Langton Capital – 2017-09-27 – Discounting, capacity, Carnival, Hotel Chocolat etc.:
Discounting, capacity, Carnival, Hotel Chocolat etc.:
A DAY IN THE LIFE:
I spent what felt like the greater part of the weekend on, under and generally around our lawnmower.
And that was a veritable pain because, though it can be good fun chasing the dog around the grass sporting dangerously flashing blades, the thing wouldn’t initially start and, after it did, it kept cutting out and obliging me to turn the thing off and fish around in it to pull out massive chunks of grass that had got stuck in the machinery.
Fortunately, the mower won’t work when there’s nobody sitting on it so the chance of me losing a bunch of fingers was slim. Nonetheless I ache in places that I didn’t know I had places and, since it can’t possibly be my age, I’m blaming the weather.
That and Brexit. On to the news:
LANGTON RESEARCH, GET IT WHILE IT’S HOT:
• We’ve crystallised our thoughts & written a piece on over-capacity in the F&B industry and, in particular, in the casual dining restaurant sector.
• It’s only a few thousand words long. An easy (if queasy) read & if you’d like a copy at £200 + VAT, then please drop us a line.
DISCOUNTING & RESTAURANT (OVER) CAPACITY:
• On a related same topic, the Telegraph picks up on suggestion that restaurant discounting is on the rise as owners feel the bite from rising costs. It reports ‘restaurant numbers could be under pressure from a hike in costs and cooling consumer demand’.
• Reports that food delivery (up 22% last year) is obliging restaurants to offer discounts in order to retain customers.
• Analyst Peter Backman reports ‘my analysis of the sector is that things are going to get tougher over the next six to 12 months, driven by rising costs.’ He adds ‘there’s too much capacity in the eating-out market. In the past three to five years private equity investors have started to own quite a large segment of the branded sector and they have wanted their investments to open new sites because that is how they get growth.’ Backman suggests there are ‘quite a number of store closures to come’.
• Telegraph quotes Simon Johnson from CBRE as saying there are a number of chains ‘reviewing their openings pipeline until the consumer picture becomes clearer’. He also suggests that there is a lot of debt in the sector.
PUB, RESTAURANT & DRINK PRODUCERS:
• Hotel Chocolat has reported FY numbers to 2 July saying revenue grew 12% to £105.2m with underlying EBITDA +32% at £16.3m.
• Hotel Chocolat reports PBT +100% at £8.8m with EPS also +100% at 7.8p and a maiden dividend of 1.6p
• Hotel Chocolat reports it opened 12 stores in the year under review, to take the total to 94 units. CEO Angus Thirlwell comments ‘I am pleased to report another year of growth and good results. The Hotel Chocolat brand has continued to strengthen and we have made excellent progress with our three strategic priorities of investing further in our British chocolate manufacturing operations, growing our store estate and developing our digital offering.’
• Hotel Chocolat reports ‘all our channels are growing.’ CEO Thirlwell concludes ‘given the encouraging performance of our retail and internet channels, along with the pipeline of opportunities ahead of us, we are confident of further growth. This of course depends on the availability of suitable sites. We have further improved our Christmas ranges and this year will be our biggest ever seasonal offering.’
• Crawshaw reports H1 numbers saying it is delivering against its value-led strategy. H1 sales are +2.3% at £22.1m with adjusted EBITDA of zero (against £1.1m last year). There is an underlying operating loss of £0.8m. The group had cash at the H1 end of £6.8m.
• Crawshaw says Sterling’s weakness hit margins by 1.5%. It says that its sales recovery trajectory is ‘robust’. Positive trading has continued into Q3 – but there are margin pressures.
• Crawshaw says ‘we are experiencing further margin pressure from the continued weakness in sterling. This has impacted our current margin performance as we consciously chose not to pass on the resulting price increases to protect our recovery momentum.’ CEO Neil Collett says ‘these results demonstrate progress in ensuring we have high quality products at the lowest possible prices. The improvements to the breadth, depth and price of our ranges are driving the significantly improving trend in customer numbers, which is a key metric of loyalty and success in preparation for the important winter and festive season ahead..
• Crawshaw concludes ‘market conditions remain challenging, but we are confident that our focus on value leaves us well placed for the long-term.’
• MOD Pizza UK is gearing up for its next stage of growth and will open up to 10 new sites over the next 12 months to add to its existing five in the country, per MCA. The new openings will focus mainly on the South East.
• Byron has confirmed Simon Cope as the struggling burger brand’s new chief executive. Cope joined as managing director in July 2017. Chairman Dalton Philips said: ‘Simon had an immediate impact on our business when he joined as managing director in July. He understands the dynamics of this hugely competitive and exciting marketplace. We have strengthened Byron’s senior management significantly over the past six months and the new team is already making great strides in reinvigorating Byron’s pioneering spirit and distinctive character.’
