Langton Capital – 2017-09-06 – Fulham Shore, PPHE, cinemas, restaurant spend etc.:
Fulham Shore, PPHE, cinemas, restaurant spend etc.:
A DAY IN THE LIFE:
I’ve heard of the Busman’s holiday but I couldn’t help noticing that, as we tootled around the Highlands a couple of weeks ago, there were a lot of Swiss tourists scattered about looking at mountains and lakes.
Now stop me if I’m wrong, but don’t they have rather a lot of them at home?
In fact, they must have had plenty of those ‘you call that a mountain?’ moments but, with the Swiss Franc worth more than a dollar (1.25 to the pound, it was three to the pound when we lived there around the Millennium), they’re probably finding it a breeze and, after Monaco and Zermatt, why not live for free in a country with a weak currency for a week or two? On to the news:
CASUAL DINERS. FULHAM SHORE GUIDES DOWN ON EBITDA:
• Fulham Shore, which operates the Franco Manca & Real Greek chains, holds its AGM today.
• Fulham Shore reports EBITDA will be ‘significantly higher’ than last year but below market expectations.
• Fulham Shore says ‘despite hitting our Group targets for the first quarter of this financial year, during the holiday season in July and August the Group has seen a slowdown in trade, primarily from our restaurants in London suburbs.’
• Fulham Shore reports slowdown ‘is a sector-wide trading pattern and not unique to our brands.’
• Group reports it is putting on ‘a higher fixed cost element to support its increased level of operations, especially in The Real Greek.’
• As it has previously suggested was possible, Fulham Shore is to shut its Bokowski unit and sell its Soho site
• Fulham Shore has opened 7 Franco Mancas in the UK & 1 in Italy and 3 Real Greeks in the March 2018 year to date.
• Fulham Shore now has 56 sites comprising 15 Real Greeks, 40 Franco Mancas and 1 Bukowski. The group will open 15 restaurants this year. It has opened 10 to date.
• Fulham Shore reports more sites coming on market. It will sharpen its pencil with landlords. This ‘may delay some of our openings to later in this financial year.’
• Overall, Fulham Shore says it ‘is confident that the Group’s Franco Manca and The Real Greek brands offer customers delicious, well-priced dining options in congenial surroundings. The Board believes that these strengths will see Fulham Shore through the current uncertain market conditions.’
• Strategically, Fulham Shore says ‘whilst the casual dining sector continues to face a number of cost pressures, the Group does not intend to raise menu prices in the short term as we believe this is one of the fundamental reasons for the success of both The Real Greek and Franco Manca.’
60 SECONDS: CINEMA ATTENDENCES BOMB STATESIDE. IMPLICATIONS HERE…?
The current situation:
• US cinema attendances are down 52% y-t-d (per Box Office Mojo).
• BOM unhelpfully adds ‘summer 2017 is closing out with the worst Labor Day weekend in 17yrs’.
• Such trends have a habit of crossing the pond.How did we get here?
• TV did the damage 50yrs ago.
• Cinema subsequently rallied (modestly).
• But now it faces the on-demand revolution.
• Services such as Netflix, Amazon Prime & Facebook Watch compete with cinema for eyeballs – and they arguably offer better value for money.
• Multiplexes tend to be co-located with casual diners.
• The symbiotic relationship has benefited both in the good times – but this year may be more challenging.
• Restaurant Group (many of whose Frankie & Benny and Chiquito’s outlets are located alongside cinemas) acknowledged softer attendances hurt the latter in 2016.
• Beauty & the Beast anchored a good Q1 this year but the outlook is less good.
• This, alongside other headwinds faced by the casual diners (NLW, rates, consumer confidence/spending drop, input price rises etc.), is distinctly unhelpful.
Where are the winners?
• Working harder & adding value remain critical.
• Experiential leisure operators continue to trade strongly.
• Casual diners add little to cinema outliers such as Everyman Media, which focuses on enhancing viewer experience by serving food and drink to seat.
PUB, RESTAURANT & DRINK PRODUCERS:
• Marston’s has announced that, by mutual agreement, Peter Dalzell ‘will step down from his role as Managing Director of Inns and Taverns, and from the Board, on the 29th September.’
