Langton Capital – 2017-08-09 – Tasty, Giraffe, mediocrity, outlook, JDW and other:
Tasty, Giraffe, mediocrity, outlook, JDW and other:
A DAY IN THE LIFE:
Have you noticed how tough it is to get through to the person you want to speak to at your bank?
A couple of years ago, whilst standing in the queue in my friendly Lloyds, I had to ring somewhere on the Indian sub-continent in order to be patched through to a person that I felt sure was actually in the branch a few feet from where I was standing to tell them that I was a few minutes early for our meeting & was eager (or at least as eager as I ever am) to hear what wonderful new products they had conjured up in order to swaddle me financially and / or make my life more complete.
And it seems that things haven’t changed much because, when trying to speak to someone, anyone really, in my local branch, I had to ring some interminable 0345 number, recite my card number, date of birth, postcode & various other guff & have a chat with a machine only to be told that some expert would soon be on the end of the phone to advise me from the shed at the end of his or her garden somewhere. On to the news:
60 SECONDS ON THE ONGOING CONSUMER SQUEEZE:
• The Brexit vote drove Sterling down & food prices have risen
• We now find ‘essentials’ are taking a larger share of disposable income
• Already-constrained consumers are having to adapt to these unwelcome changes
• Real wages are falling and, whilst borrowing has risen, this is not a permanent fix
• Indeed, the Bank of England is cautioning re 10% p.a. unsecured loan growth
• The BRC now tells us July retail sales growth was ‘underpinned by Food sales alone, while Non-Food sales relapsed into negative territory.’
• Consumer constraint is negatively correlated to leisure spending
• However, spending on ‘affordable treats’ has historically held up well – at least for a time
• Consumers seek to protect their ‘lifestyle’ but big ticket spend is more vulnerable
• Spend here can be postponed but ‘experiences’ (pizza, beer, cinema – even some large items such as holidays) would be lost forever
• The SMMT reported new car sales down 9.3% in July and cumulatively down 2.2% y-t-d
• DFS says the ‘UK furniture market continues to be very challenging’
• Consumers are becoming more defensive with their spending.
• Food is important, trading down is an option but people have to eat
• Leisure spending will hold up (for a while) & inbound tourism growth should help
• But watch this space. Directionally, this is somewhat sub-optimal
• And supply growth, think casual diners, ‘better burgers’ etc., remains an issue
BARCLAYCARD COMMENTS ON CONSUMER SPENDING & INTENTIONS:
• Barclaycard says: ‘confidence on several measures, from the UK economy to household finances, are at some of the lowest levels we’ve ever seen.’
• Barclaycard suggests that penny-pinching and cutting back may become the ‘new normal’.
• Barclaycard has reported that consumer spending grew by 3.5% year-on-year in July, the best rate of growth since April. Barclaycard says that food costs have boosted spending.
• Barclaycard reports that lower petrol prices, down from around 120p per litre to nearer 113p last month, have provided consumers with a little respite from otherwise relentlessly rising prices
• Barclaycard reports that ‘experiential’ spending remains buoyant. It says spending on leisure time rose by as much as 12.5%. This may have been influenced by the popularity of contactless payments, where the upper limit for payments was increased from £20 to £30 last Autumn.
• Barclaycard reports July pub spend +11.8% with restaurant spending +13.3%.
• Barclaycard reports consumer confidence has fallen to a record low with only 28% now ‘optimistic’ against 33% last month and around 47% last September.
• Barclaycard reports only 43% of respondents believe they will have more to spend on non-essentials versus 56% in June. Some 54% of card-users are ‘shopping more frequently at discount stores’. Others are simply cutting back and 44% are (or claim to be) spending less on treats.
• Some 47% of Brits are ‘feeling the squeeze’. It’s at least directionally correct to suggest that cash is tighter and it’s certainly becoming fashionable to at least give a nod in that direction. Barclaycard says ‘although consumer spending growth rebounded from May and June’s lacklustre performance, last month’s figure should be treated with caution. While supermarkets posted a strong performance, some of that growth will be due to higher prices. As a result, consumers would have had to budget more carefully to spend on their favourite ‘nice-to-haves’, whether that was a night out at the cinema or a meal with friends and family.’
PUB, RESTAURANT & DRINK PRODUCERS:
• JDW has announced that it yesterday spent some £14.79m buying back 1.45m of its own shares for cancellation at 1020p per share.
• Tasty says trading is below (recently reduced) expectations.
• Tasty updates on trading saying it expects H1 revenue of £24.375m. It says the trading environment has remain challenging ‘with trading across the estate below management’s revised expectations, as indicated by the half year finance performance of the Company.’
• Tasty to sell units? Says ‘the Group has undertaken a full review of its estate, operational structure and cost base however the expected improvements from these initiatives are now unlikely to be significant in the current year.’
