Langton Capital – 2017-10-17 – Merlin, tough F&B trading, Millennials, Brexit & other:
Merlin, tough F&B trading, Millennials, Brexit & other:
A DAY IN THE LIFE:
Bit busy this morning but just a thought; why do people say they have ‘over 197 pubs’ or we had ‘more than 658 visitors last night’?
Surely it’s ‘nearly 200’ or ‘over 650’ isn’t it? On to the news:
60 SECONDS ON THE NEAR-TERM OUTLOOK:
• It’s tough out there — the data says so.
• Coffer Peach shows a flat summer followed by a negative September (LfL sales -0.9%, inflation +2.7%).
• Surprises: London underperformance (-1.6% vs. -0.7% in the regions) and restaurants faring worse than pubs (given the wetter, colder weather).
• Worryingly, negative like-for-likes and rising total sales implies that supply is still being dumped on a saturated market.
Cardlytics, Consumer Credit:
• Cardlytics data show a 1% fall in restaurant spending in Q3 2017. Pre-inflation growth has been slowing down for three years.
• Consumer spending pressures and credit-fuelled, new site-driven sales growth trends are well documented.
• Operators are navigating a treacherous market — Busaba Eathai is the latest to come unstuck, joining a list that reads like a who is (/was) who of casual diners.
Lynx Purchasing — Inflation to Stay for a While Yet?
• Given the conditions, operators have been focusing on fixing the foundations of a profitable festive period.
• Lynx is now warning that not enough thought has been given to what could prove ‘a tough start to 2018’.
• Good parties are often followed by a hangover… Operators will continue to battle on two fronts (rising prices and falling demand) in the new year.
Put your Head in the Sand or Pull up the Drawbridge?
• Forgive us for sounding like a broken record, but the game is changing. We have been saying as much for a while.
• Those who are oblivious to, or are steadfastly ignoring, sector headwinds continue to expand in a space race (or should that be dash for trash?)
• More prudent and/or experienced operators are now calculating just how long they can hold their breath underwater.
• Roger Perowne of Morar HPI told The Pub Goers’ Conference last week that Millennials are responsible for some 30% of the £90bn UK F&B market.
• Mr Perowne said that the growth brands that they are driving feature little by the way of alcohol. Or cutlery.
• Burgers are big. Quick service is essential & Millennials are not loyal. You need to either stand out for them or you will struggle
• Mr Perown said product and venues must be Instagram friendly. Operators need to ‘create viral sensations’
• Well-being is a big issue. Millennials have more dietary foibles than any other generation. Gluten, Lactose, vegetarians, vegans etc. Mr Perowne singled out Franco Manca as an authentic offer.
• Experiences are big. Millennials cannot afford – and say they do not want – things.
PUB, RESTAURANT & DRINK PRODUCERS:
• The 283 sites strong, Azzurri Group, has seen sales climb 12.5% to £262.8m in the year ended 2 July 2017, with the group opening 17 new venues. The Bridgepoint-backed, operator of brands such as Zizzi, ASK Italian and Coco di Mama increased adjusted EBITDA by 8.6% to £38m.
• Azzurri CEO Steve Holmes did not give LfL growth saying instead that the group had achieved “strong, positive like-for-like sales that have outperformed the market”. The growth in delivery orders via Deliveroo had fuelled growth. This was driven by “younger millennials who want to replicate the restaurant experience at home”.
• Azzurri boss Steve Holmes forecasts “tough year ahead for the sector”. Margins in the year just reported fell from 15% to 14.5%.
• Where are the tourists when you need them? If London is awash, why are its pubs & restaurants doing so poorly? Even hotels in the capital are now reporting lower levels of occupancy.
• And also, the weather (cool in September vs hot last year) should have buoyed restaurant trading. It clearly didn’t.
LANGTON RESEARCH, GET IT WHILE IT’S HOT @ £200 + VAT:
• Headings include Why the Increase in Supply, evidence of oversupply, consequences of oversupply with a case study comprising a City of London walk.
• It’s an easy (if at times queasy) read & if you’d like a copy at £200 + VAT (in money, beer or pizza subject to negotiation), then please drop us a line.