• Marston’s says the change is because ‘over the last two years, our pub operational management structures have been simplified, with the operational management of Premium Bars and Restaurants, Property and Human Resources being separated out from Marston’s Inns and Taverns and reporting directly into Ralph Findlay.’ It says ‘these changes left Destination pubs and Taverns and Leased Partners within the Marston’s Inns and Taverns operating structure.’
• Marston’s reports ‘the Group has now decided to further simplify the structure of its senior pub operational management team with Iain Jackson, Operations Director – Destination pubs, and Andrew Carlill, Operations Director – Taverns and Leased Partners, both of whom previously reported to Peter Dalzell, reporting directly to Ralph Findlay.’
• The group says ‘in making these changes, our objectives have been to reduce complexity, management layers and cost, and to ensure that our management is as responsive to our customers as possible.’ CEO Ralph Findlay says ‘the changes we have made create a leaner, lower cost management structure in pub operations. We remain focused on prioritising quality, service and value while mitigating the impact of well publicised cost pressures affecting the sector.’
• CGA reports that Britons drinking less but drinking better. The latest edition of its Alcohol Sales Tracker shows a fall in the volume of drinks sales but rising interest in premium bars and drinks.
• CGA reports ‘the total value of the out-of-home alcoholic drinks market at £24.6 billion in the year to mid-June—a year-on-year increase of just 0.6%, but against a decline of 2.6% in volume terms.’ CGA says ‘it continues a long-term slowdown as British consumers scale back their drinking occasions and spend a little more money on slightly fewer drinks. The reduction has been most apparent in London, where growth in the value of sales has more than halved in the last year.’ CGA CEO Phil Tate comments ‘our figures reveal the increasing complexity and sophistication of Britain’s out-of-home drinks market. The small fall in volume sales rebuts the much-publicised idea that levels of unhealthy drinking are soaring, suggesting instead that consumers are continuing to demand better quality when they choose to drink out.’
• CGA suggests that more discerning drinkers mean that ‘brands that can supply their customers with the right range, atmosphere and experience, and establish clear points of difference
• UK service sector growth has slowed reports Markit’s latest PMI survey. It says growth is at its lowest level in a year. Markit comments ‘in services, the weaker growth trend was most evident in consumer-facing sectors such as hotels and restaurants and other personal services, which includes businesses such as cinemas, gyms and hairdressers.’ It says ‘the overall level of optimism also remained subdued, mainly linked to Brexit uncertainty, close to levels that have previously been indicative of the economy stalling or even contracting.’
• European operator Vapiano has reported H1 net sales +41% at €153.6m. Its adjusted EBITDA rose by 52.5% to €15.9m. The group says it plans to open between 25 and 30 new restaurants in 2017, focusing on core European markets including Germany, Austria, Netherlands. Great Britain. Sweden & France. It expects an increase in sales for the full year 2017 of between 24% and 33%. The group has suggested that sales in its Manchester site have grown more slowly than expected.
• The GCA reports that Asda demanded millions from suppliers to avoid delisting. It says suppliers were subjected to “aggressive tactics.
• Filmore & Union, the 14 strong restaurant and deli chain, plans to use a £3.5m investment from BGF to fund the brand’s expansion across the Midlands and the North of England.
• US private equity firm, L Catterton is in talks to purchase a 27.9% stake in Scottish brewer Innis & Gunn. The brewer has recommended shareholders accept the offer.
• Chief executive of Admiral Taverns, Kevin Georgel, has told the MCA that the new owners, C&C Group and Proprium Capital will enable the group to accelerate expansion plans.
• The London based Thai cafe concept, Rosa’s, has appointed Grant Thornton as advisors as it looks to fund future growth, the MCA has reported. The group currently operates 10 restaurants and is valued at over £25m.
• Latest data from Barclaycard shows that UK consumer spending growth slowed to 2.9% in August, compared to the 2017 average of 3.8%. Higher inflation and subdued wage growth has taken the blame for the spending slowdown.
• A year after TGI Friday introduced online ordering in the US, the restaurant chain has seen take-away sales climb 30%. Vice president of digital and e-commerce for the group, Caroline Masullo has said ‘Online ordering is a proven sales driver for Fridays, so we are going all in on making it easier than ever for our guests to recreate the Fridays experience at home’.
