried nearly 8.2 million passengers during July, with Norwegian transporting 3.3 million people.
• The Chicago Tribune reports that some hotels in Chicago are partnering up with local restaurants to provide room-service for guests, instead of running a food and beverage option themselves.
• Paddy Power Betfair has announced that Breon Corcoran will step down as CEO. The company reports that ‘following a rigorous and extensive succession process [it] is pleased to announce that Peter Jackson will become the Group’s new CEO.’ The group says ‘Peter’s start date will be confirmed in due course. Breon will continue to lead the Group in the meantime, completing the integration of the Paddy Power and Betfair businesses, and ensuring the delivery of an orderly transition.’
• Paddy Power updates on trading saying ‘the Group will announce its interim results on 8 August 2017 and, for the six months ended 30 June 2017, will report revenue growth of 9% and underlying EBITDA growth of 21%. It will also confirm that trading is in line with expectations and provide guidance for full year 2017 underlying EBITDA, including the impact of the acquisition of DRAFT, of between £445m and £465m.’
• The London based esports group, Gfinity, is to expand into Australia. Gfinity will start a joint venture Elite Series league in Australia, in conjunction with HT&E Events Limited. This the first step taken by the group in their plans to develop a series of international Gfinity Elite leagues. The expansion follows the success of its UK league that has attracted 2.7 million fans tuning in and watching 17 years worth of video content.
• Merlin Entertainments saw revenue grow 9.6% on a constant currency basis to £685m in the 26 weeks to July 1 2017. EBITDA increased 2.4% to £144m but pre-tax profits were flat at £50m. The company expects a drop in foreign visitors to the UK this summer due to the recent terror attacks. ‘The series of terror attacks in the UK immediately and significantly reduced domestic demand, and we remain cautious on international visitation over the key summer trading period given the lag between international bookings and visitation,’ said Merlin on Friday.
• According to the Daily Mail, Philip Hammond has blocked attempts to curb high-stakes gambling machines in betting shops in order to preserve tax revenues. The machines currently allow customers to bet up to £100 every 20 seconds on casino games, British lawmakers have called for the limit to be £2.
• Following a crackdown on gambling in China, Crown Resorts has seen turnover for 12 months to 30 June almost half to AU$33.3bn alongside a double-digit drop in underlying net profit.
• A mystery Chinese investor is reported to be attempting to buy a stake in Manchester United after rumours of a split in the Glazer family, the current owners.
• Richard Scudamore, executive chairman of the Premier League, has hinted that the door is open for online giants to outbid BT and Sky for TV rights. The pair spent £5.14bn for three seasons of rights in 2015, but there is growing speculation that Amazon, Twitter and Facebook could enter the race. This comes days after Amazon bid £50m for ATP World Tour broadcasting rights for five years.
FINANCE & MARKETS:
o Telegraph reports Britain is prepared to pay up to €40bn in divorce costs to leave the EU.
o Boris Johnson has said that the EU can ‘go whistle’ if it asks for too much.
o Theresa May is reported as saying yesterday that €40bn will not be paid after Tory MPs warned it would not get through parliament.
o Irish PM Leo Varadkar has called for “unique solutions” to preserve the relationship between the UK and the EU. He cautioned that the clock is ticking.
o Mervyn King has said that the UK needs a ‘credible fall-back’ position in case it cannot reach a trade deal with the EU before March 2019
• UK new car registrations fell 9.3% in July versus a year earlier. The fall is the fourth in a row. UK car dealers, on the evidence found on Langton’s doormat re offers, seem to be pulling out all the stops to boost sales.
• Some observers of the credit markets blame the motor industry for pushing debt on consumers who may not be able to repay it
• Cumulative car sales this year are down 2.2% on last year. The SMMT reports ‘the fall in consumer and business confidence is having a knock on effect on demand in the new car market and government must act quickly to provide concrete plans regarding Brexit.’
• Bank of England Deputy Governor Ben Broadbent has said that inflation is likely to remain above 2% for the next three years. He says ‘I think there may be some possibility for interest rates to go up a little bit.’