• Tasty says ‘the Company remains profitable and has a strong balance sheet.’ However, it ‘expects to close certain loss making sites which may lead to impairments’. The company concludes ‘the Group’s core ‘Wildwood’ brand remains attractive to customers’.
• The Cambridge Evening News has said that its readers will not miss an ‘overpriced & not particularly good’ Giraffe restaurant that recently closed in the city centre after operating for nine years. Giraffe did not point to its high prices & perceived low food quality saying rather in general terms that it was “no longer a viable business and has therefore no alternative but to close.” The CEN quotes customers as saying the closed unit was ‘no way near as nice as other Giraffe restaurants’ and ‘really not good enough for Cambridge.’ To be fair to the group, it has seen its ownership move from Risk Capital to (a perhaps disinterested) Tesco to Boparan in recent years and its offer may be in the process of being overhauled.
• Langton’s comment yesterday (‘ate in a branded casual diner & it was really poor. Cheesy smiles, poor offer, overcooked ‘fries’, frantic upselling, bill-shock etc.) has attracted some attention with readers agreeing that mediocrity is to be avoided wherever possible. When mediocrity is combined with an unfounded feeling of entitlement, it is particularly unattractive.
• Can mediocrity work? Well, unfortunately, sometimes. If you pay enough rent, you may be able to sell poor food to enough people (once only, perhaps) to stay in business. On a more optimistic note, such poor players do keep the door open to relevant, innovative & authentic players.
• New Look warned yesterday on ‘challenging market conditions’ saying ‘the UK market has remained difficult.’ It says it expects ‘the consumer economy to remain fragile and challenging market conditions to persist into 2018.’
• AB InBev has reported that it is to merge its business with that of Anadolu Efes, the leading brewer in Turkey, in Russia and Ukraine.
• Premier Foods reports that it has appointed Keith Hamill, OBE, as non-executive Chairman of the Company. It says ‘Keith will join the Board on 1 October as non-executive Chairman designate and will be appointed as Chairman on 9 November.’
• Stock Spirits reports H1 numbers, says revenue +3.3% at €119.8m with PBT +23% at €11.7m. EPS is 6c, up some 50%. CEO Mirek Stachowicz comments ‘we are pleased to have delivered good financial and operational progress during the first half of the year.’ He continues ‘this performance is a clear sign that the business has stabilised and that the initiatives put in place in 2016 are beginning to deliver tangible results including in Poland.’
• Stock Spirits has announced that its CFO, Lesley Jackson, is to step down. Ms Jackson will be replaced by Paul Bal, who joins the company from Tupperware Brands.
• Cock N Bull.co will open its first site in Stourbridge, West Midlands. The bar and restaurant concept will specialise in ‘filthy burgers and kick-ass chicken’, and is the brainchild of three former TRG directors, David Salmon, Derek Mallon and Jason Green.
• The independent brewer Churchend, based in Warwickshire, has received the UK’s top consumer beer award from CAMRA.
• Belfast International Airport will create 70 new jobs, as the airport and SSP invest £2.5m into its food and drink offerings.
• McDonald’s has stated plans to double the number of stores in China within five years, as the group looks to make ground on rivals in the world’s fastest-growing consumer market. This new expansion plan would take the group to 4500 units in China (currently 2500).
• Gareth Bath has left BrewDog less than a year after being promoted to the role of managing director, writes MCA.
• A YouGov survey for CAMRA has found that 55% of respondents think UK beer duty, which is three times the EU average and 11 times higher than in Germany, is too steep. Brigid Simmonds of the BBPA commented: ‘This YouGov survey shows there is widespread public concern over the sky-high rates of tax on British beer… Further increases, including inflation-based rises, are unsustainable if we want to protect Britain’s brewers and pubs. Action is needed from the Chancellor in the Autumn Budget.’
• Sainsbury’s shop floor staff are set to receive a 4.4% pay rise, increasing the hourly rate to £8 (50p more than the national living wage).
• Tesco is to stop selling ‘single use’ 5p bags from the end of next month and will instead offer reusable ‘bags for life’ for 10p after a 10-week trial in Aberdeen, Dundee, and Norwich led to a 25% cut in bag sales. The more expensive bags are made from 94% recycled plastic. Tesco has handed out 1.5bn fewer single-use bags since the introduction of the carrier bag charge in England in 2015, but still sells more than 700m each year.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Alix Partners, HVS and STR have said that ‘UK capital cities were among the top performers’ in the UK hotel market over recent months.
• ‘Surging’ London hotel demand has boosted revenues at both Intercontinental Hotels Group and Marriott International. Overall UK revpar for IHG’s hotels went up by 6.7% during the first half of 2017, driven by a 9% rise in London and a 5.4% increase in the UK regions.