• BHS.com, the recently revived online-only business, posted sales growth of 35% in Q1 with first-time shoppers comprising two thirds of customers.
• York Cocoa Works has reached its £250k funding target on Crowdcube, which values the company at just over £2m, with six days remaining. The group says it is ‘bringing fine chocolate manufacturing back to York, a city once famous for its chocolate industry’ and says that in its six years of trading, it has sought to tap into the ‘observed growth in conscientious, discerning consumers demanding ethical & sustainable chocolate.’
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• PPHE Hotel Group has seen a 27% jump in H1 revenue to £141.8m thanks to a strong performance across its operating regions, new openings, the consolidation of its Croatian operations, and a currency exchange rate benefit. Like-for-like sales rose by 15.8% to £129.6m and EBITDA increased by 22.9% to £39.9m (20.5% on and LfL basis). Despite the strong headline figures, normalised EPS stood at £0.08, below the £0.09 recorded last year.
• In addition, Chen Moravsky, Deputy CEO & CFO, commented:
‘One of the main highlights during the period was the successful offering of shares in our Croatian subsidiary, Arena Hospitality Group, raising approximately €106 million to accelerate the investment plan of Arena and realise further growth in Central and Eastern Europe. In addition, we entered into a sale and leaseback for the recently opened Park Plaza London Waterloo. These key corporate highlights, and our successful refinancing activities completed in 2016, have resulted in an unprecedented financial position for our Group, paving the way for further redevelopment and new growth opportunities.’
• Mobeus Equity Partners has purchased a majority stake in luxury winter sports business Ski Solutions.
• VisitBritain is looking to target the ‘lost generation’ of 16-34-year-old Brits — who take fewer domestic holidays than a decade ago — by promoting UK destinations as seen from the perspective of foreign visitors. Figures show the number of overnight stays taken in the UK by this younger age group dropped from 11.3 million in 2006 to 10.2 million last year.
• Young holidaymakers have reportedly helped Hoseasons to a seventh successive record-breaking summer, with Peak summer web bookings from customers aged between 25 and 34 up 14%.
• Virgin Atlantic will become the first European carrier to carry Wi-FI access across its aircraft, by using a combination of Panasonic and Gogo technology.
• Estonia-based taxi app Taxify has confirmed that it launched in London on Tuesday 5 September, where it will hope to compete with the likes of Uber, Gett, and Mytaxi. Taxify will only charge drivers 15% commission — lower than Uber’s 20-25% rate. The business was founded in 2013 and now operates in 25 cities across 19 countries.
• A state of emergency has been declared in Florida ahead of Hurricane Irma’s arrival in Cuba and The Bahamas from Thursday. Florida governor Rick Scott said that the state would ‘prepare for the worst and hope for the best’.
• Winter sports operator Hotelplan says the weak pound is not harming business but remains its biggest concern. Paul Carter, CEO of Hotelplan UK, commented that every cent the euro improves against the pound adds on £5 to a holiday booking but added: ‘It’s all about how well you are hedged your business and we have forward bought for this winter. We are finding people will pay more for their holidays but as a result our prices will go up. Foreign exchange is the one thing we are looking at closely but there is no evidence it is putting people off.’
• Ireland’s largest hotel group, Dalata Hotels, saw PBT rise 80% to €32.7 million in the first half of the year despite a drop in UK tourists to Dublin following the Brexit vote.
• NATL Amusements, which owns the Cinema De Lux and Showcase Cinemas brands, has reported a £3m loss in the year to 29 December 2016. This follows a profit of £2.7m in the preceding year and the group acknowledged that attendance was 6% lower than in 2015, while turnover was down from £94.7m to £92.9m. A spokesman said: ‘The company’s business and future success depends on the availability of films for screening in its cinemas and appeal for such films to its customers. As a leisure activity, cinema may be affected by the general level of consumer spending on leisure activities and may also be affected by changing consumer preferences.’
• Lego is cutting 1,400 jobs worldwide — 8% of its 18,200 workforce — in the face of falling sales and profits. Lego said in its half-year results that revenue fell 5% to 14.9bn Danish krone (£1.8bn, $1.3bn), with profits down 3% to 4.4bn krone. The company said it needs a ‘reset’ after becoming an ‘increasingly complex organisation’ following double-digit global growth in the past five years.