MORE ON PUBS, BARS & RESTAURANTS:
• Revolution Bar Group has reported that only 58% of proxy voting is in favour of its merger with Stonegate. This leaves the group a lot to do as it will need to persuade virtually all remaining voters (it needs 75%) in order to push through the deal. Stonegate reports that it ‘notes the announcement by Revolution on 16 October 2017 regarding the proxy levels for the Scheme. Stonegate is considering its options and a further announcement regarding Stonegate’s intentions will be released in due course.’
• Discounts keep coming. Bella Italia now offering 50% off mains midweek.
• New World Trading has reported a loss after tax of £41k for the year to end March 2017 vs a loss of £233k last year. The company now has an accumulated loss of £669k.
• Ultimate holding company of New World Trading, Christopher Topco, has reported a £5.5m loss for the year to end-March 2017.
• Kitchup, which describes itself as ‘the UK’s first online managed marketplace for kitchen space, matching underused commercial kitchens with food businesses’ is to raise £100k on the Seedrs platform. The raise, which values the enlarged company at £1m, is already 63% completed. Kitchup says ‘kitchen users can find and book affordable and flexible space on-demand, whilst Kitchen Hosts get a secure and simple way to earn extra income from sharing their commercial kitchen.’
• Ruby Tuesday has announced that it is to be purchased by NRD Capital at $2.40 per share to give an enterprise value of $335m. NRD says ‘our focus at NRD is investing in quality restaurant companies and providing strategic and operational expertise to create sustainable value. With a well-established brand, differentiated from other casual dining restaurants by its Garden Bar, we see significant opportunities to drive value for Ruby Tuesday.’
• Ruby Tuesday reports Q1 revenues down 15.3% at $217m with LfL sales down 5.8% on the back of a 2.7% fall in Q1 last year. Group makes a net loss of $9.8m or 16c per share.
• Texas hurricanes led to a Q4 sales decline at Sonic Corp. The co reports Q4 LfL sales down 3.3% saying ‘our weaker-than-expected same-store sales performance reflects the intense competitive environment and unfavourable weather we saw during the quarter, including the devastation caused by Hurricane Harvey.’
• The Morning Advertiser has reported that only one in three drinkers have a ‘local’, with 44% stating that they had a small number of favourite venues. Marston’s head of consumer marketing Thomas Lenihan said: “The great diversity of pubs and the variety of their offering is encouraging people to have a number of favourites used for different occasions.’
• Chapel Down has reported sales increased 22% y-o-y to £4.9m, in its half-year results. The english winery said that wine sales increased 29% to £3.3m, with beer and cider sales rising 8% to over £1m.
• The ALMR has expressed fears that not enough is being done by local authorities to ensure promised rates relief is being distributed to businesses.
• The WSTA has called out to Philip Hammond, asking the chancellor to freeze alcohol duty in the Autumn statement. Miles Beale, chief executive of the WSTA, claims that the government is sending the industry, stating: ‘On the one hand Liam Fox is championing the importance of imports to the UK. At the same time Philip Hammond is revving up to hit us with a second inflation busting hike in seven months in alcohol duty – making the UK less attractive to importers.’
• Some 44% of British people are drinking less when going out than this time last year — a trend most prevalent in the over-55s (48%), followed by 18-24 year olds (45%), according to data from Beacon. Speaking to The Morning Advertiser about the data, Beacon MD Paul Connelly said operators needed to ‘consider different ways of retaining sales. The research highlights the seismic shift sweeping the nation, with people moving away from traditional tipples of the past and reflecting new trends such as healthy (and thriftier!) living.’
• Wildfires continue to spread throughout northern California and have claimed 40 lives, although firefighters are now thought to have gained the upper hand.
• First Milk, the dairy co-op, has reported that operating profit before exceptional items grew from £6m in 2015-16 to £11.7m in 2016-17. Net profit also rose to £6m compared with a loss of £5.1m the previous year.
• Amazon’s new fulfilment centre in Bolton will create a further 1,200 jobs in the North West, and will be equipped with advanced Amazon Robotics technology.
• Australian-based Feral Brewing Company has been acquired by Coca-Cola Amatil, signalling a foray into the beer market.