• The Cask Report 2017-18 suggests that ‘in a challenging on-trade market, cask has been the most resilient beer sector in the last six years.’
• The Report says ‘during that time, both keg and lager sales have been characterised by declines of 25% and 11% respectively, in contrast to just 5% for cask. Cask continues to be the dominant force within ale with a 57% share.’
• The cask Report suggests ‘there are signs that lager drinkers are increasingly migrating into the cask category.’
• The 2018-18 Cask Report suggests that, whilst the number of pubs in the UK has fallen by more than 5,000 to 50,300 since 2010, the number of breweries continues to grow. CAMRA says ‘the number of breweries has grown from 1,540 last year to more than 1,700 this year.’
• Darden Restaurants in the US yesterday reported what were taken to be disappointing numbers. Its shares fell by 3.4% in pre-market trade. The group reports that LfL sales grew by 1.7%. This is better than the US industry as a whole but below the 2.1% expected by Wall Street.
• Corona has been recognised as a Best Global Brand by Interbrand.
• AB InBev has purchased the remaining stake in Michigan’s Virtue Cider, meaning its High End division now has full control of the company. Virtue was founded in 2011 by former brewmaster of Goose Island Beer Company (now also owned by AB InBev) Gregory Hall, in partnership with Stephen Schmakel and 31 investors, in Roscoe Village in Chicago.
• For just $60,000 (£45,000), restaurant operators will soon be able to buy a kitchen robot that can flip burgers twice as fast as humans, per Foodservice Equipment Journal. US restaurant chain Caliburger has just become the first in the world to start using the ‘Flippy’ system and according to local media reports it has a six-month exclusivity period on the robot having been an early investor in Miso Robotics, the creator of the device.
• At the recent 2017 Restaurant Franchising & Innovation Summit in London, John Miller, chairman and CEO of the group that owns Caliburger, said that robots will make QSRs and fast casual restaurants much faster, safer and more consistent. Machines will even detect pathogens in real time and ‘kitchen[s] can be entirely automated,’ commented Miller, adding that his restaurants now feature self-ordering kiosks, a mobile app and a digital loyalty program.
• Research from purchasing company Beacon indicates that pubs could charge up to 25% more for their food if they were to stock British produce. Beacon’s study found that the importance of British produce was most prevalent among 25 to 34-year-olds, with more than two thirds of those canvassed in this age bracket said they would happily pay more for homegrown food.
• Sainsbury’s is trialling a new app that will allow people to pay for their shopping on their devices rather than queue at checkouts. The app is being trialled in test-mode at Sainsbury’s Euston station store in central London.
• ROK Stars PLC has announced its ROK Drinks division has reached an exclusive agreement to supply ABK Bavarian Beer to all Freemans Event Partners Oktoberfest 2017 events across the UK throughout October.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Carnival reported its Q3 numbers yesterday afternoon. It reports GAAP EPS down by 5% but adjusted earnings up nearly 20%. The group comments ‘cumulative bookings for the first half of next year are well ahead of the prior year on both price and occupancy.’
• Carnival CEO Arnold Donald reports ‘we delivered another consecutive quarter of strong operational improvement and another third quarter adjusted earnings record.’ Mr Donald says these results ‘have more than offset the anticipated earnings impact from these weather disruptions, enabling us to raise the mid-point of our guidance and positioning us to achieve the higher end of our previous earnings guidance range.’
• Escape Games company Tick Tock is looking to raise £1m on Crowdcube. The investment will give newcomers some 20% of the company, implying a pre-new money valuation of some £4m. Tick Tock says it ‘is an immersive entertainment company with a single, unifying goal: create amazing experiences for our guests.’
• Shares in Mandarin Oriental fell 32% yesterday after the company said offers for a historic Hong Kong property had undershot expectations. The group reported no offers ‘had met fully its expectations or transaction requirements.’
• Uber is to appeal against a ruling that its drivers are entitled to benefits including holiday pay
• Uber has said that it may have to leave the Canadian province of Quebec because of “severe” new regulatory rules
• The NRN says the current ugly period of trading in the US means that the ‘fast-casual revolution is over’, with the sector suffering a 3.2% fall in second quarter like-for-like sales. Casual dining chains have flooded the American market and recent poor trading looks only to be getting worse as consumers cut back on dining out, or opt for differing options.
• Starwood has bought a 30% stake in capsule-style hotel chain Yotel for $250m. Yotel melds ‘essential elements of luxury hotels into smaller, smart spaces and deliver a sense of community,’ and plans to grow by 60 properties over the next five years.
• The extended-stay segment in the USA is expected to report encouraging figures despite an increase in supply, as developers struggle to keep up with rising demand.
