Langton Capital – 2017-09-07 – More on casual dining, labour shortages, Dart, Brexit etc.:
More on casual dining, labour shortages, Dart, Brexit etc.:
A DAY IN THE LIFE:
Bit busy this morning. Early meetings today in NW8. That is unless rain stops play. On to the news:
CASUAL DINERS. THE GOING GETS TOUGH.
• Said despite pressures FUL won’t raise prices, it will keep paying NLW (even for workers u25)
• Appears to be a London-specific decline in footfall — Southbank had dropped off markedly in past 8wks following terrorist attacks. The frequency of visits may be under downward pressure – at least over the summer.
• The company is ‘choosing not to blame the weather, tough comps or Brexit’. It is rather stating the facts.
• Most sites are London. May be some cannibalization from new sites in London
• US tourist numbers are under a bit of pressure.
• FY18 should see openings split 50/50 Ldn & regions.
• Competition? Says competition is ‘having a torrid time of it’.
Landlords and Sites:
• Sector-wide slowdown. FUL will take advantage of the shake out by negotiating more keenly on sites.
• FUL said it’s a different market than it was two years ago. Was a seller’s market. Not anymore.
• Landlords looking to fill sites. FUL will move in if landlords cover the cost of the premium & the site is already fitted out. This could knock 65% off fit-out costs
• Landlords are ‘getting more helpful’. Landlords are looking to fill new developments at the same time as sites are being put back on the market by struggling operators
• Where landlords are not ‘helpful’, Fulham Shore is pulling out of negotiations – e.g. at Bluewater
• No braking mechanism — new space coming online just as market is falling & mediocre, overextended operators are leaving.
• Board body language was assured & generally confident
• DP said if you can spend £650k on a restaurant which earns £250k a year that’s a great business.
• Debt is not an issue. The group has significant headroom. The group will grow from cash-flow and by debt. It does not want to issue shares
• Deliveroo & delivery — this whole side of the industry is still finding its feet (Deliveroo included). Return on delivery is not huge. Opening restaurants is more profitable.
• FUL prefers click & collect as it gives them control of the product from kitchen to consumer. Better for quality assurance. FUL wants the customer to be their customer
PUB, RESTAURANT & DRINK PRODUCERS:
• Leaked Brexit immigration documents proposing to limit the time low-skilled EU migrants can work in the UK to just two years after 2019 would be ‘catastrophic’ for the hospitality sector. The British Hospitality Association warned that such policies are discriminatory and would lead to the collapse of companies.
• BHA chef executive Ufi Ibrahim warned: ‘The government needs to be urgently reminded that so-called unskilled workers in hospitality – the ambassadors for our country – are necessary… Our research, from KPMG, shows that at least 60,000 new EU service workers are needed per year just to fill the vacancies in hospitality. The research showed that 75% of waiters, 25% of chefs and 37% of housekeepers are EU nationals. And in London and the south-east, especially, some business rely totally on EU service workers. The UK has near full-employment so where are the recruits going to come from for the UK’s fourth largest industry that employs over 4.5 million people nationwide?’
• Chief Executive of the BBPA, Brigid Simmonds has commented on the leaked Home Office migration documents ‘This document suggests that there may will be a cap on low-skilled workers which would undermine the needs of the pub industry, where we rely a great deal on those with the soft skills needed to provide great hospitality’. Simmonds continued with ‘Overall, there must be a greater understanding of the needs of our sector from Government, if we are to continue to compete for customers and provide the service and quality expected from overseas and domestic visitors; some 14 million of which visit the great British pub every week’.
• Shares in Fulham Shore fell momentarily below 13p yesterday (down 25%) before steadying to finish the day down by 16% at 14.5p following its profit warning.
• Fulham Shore Chairman David Page yesterday bought 143k shares in the company at a price of 13.95p per share. MD Nabil Mankarious bought one million shares at 13.79p per share.
• Fulham Shore CFO Nick Wong yesterday bought 35,500 shares in the company at 13.4p per share
• Whilst Fulham Shore’s profit warning brought to at least five warnings in the casual dining sector (the others being Restaurant Group, Richoux, Tasty and Comptoir Group), directors’ buying has not been as evident elsewhere.
• Hawksmoor owner Underdog Group has delivered full year numbers to end-2016 to Companies House saying that turnover rose to £39.0m from £36.4m but Operating Profit fell by 10% to £2.995m and EBITDA fell by 12% to £4.85m.