• Hostel and bar operator Beds and Bars has reported a strong six months of trading, with total sales revenue up 10% year-on-year, per Propel. Ebitda was 17% ahead of budget and 20% ahead of last year.
• Yum! Brands franchisee KBP Foods has purchased 78 additional KFC locations in Texas, Illinois, and Kansas, giving the operator 530 locations in 20 states and revenues of close to $600m.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• Major shareholder Fidelity International has accused Millennium & Copthorne’s independent directors of settling for a knock-down price for the business after an offer to take it private emerged last week. Alex Wright, who runs the Fidelity Special Values investment trust, said the hotel company was worth ’far more’ than the 545p-a-share offer put forward by majority owner City Developments last Monday (a 23.7% premium to the firm’s closing price of 452.7p on the last trading day before the offer was made) due to the value tied up in its property.
• The CAA’s two-week repatriation programme of stranded Monarch passengers was completed on Monday. More than 60 planes from 27 airlines flew almost 570 flights in order to bring back almost 84,000 ex-Monarch customers.
• The remnants of Hurricane Ophelia has forced the cancellations of dozens of flights to and from Northern Ireland and Ireland. Ryanair grounded 45 flights due to high wind forecasts, with some flights from Glasgow and Heathrow also being affected.
• Leeds-based Euroventure Travel has reported £1m turnover for the first 9 nine months of 2017, already double last year’s full turnover. The 2012 start-up is an online tour operator specialising in interrailing around Europe, providing train tickets packaged with hostel or hotel accommodation.
MERLIN REDUCES GUIDANCE, COMMENTS ON VOLATILE TRADING:
• MERL guides down on profits after early summer growth fades. Current trading volatile & difficult overall
• Merlin has updated on current trading saying it has seen ‘difficult summer trading after strong early momentum’
• MERL says it is its ‘intention to reallocate capital to reflect current market context and cost pressures’
• MERL reports it has seen a 1% fall in LfL sales at Midway. Legoland is +3.4% whilst theme parks are down 2.1%. The group is up 0.3%.
• Constant currency total revenue growth at MERL is +5.9% in Q3.
• MERL reports sluggish sales ‘due to difficult summer trading in Midway London and European theme parks as a result of the series of terror attacks and unfavourable weather’. It says it will cut ‘Existing Estate capex by £100 million over the period 2018-21, which will fund accelerated investment in accommodation and our Productivity Agenda’.
• MERL CEO reports Nick Varney reports ‘Merlin has delivered another period of good total revenue growth reflecting the contribution from New Business Development as well as more favourable currency movements, with over 70% of profits being derived from outside the UK. Another busy year has seen us open five new Midway attractions to date, nearly 400 accommodation rooms across four of our theme parks, and a new LEGOLAND park in Japan. The exciting new partnerships with eOne and Bear Grylls, as well as the planned opening of LEGOLAND New York in 2020, show there is plenty more magic to come.’
• MERL reports existing unit performance ‘has been more mixed.’ It says ‘after strong early season momentum across most of our businesses, we have experienced difficult trading over the summer period, as the spate of terror attacks witnessed in the UK marked an inflection point in Midway London and UK theme park trading. Poor weather in Northern Europe and extreme weather in Italy and Florida also impacted peak season trading.’
• MERL has ‘experienced unprecedented levels of demand volatility in recent periods’. It says, however, that ‘our business model allows us to ‘adjust the tiller’ given the difficult market conditions and we are doing so. I and Merlin’s management team therefore remain confident in the longer term prospects.’
• MERL concludes ‘trading in recent weeks has remained mixed and Group like for like revenue growth for 2017 is therefore expected to be approximately flat on 2016. Reflecting this, and careful management of the cost base, 2017 EBITDA is expected to be in the range of £470 to £480 million.’ The group says ‘whilst it is too early to predict the outlook for 2018, it is likely that the recent trends experienced in London will persist for the foreseeable future.’
• Sports Direct founder Mike Ashley is looking to sell Newcastle United Football Club and will ‘give interested parties the opportunity of deferring substantial payments’ to make it easier for a new owner to underwrite a ‘meaningful investment in the club, including in its playing squad’. It is thought that Ashley is hoping to find a buyer by Christmas.