• Travel agent and tour operator group Aito has recommended operators increase commission by 0.5% from next year to offset the abolition of payment card charges under the EU’s Payment Services Directive 2.
• Serviced apartment booking agency Prestige Apartments is partnering up with London-based prover The Apartments. Prestige will take over the management and bookings of 40 apartments in the Chelsea and Marylebone areas of Central London.
• Marriott’s joint venture with Alibaba is being described as a new ‘direct channel’ that will offer members-only pricing to outbound Chinese travelers who book Marriott hotels on Alibaba’s site and app. ‘This joint venture creates a digital-travel-services and experience-curation platform,’ said Marriott Global Chief Commercial Officer Stephanie Linnartz. ‘We’re in partnership for the experience online and on digital platforms, and offline when (guests are) in hotels.’
• Disney has started developing its own online streaming service for movies, shows and sport; as the group looks to bring production directly to consumers. The firm will launch an ESPN-branded sports service in H1 2018 and a disney streaming service in 2019. The group will also end its distribution deal with Netflix.
FINANCE & MARKETS:
• Former Chancellor Lord Darling has said that regulators must remain “very very” vigilant about the risks to the economy. Lord Darling says ‘the biggest danger is complacency. And of course in a few years’ time when institutional memories start to fade, and the people around have all gone and retired, then that’s where the risk occurs.’
• US job openings are running at record highs per observers. Chance of a US rate increase are rising.Oil at $51.92
• Sterling down vs dollar at $1.2984
• Pound up vs Euro at €1.1062
• UK 10yr gilt yield 1.16%
• World markets: UK mixed yesterday with Europe up and US down. Far East down in Wednesday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: Enough with the burgers? Shake Shack LfL sales down with traffic down 4.3% in its Q2. On Shake’s rating, that’s not meant to happen.
• Visa has consumer spending down, BRC has it up overall but food spend is >>100% of the increase. Non-essential spending falling
• Britain to pay €40bn to leave the EU, Britain not to pay €40bn to leave the EU. Clarity as usual from our present government
• Hard Left gov. in waiting wisely keeping schtum on Brexit as Tories bemoan fact they don’t have more feet to put bullets in
• Brexit debacle remains parked firmly at the Tories’ door. Labour view? Speak & you know we’re idiots, keep schtum & we’ll keep you guessing
• Pragma says ‘perpetual roll out of malls’ in US is leading to F&B oversupply. Not a lot different in the UK, surely?
• Britons eschew 2wk hols in favour of shorter breaks says ONS. Evolution ongoing, change is the only constant
• Ate in a branded casual diner & it was really poor. Cheesy smiles, poor offer, overcooked ‘fries’, frantic upselling, bill-shock etc.
• Casual dining. You can’t be poor & succeed. Well, the problem is, you can for a while. Leads to oversupply & subsequent failures etc.
RETAIL NEWS WITH NICK BUBB:
• ScS Group: Ahead of the trading update from its sofa retailing rival DFS tomorrow, ScS has sneaked in with its own update today and, having flagged at the time of the interims on 21 March 2017 that the group faced very challenging comparatives and what appeared to be a softening market environment, the news is reassuring. LFL orders have only declined by 5% in the last 6 months of the financial year, to 29 July, and David Knight, the CEO, says “We are pleased that despite the challenging comparatives and wider market backdrop we have traded in-line with the Board’s expectations for the year”.
• John Lewis Partnership Sales Watch: Last week saw the second half of the financial year get off to a decent start for JLP, according to yesterday’s figures…At John Lewis sales were up by 5.5% in gross terms (about 4% up LFL) in w/e Aug 5th and, interestingly, given a decent comp, the business again said that “both shops and Online saw an uplift”. All three Buying departments made progress, helped by the autumnal weather: Fashion was up 4.5% gross, Home was up 5.8% gross and Electricals were up 6.9% gross. Over the 26 weeks of the first half, John Lewis was up by 1.6% gross (broadly flat LFL). Over at Waitrose the weather in w/e Aug 5th was again not amenable to selling picnic and barbecue fare, but a promotion on the “Waitrose 1” premium range helped lift total sales by 2.1% gross (just under 0.5% up LFL). Over the previous 26 weeks of the first half. Waitrose was up by 1.9% gross
• Today’s Press and News: Pets at Home and ASOS were in focus on the Retail beat yesterday, but much of the coverage in today’s papers goes to the poor New Look trading update and the news that Sainsbury’s is to give a 4.4% pay rise to its staff. Finally, the gloomy front page headline of the Daily Express today is “Month of rain to fall today”.
• News Flow This Week: Tomorrow brings the DFS Furniture post-close update (for y/e July) and the Card Factory pre-close update (for the six months to end July).