• Hawksmoor says its ‘brand continued to grow [underlying] EBITDA despite the additional costs incurred from the introduction of the national living wage’. It says ‘the directors expect the cost pressures relating to the fall in sterling to continue into 2017 but are confident about the future prospects of the group’.
• Yo Sushi has delivered accounts for the year to end-November 2016 to Companies House showing revenues up 7% to £365.9m. Yo Sushi says that PBT fell from £32.76m to £31.87m.
• Patty & Bun has reported numbers to end-November 2016. Whilst the group reports abbreviated accounts with very little detail (no P&L, balance sheet only, no trading comment), the group looks to have lost in the region of £175k in the year. The group’s shareholders’ funds fell from £455k to £279k.
• New research by British Summer Fruits, a body whose members rely on EU labour, has said that 61% of Brexit supporters favour a visa scheme. This would allow EU workers to labour in the UK but would, presumably, prevent them from accruing residence rights etc.
• Punch CEO Duncan Garrood will step down from the business, leaving CFO Steve Dando to assume the interim title until a successor is appointed in 2018.
• The number of jobs in the UK convenience store sector has fallen for the second year in a row as the sector continues to absorb added costs such as the National Living Wage and rising business rates. According to the Association of Convenience Stores’ (ACS) 2017 Local Shop Report, released this week, there are now just over 370,000 jobs in the convenience sector – a reduction on both last year’s total of 390,000 and 2015’s total of 407,000.
• Data from IGD indicates that the UK grocery wholesaling sector has seen sales grow for another year, with further growth forecast for the next four years. UK grocery wholesalers saw sales in 2016 climb 0.3% to just below £30bn, the increase has been attributed to the development of more clients in the foodservice market, with the segment growing sales by 2.1%.
• Pernod Ricard will focus more on gin with the launch of The Gin Hub, which has been tasked with developing and innovating within the company’s portfolio of gin brands. The gin market has grown strongly in recent years and the UK exported some £474m of the spirit last year, according to the WSTA.
• A Wine and Spirit Education Trust (WSET) study revealed the right training for staff could boost premium spirits sales by 16.9%. The training course used in the study was the WSET Level 2, administered by William Grant & Sons and used a control group to measure performance.
• McDonald’s Japan, which accounts for c8% of McDonald’s 37,000 units, is seeing a resurgence in trade following years of declining sales and guest counts. The turnaround has resulted from hard work and operational initiatives implemented after a tainted meat scandal sent its sales plummeting in July 2014. The next year saw some months suffer same-store sales declines of as much as 40%; the group responded by closing more than 150 unprofitable sites and by remodeling hundreds of others. It is now, after five years, back to the point where it can add new locations.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Dart Group has updated on trading via an AGM statement saying ‘the satisfactory start to the financial year as reported in our Preliminary Results Statement of 13 July 2017 has continued, with Leisure Travel bookings growing in line with our 41% summer 2017 seat capacity increase.’
• Dart Group says ‘demand for our higher margin package holiday products remains strong and holiday customer numbers as a proportion of total departing customers have increased slightly. It is particularly encouraging to report that our new London Stansted and Birmingham Airport operating bases are already proving popular, with over 1.3m passengers booked to fly with Jet2.com this summer, of which close to 50% have chosen a package holiday with Jet2holidays.’
• Dart Group says ‘continued progress is being made at Fowler Welch’. The group concludes ‘despite our airline ticket yields being lower than those achieved in summer 2016, overall the Board expects the Group to meet current market expectations of underlying profit before taxation for the year ending 31 March 2018.’
• Travel search firm Trivago has cautioned that weaker-than-expected revenue growth in 2017 could mean that forecasts were over-optimistic. It has pointed to lower spending from hotels and other travel companies. Revenue is now forecast to grow by 40% this year, down from earlier guidance of 50%. The group’s shares fell by 21% in morning trade.
• A video on YouTube by a claims management firm encouraging holidaymakers to make sickness complaints has been removed, an action which was welcomed by Abta. The YouTube channel of ‘TheAccidentGuys’ promoted the website holidaysicknessclaims.co.uk run by Manchester-based firm Claims Legal.
• The peak summer period saw new traffic records for Eurotunnel as it reports almost 564,000 vehicles were handled between July 17 and September 3, an increase of 2% yoy. The company said the Le Shuttle passenger service saw frequent traveller bookings up 12%.