• Global overnight visitor arrivals across more than 130 cities featured in a new study rose by more than 55% since the financial slump in 2009, per the annual Mastercard Destination Cities Index. Tokyo is expected to see the largest increase in tourists this year with a 12.2% jump from 11.15 million arrivals in 2016. The other cities attracting the most visitors were Paris, Dubai, Singapore, New York, Seoul, Kuala Lumpur and Istanbul.
• Azamara Club Cruises is to purchase P&O Cruises’ 30,000-ton, 704-passenger ship Adonia, taking its fleet to three ships.
• Around 4,000 members of the Unite union at Heathrow have rejected the airport’s holiday pay offer and imposed cuts to terms and conditions, and are ready to vote on industrial action over the Christmas period. The union claims Heathrow has been warned to rescind its ‘bullying bid to cheat staff out of holiday pay, imposed cuts to early start payments and the threat to remove members from the ‘Share of Success’ scheme for taking part in lawful industrial action.’
• The government’s latest commitment to EU nationals after Brexit has been welcomed by UKinbound, which says the tourism industry relies heavily on employees from outside the UK. As many as 92% of members employ EU nationals with more than a third of stating EU migrants currently make up over half of their workforce. UKinbound members cited language skills, customer service and specific country knowledge as the main benefits of employing EU nationals. The body added that more than 20% of EU national employees have already left the UK because of the long-term uncertainty over their status and almost 50% of members are having difficulties recruiting EU staff because of Brexit.
• Uber CEO Dara Khosrowshahi has apologised for ‘mistakes’ made by the ride-sharing app following the surprise decision by TfL to suspend its license in London amid reports that Uber has applied ‘unfair pressure’ to the body. In an open letter to the public, Khosrowshahi said: ‘While Uber has revolutionised the way people move in cities around the world, it’s equally true that we’ve got things wrong along the way. On behalf of everyone at Uber globally, I apologise for the mistakes we’ve made.’
• Labour will consider forcing bookmakers to pay a levy to help treat problem gamblers, with the cash to be used for NHS treatment and to end the ‘destructive cycle of addiction’. The Association of British Bookmakers has said it would not oppose an ‘appropriate, compulsory levy’ to fund problem gambling treatment.
• The Bulgarian capital of Sofia has emerged as the bargain destination of the autumn, alongside Warsaw in Poland, according to research by TravelSupermarket. Two nights’ hotel accommodation in Sofia and a return flight from the UK until the end of the year comes in at c£69.85pp, down almost 30% on £100.14 charged a year ago.
• Gambling tech co Novomatic is reported to have put its IPO on hold ahead of potential new regulation in Germany
FINANCE & MARKETS:
• Labour shadow chancellor John McDonnell is planning for a run on the pound should the party form the next government in the wake of the ongoing Brexit debacle that is dividing the Tory party and appears to be driving the young (of all persuasions) into the arms of Labour.
• Labour leader Jeremy Corbyn, who is adopting a policy of looking grandfatherly & saying as little as possible about anything at all, has suggested that it is right to look at all scenarios.
• Capital controls may be possible should Labour get in after March 2019.
• Savills has suggested that house prices in London will not rise until after Brexit. Whether Brexit is March 2019 or effectively two, three or four years from that date, remains to be seen.
• Savills says ‘uncertainty fuelled by Brexit and a weakened government mandate since the June election, means sentiment is fragile’ in the London property market
• The BBA reports that mortgage approvals rose to 41,800 in August from 41,600 in July.
• Oil down over the last 24hrs to $58.68
• Sterling down vs dollar at $1.3428
• Pound up a shade vs Euro at €1.1397
• UK 10yr gilt yield unchanged at 1.33%
• World markets: UK down yesterday but Europe & US moved higher. Asia mostly up in Wednesday trade
o Mrs May has told Donald Tusk that Brexit could be a success if people are more imaginative
o Others say you need a good imagination to consider it as anything other than the fiasco that looks set to usher in an economically destructive Labour administration
o Donald Tusk has not enough progress has been made in divorce talks to move on to anything else at this stage
o Ex-Labour shadow business secretary Chuka Umunna has said that Brexit, in the form that it has been promised, is not possible
YESTERDAY’S LATER TWEETS:
• Later tweets: Time Out Group has reported a 13% increase in revenue to £18.7m. Losses widen to £9.4m. Group has >£30m cash
• CEO of Eat Andrew Walker tells CGA millennials are “flightier” than older peers. Hard work to both employ them & attract as customers
• Thomas Cook has this morning updated on full year trading saying: ‘Summer 2017 [is] closing out as expected’. Some pickup in Turkey
• Strong TCG numbers suggest consumers still going on hols. Can’t postpone it (or you lose it). You can make a car/carpet/wardrobe last longer
• Bank of England suggests lenders are underestimating the risk they are taking in consumer lending. Labour says will protect borrowers
• MySale strong numbers. Revenue growth ‘accelerating’. Still plenty to aim for online. Segment taking share from bricks & mortar
• More offers. Papa John’s running ‘two for Tuesday’ w. 50% off mains at Prezzo, Chimichanga & Bella Italia. Even Jamie’s offering 1/3 off
START THE DAY WITH A SONG:
Yesterday’s song was Liam Gallagher’s ‘Wall of Glass’ — the debut single of his first solo outing. If you haven’t seen it already, Oasis: Supersonic is well worth a watch, made by the director of Senna.