• The Times reports that a ‘surge’ in US staff hiring has increased the chance of a December rate rise. The US Bureau of Labour Statistics reported that 209k jobs were created in July.
• Oil $52.23 per barrel
• Sterling $1.3058 and €1.1068
• UK 10yr gilt yield 1.18%
• World markets: UK up on Friday with Europe & US also higher. Asia mostly up in Monday trade
RETAIL NEWS WITH NICK BUBB:
• Weather Watch: Memories about “the weather” are always notoriously short-term and after the soggy start to August it feels like summer is over, but ahead of the BRC-KPMG Retail Sales survey for July next Tuesday, 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 July was “Heat gives way to more pleasant temperatures”, flagging that demand for summer products faltered. While June seemed like one interminable heat wave, July offered a reprieve as more seasonable conditions took over. While there were short warm outbursts, overall temperatures for Great Britain averaged very close to normal. For retailers it was a tale of two halves – stronger demand for summer seasonal and outdoor products in the first half of the month gave way to much
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis had a quiet time in Fashion last week to end the month and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains flags that w/e July 30th saw Fashion Store LFL sales slump by 6.4%, thanks to the poor weather. Including Homewares and Lifestyle chains, total Store LFL sales were down by 2.5% last week, but overall Online sales were up by 27.5% (against 20.3% growth a year ago).
• Today’s Press and News: Yesterday’s Bank of England quarterly Inflation Report gets plenty of coverage on the front pages of today’s papers: City AM goes with “Sterling slides on Carney warning”, whilst the FT runs with “Carney warns Brexit uncertainty is choking business investment” (flagging that the BoE cut growth forecasts and held interest rates, with MPC priorities set to shift to the inflation target). Next gets plenty of coverage after its better than expected trading update yesterday: the FT headline is “Next shares up 10% despite fall in sales” and Lex column in the FT thunders that “The era of dour financial reports may not be over but at least the downward trajectory has not steepened”. There is also quite a bit of focus on the gloomy BDO High Street Tracker overview of Fashion sales in July (see above): the Times headline is “Fashion stores get the cold shoulder”, noting
• Trade Press: Retail Week magazine has not been published today, given the start of the summer holidays, but Drapers magazine has seized the opportunity provided by its 130th Anniversary (!) to produce a bumper edition. To celebrate, Drapers asked industry insiders to highlight some of their greatest influences over the years and has a feature interview with Simon Berwin (of the long- established men’s suit business Berwin & Berwin), but it also has a column by Joules founder Tom Joule on how the lifestyle retailer has grown with its “community”.
• News Flow Next Week: As we move further into the “dog days” of August, next week is reasonably quiet, but there are a few things to look out for: first thing on Tuesday we get the BRC-KPMG Retail Sales for July, followed by the Pets at Home Q1 update. And the DFS post-close update is then on Thursday.
• New Car Sales Watch: The SMMT figures on Friday showed that new car sales tumbled by 9.3% to c162,000 vehicles in July. Interestingly, private car sales were only 6.8% down, with fleet sales down by 10.1%, whilst overall sales of diesel cars slumped by 20%, with petrol cars down by only 3%.
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw an easy win for Asda, thanks to a cheap deal on a half-leg of lamb. Asda’s £59.82 basket came in £4.33 cheaper than Sainsbury, but it still had had to dish out a £3.14 voucher for failing to be at least 10% cheaper than its main rivals. Morrisons was third on £65.80, Tesco was fourth on £66.46 and poor old Waitrose was a long way off the pace, as usual, on £75.38. The separate regular Grocer “Mystery Shopper” weekly survey on Store Service and Availability was easily won by Sainsbury, as its 50,000 sq ft store in Longstone, Edinburgh came top, scoring an impressive 94 out of 100. The News pages in the magazine focused on the Morrisons supply deal with McColl’s, with a detailed review of the key questions that the wholesaling arrangement aroused, whilst the Editor
• News Flow This Week: As we head further into the “dog days” of August, there are a few things to look out for this week: first thing tomorrow we get the BRC-KPMG Retail Sales for July (which are likely to be flat at best), followed by the Pets at Home Q1 update. And the DFS post-close update and the Card Factory pre-close update are then on Thursday.