• Several people have been arrested and computers seized in Majorca by spanish police in relation to fake holiday food poisoning claims. The Mirror reports that its sources say two or three of the six people in custody are British, however this is still unconfirmed.
• Total revenue passenger kilometres grew by 6.8% yoy in July but was down on June’s 7.7% growth. Iata director general and CEO, Alexandre de Juniac, pointed to a record high load factor in July to show air travel remains strong. De Juniac said ‘As the first full month in the summer peak travel season, July is a bellwether month, and demand continues to be very strong.’
• Spanish hotel company Barceló has hired Santander Bank to investigate a possible takeover of peer firm NH Hotel Group.
• Hurrican Irma is approaching Puerto and the Dominican Republic and looks on course to sweep across the majority of Florida. The category-five storm has 185 miles per hour winds and has proven to be so forceful as to be measurable on earthquake-detecting seismometers.
• Caesars Palace Las Vegas has obtained $2.2bn of funding to finance its fee and leasehold interests in the 3,974-room Caesars Palace Las Vegas. The financing is comprised of a $1.55bn mortgage loan, a $200m senior mezzanine loan, a $200m intermediate mezzanine loan and a $250m junior mezzanine loan.
• Shares of model train maker Hornby dropped by as much as 15% on Wednesday, after warning on weaker sales, softer demand, and increased competition. The group has also delayed the release of new products and has been restricted by lower promotional activity.
FINANCE & MARKETS:
• German industrial orders fell in July on weaker domestic demand. Orders from abroad were flat.
• Oil up again. Currently trading around $54.03
• Sterling up a shade versus dollar at $1.3042
• Pound down against Euro at €1.0937
• UK 10yr gilt yield unchanged at 1.01%
• World markets: UK down yesterday but Europe & US traded higher. Far East markets mostly up in Thursday trade
o BBC reports No10 has approached some of the UK’s biggest companies, asking them to give public backing to the government’s approach to Brexit. The BBC has been told that some business leaders have been reluctant to support a strategy that lacks clarity.
o No10 calls on employers to work with government to make Brexit a success.
o FT suggests Home Office leak to the Guardian ‘only adds to British business uncertainty over whether Mrs May’s government truly knows what its Brexit policy is.
YESTERDAY’S LATER TWEETS:
• Later Tweets: Fulham Shore makes it a full house of restaurant co profit warnings after Restaurant Group, Tasty, Richoux & Comptoir
• Fulham Shore points to summer slowdown. Says are signs of property prices abating. Could help RoC going forward
• US cinema market had ‘worst Labor Day weekend in 17yrs’ says Box Office Mojo. Trend to hop the pond? Unhelpful for RTN
• Marston’s has announced Peter Dalzell ‘will step down from his role as MD of Inns and Taverns & from Board’.
• Lego is cutting 1,400 jobs worldwide — 8% of its 18,200 workforce — in the face of it being a little less awesome than it was
• New car sales fell in August for the 5th month running reports the SMMT. The month was down by 6.4%. Y-t-d sales are down by 2.4%.
• Labour & Tories wish to stop free movement immediately. Both wish to remain in Single Market. Cake? Eat it?
• Big ticket under pressure w. new car down in Aug for 5th month running. Falls 6.4%. Y-t-d sales are down by 2.4%.
RETAIL NEWS WITH NICK BUBB:
• AGM Watch: Today brings the Dixons Carphone AGM, the Carpetright AGM and the Conviviality AGM and if you want to attend all three of them you will need to put your skates on or commandeer a very fast car to whizz you around London. Conviviality kick off proceedings with a 10am meeting at the offices of their PR advisers FTI in the City. The Dixons Carphone AGM is being held at 11am at the Hilton Kensington Hotel and the Carpetright AGM then starts at 12 o’clock at their HQ in sunny Purfleet in Essex…
• News Flow Next Week: Things are busy next week, kicking off with the ABF (Primark) pre-close update on Monday. Tuesday then brings the JD Sports interims and the SuperGroup AGM, plus the Apple iPhone 8 launch. On Wednesday we get the Dunelm interims and the Games Workshop AGM. And on “Super Thursday” we get the much-awaited Next interims, the Morrisons interims, the John Lewis Partnership interims and the Booker Q2 sales, plus the ONS Retail Sales figures for August.