Today, who sang:
Listen to the wind blow, down comes the night
Running in the shadows, damn your love, damn your lies
Break the silence, damn the dark, damn the light
RETAIL NEWS WITH NICK BUBB:
• Boohoo.com: Ahead of today’s interims, the market cap of mighty Boohoo has been nearing the £3bn mark, so strong results and full year upgrades were expected and, lo and behold, Boohoo continues to exceed expectations, delivering H1 group revenue growth of 106% to £263m. The core Boohoo brand was up by 43% (40% in constant currency) and the recently acquired Pretty Little Thing brand delivered standout sales growth of 289%, to £73m. After a very strong Q1, management increased their full year sales growth guidance to 60%, but, despite tough H2 comps, full year growth of c80% now looks more likely. Needless to say, however, there is some margin pressure, as Boohoo invest in technology, infrastructure and pricing to grow market share. So it will be interesting to see how the high-flying share price reacts ahead of the 9.30am analysts meeting.
• Hotel Chocolat: The share price of Hotel Chocolat has done very well since the IPO at 148p in May 2016, peaking at nearly 400p a year later, but ahead of today’s finals it has been under some pressure, so investors should be pleased to hear that since the year-end “we have signed six new wholesale accounts that will make it easier for consumers to buy Hotel Chocolat products” (including Amazon and Ocado) and that “trading since the end of the financial period has been encouraging”. Angus Thirlwell, the co-founder and CEO, says: “I am pleased to report another year of growth and good results…Given the encouraging performance of our retail and internet channels, along with the pipeline of opportunities ahead of us, we are confident of further growth”. Unhelpfully, the 9am analysts meeting in the City overlaps with the Boohoo meeting.
• Today’s Press and News: The disappointing Card Factory update yesterday trumps the encouraging MySale update in terms of coverage in the papers today, given the slump in its share price, but the MySale share price also fell back and that is actually the lead story in the Times’ market report. The Times and the Telegraph pick up on the Card Factory margin warning, but both give more space to the profit fall reported at Mike Ashley’s private investment vehicle, MASH Holdings. Finally, the Fashion pages of the Times T2 supplement flag that Next is going upmarket, eg with a £399 dress.
• John Lewis Partnership Sales Watch: Yesterday’s sales figures for last week for JLP revealed that at John Lewis sales were up by as much as 6.5% in gross terms (c4.5 up LFL) in w/e Sept 23rd, despite the unhelpfully warmer weather at the end of the week, albeit the comp was very soft. Fashion sales bounced by 8.6% gross, Electricals were up 11.1% gross (thanks to the iPhone 8 launch) and Home was up by 0.6% gross. Over the 26 weeks of the first half, John Lewis overall was only up by 0.1% LFL, but over the last 7 weeks sales have been up by nearly 3% LFL (up 5.0% gross). Over at Waitrose sales were only up by 2.8% gross last week (c1% up LFL), despite the big “Essentials” own-label price promotion, the “Half Price Event” and a weak comp…Over the 26 weeks of the first half, to end July, Waitrose was up by 0.7% LFL, but over the last 8 weeks sales have been broadly flat LFL (up 1.9%
• Next Share Buyback Watch: Back on Sept 14th with the interims Next flagged that they were likely to resume share buybacks at some point during the second half, “subject to the prevailing share price and market conditions”. But the notoriously shrewd “Mr Share Buyback Man” didn’t then just sit on his hands in his cosy office in Next HQ…he bought c£5m worth of shares at just over the £50 mark on both Sept 19th and Sept 20th last week, no doubt mindful of how well Next’s sales were being boosted by the helpfully autumnal weather. He then eased off, but he jumped back into action yesterday, raising his average price to £51.56 and picking up another c£5m worth.
• News Flow This Week: Tomorrow brings the Moss Bros interims. And with the end of the month coming up quickly now, tomorrow morning also brings the CBI Distributive Trades survey for “September”, whilst the widely followed monthly GFK Consumer Confidence Index is out first thing on Friday morning.