• Jackpotjoy plc yesterday announced that CEO Andy McIver is to step down from his role ‘having completed the successful listing of Jackpotjoy plc on the London Stock Exchange earlier this year.’ The group says ‘as a part of the Company’s continuing strategy to strengthen the group’s operational focus, which included the recent appointments of our highly experienced divisional managing directors, the Board has decided, after several months of careful consideration and in consultation and agreement with Andy, that further operational expertise is needed to ensure the Company is best placed to maximise future growth prospects through its core business segments.’
FINANCE & MARKETS:
• The Rightmove UK house price index rose by 1.4% m-o-m in October.
• Oil little changed at $57.82
• Sterling down vs dollar at $1.3254
• Pound down vs Euro at €1.125
• UK 10yr gilt yield down 4bps at 1.33%
• World markets: UK down yesterday but Europe and US up. Far East higher in Tuesday trade
o Reuters reports that drug-makers and medical devices companies ‘are drawing up plans to protect supply chains in case Britain crashes out of the European Union without a trade deal’
o No real feedback on Mrs May’s meeting with EU leaders for dinner yesterday
PRIOR DAY’S LATER TWEETS:
• Later tweets: September Tracker. Faltering confidence, declining sales, rising prices, tough trading to come. Sept was a ‘dismal month’.
• Sept Tracker. Total survey LfL down 0.9% (inflation 2.7%) with London restaurants down 3.2%. Cool weather should have hit pubs more
• Sept Tracker. London heavily down despite overseas tourists, despite staycations etc. Rather poor performance
• Lynx Purchasing: It is time to ‘start planning for a tough start to 2018’
• Cardlytics says restaurant spend down 1% between Q2 & Q3. Impact will be worse when expressed a) in real terms & b) LfL
• Stonegate: Millennials can be bitter. Elders leaving them w. hole in Ozone layer, global warming & Brexit. Will get own back & elect Corbyn
• PM Theresa May flies to Brussels. Says long-arranged part of uber-secret master plan. I.e. alternate shouting & begging…
• Chancellor says is “bizarre” & “absurd” to suggest that he is a realist & thinks that Brexit is a disaster
• Discounting hots up. 40% off at Prezzo, half-price mains at Strada. 40 is the new 10, get ‘em while they’re hot…?
• Milk price shoots up in August. Helps likes of Wynnstay. Jury’s out on whether or not it helps PFD etc. to pass price rises on…
• BRC says footfall down 2.2% on High St & up 1.1% on Retail Parks. Down 1.2% overall.
START THE DAY WITH A SONG:
Yesterday’s song was Diana ross with ‘Ain’t No Mountain High Enough’. Today who sang:
When you wake me in the morning,
That is my favorite thing,
The party is so warming
RETAIL NEWS WITH NICK BUBB:
• ASOS: The finals today from the Online fashion giant ASOS for y/e August don’t spell out the Q4 sales trends, although some in the City were expecting a slight slowdown, but the PBT outcome of £80.0m (on the back of 27% constant currency revenue growth) is a tad ahead of expectations and, despite the cautious dip in the share price yesterday, the outlook seems fine: “The new financial year has started well. Our increased sales guidance is 25-30% for FY18 inclusive of a modest FX tailwind, with EBIT margins stable at c.4% in line with market consensus”.
• Today’s Press and News: Wifi problems here in Venice have prevented us from looking at many websites this morning, but the IPO plan for Footasylum seems to have got a fair amount of coverage in today’s papers, with the Telegraph noting that “UK’s youngest listed boss steers father’s Footasylum onto the stockmarket”, whilst the Times highlights that the founders of JD Sports are in the running for a big payday from the float. In the FT, Lombard column flags, amusingly, that “The business is as much an asylum for former bosses of the sportswear group as it is for feet” and that “The style differences between Footasylum and JD Sports will be hard to discern for male fund managers whose off-duty “look” channels the Boden catalogue”, concluding that the next logical step would be for JD Sports to buy out Footasylum. Talking of sports, it is also widely reported that the embattled Mike
• News Flow This Week: The latest Kantar/Nielsen grocery sales figures are out at 8am this morning and then the Travis Perkins Q3 sales and the ONS Retail Sales figures for September are published on Thursday.