FINANCE & MARKETS:
• UK service sector growth has slowed reports Markit’s latest PMI survey.
• Manufacturing body EEF reports the manufacturing sector was enjoying “buoyant conditions”, with strong demand from overseas.
• New car sales fell in August for the 5th month running reports the SMMT. The month was down by 6.4% on the same month last year. Diesel sales were down by 21.3%. Cumulative year to date sales are down by 2.4%. The SMMT says ‘August is typically a quiet month for the new car market as consumers and businesses delay purchases until the arrival of the new number plate in September.’
• Fed Governor Lael Brainard has said that US inflation is falling “well short” of target meaning that the Fed should be cautious about raising interest rates
• Oil up at $53.17
• Sterling up at $1.3032
• Pound stronger vs Euro at €1.094
• UK 10yr gilt yield down 5bps at 1.01%]
• World markets: UK mixed yesterday with FTSE100 down. Europe & US down. Asia mostly down in Wednesday trading.
o Reuters reports that UK ‘is continuing to lag behind a fast-recovering euro zone as firms worry about Brexit and consumers feel the pinch of rising inflation and the weak pound.’
o The Eurozone is thought to have grown by around 0.6% in Q2 whilst the UK managed only 0.3%. A strong Eurozone has provided a boost to UK exports.
o The FT reviews book ‘Brexit & British Politics’ saying the authors found ‘the referendum opened the divisions in British society like bleeding sores.’
o Book says ‘the working class, the poor and the less highly educated, on both left and right, increasingly came to feel that none of the mainstream parties represented them.’ Some 72% of people with no educational qualifications voted Leave whilst only 35% of those with a degree did so.
o Book says ‘the danger is that Brexit will bring little but bitter disappointment.’ It notes ‘regions that voted strongly for Leave tend to be those most dependent on EU markets for their local economic development.’
o Reuters reports GIP has shelved the sale of Edinburgh Airport as Brexit worries were putting off buyers
o Labour now saying it will end the free movement of labour immediately after Brexit. It wishes to stay in the single market. Cake. Eat it?
o Times reports Britain will introduce curbs on EU migrants straight after Brexit per leaked Home Office plans. Tories also want transitional period, access to single market. Cake, etc.
YESTERDAY’S LATER TWEETS:
• Later tweets: UK services PMI slows. Still in growth but down from 53.9 in July to 53.2 in August. Implies Q3 growth could be around 0.3%
• UK PMIs show construction & services (c90% of economy) slowing – but still in growth – whilst manufacturing still growing
• BRC shows food sales +1.8% with non-food +0.6%. Inflation in one but not in the other. Online sales still growing rapidly
• Games Workshop says ‘profits for 2017/18 to date are…well above the same period in the prior year’
• Cinema attendances cratering in US with ‘worst Labor Day in 11yrs’. Trends tend to cross the pond. Not helpful for leisure park restaurants
RETAIL NEWS WITH NICK BUBB:
• Sports Direct: Ahead of the AGM at 11am at the HQ up in sunny Shirebrook, Sports Direct has issued a reassuring trading statement that is short on figures, but trumpets that “trading in our new generation flagship stores continues to exceed our expectations” and flags that “Our outlook remains optimistic in line with the statement we gave on 20 July 2017, in which we stated that we aim to achieve growth in underling EBITDA in the region of approximately 5% – 15% during FY18”. Chief Executive Mike Ashley is quoted saying “We remain fully focussed on our strategic goal of moving our core business towards the ‘Selfridges’ of sport”, in that by now well-worn phrase, but there is no mention of what will happen to the embattled Chairman Keith Hellawell if he is voted out by shareholders and there is no message of support…
• John Lewis Partnership Sales Watch: The familiar recent pattern of John Lewis good/Waitrose weak was broken at JLP last week, by the sunny Bank Holiday weekend weather, according to yesterday’s sales figures…At John Lewis sales were down by 0.5% in gross terms (c2% down LFL) in w/e Sept 2nd, but at Waitrose sales were up by 3.4% gross (nearly 2% up LFL), albeit that was helped by a big 25% off wine promotion…
• News Flow This Week: Tomorrow brings the Dixons Carphone AGM, the Carpetright AGM and the Conviviality AGM.