Langton Capital – 2017-10-19 – Domino’s, food costs, Revolution, BrewDog, Rank etc.:
Domino’s, food costs, Revolution, BrewDog, Rank etc.:
A DAY IN THE LIFE:
We all know what we mean when we use the word ‘inevitable’.
You may think, for example, that it’s inevitable that England will disappoint in Russia next year or that the currently warring Tory party will make a pig’s ear of Brexit before they hand the reins over to Mr Corbyn but I’ve never heard anybody say that something is evitable, so where did the word come from in the first place?
I may be corrected here as MS Word hasn’t underlined the word in red suggesting that it really might exist. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Revolution has announced that Mark McQuater, the group’s CEO, has resigned from the Board. Mark has been replaced by Revolution’s Chairman, Keith Edelman, until a suitable replacement can be found.
• Mr McQuater was obliged to warn on profits earlier this year. The board then agreed a bid from Stonegate but was unable to deliver. The group says that it has a bright future but, for whatever reason, this will now be without its former CEO. Deltic still maintains that it could create a “powerhouse group” if it were to merge with Revolution & retain its listing.
• Equity-hungry BrewDog has initiated the fifth round in its Equity for Punks crowdfunding campaigns, with the group aiming for £50m. The investment round will close on 15 January, with shares costing £23.75. BrewDog aims to accelerate growth with 15 new bars in 2018, including four brewpub locations. Co-founder, James Watt said: ‘The latest round of Equity for Punks will make us the biggest equity crowdfunded business of all time, having already raised over £41m from a community of tens of thousands of misfits, forging a new kind of business model founded on craft, community and conscience’.
• In its last round of funding, BrewDog raised £19m of a target £25m. In the US, the group hoped to raise $50m earlier this year but closed its funding at $7m. In April, BrewDog sold 22% of its business to PE house TSG Partners in a deal that valued it at £213m. Founders James Watt and Martin Dickie are thought to have made around £100m from the business, which began its life in a garage.
• BrewDog plans breweries in Australia and Asia as well as up to 15 new bars to add to the 47 that it already operates.
• Domino’s Pizza Group has announced that Daytona JV Limited, which operates the Domino’s master franchise in Germany, and in which DPG owns a one third stake, is to acquire Hallo Pizza for a consideration of €32 million on a cash and debt free basis.
• Domino’s reports that Hallo Pizza ‘is the largest independent pizza chain in Germany with a comprehensive national footprint of 170 franchise stores throughout Germany. Hallo Pizza generated network sales of €80.2 million and normalised EBITDA of €3.5 million for FY16’.
• Domino’s says ‘the acquisition will strengthen the German Joint Venture’s market leading position and increase the store count in Germany from 209 to approximately 300-340 following brand conversions, accelerating progress towards its 1,000 store target. Existing Hallo Pizza stores will be operated on a transitional basis until franchisee contracts are converted to Domino’s.’
• The group says ‘the transaction is also expected to improve the profitability of former Hallo Pizza stores and existing Domino’s stores for both franchisor and franchisees as stores are converted to Domino’s and national advertising campaigns, social media initiatives and IT innovations are leveraged over the larger store network.’ It adds ‘the transaction is scheduled to complete in the first quarter of 2018. Following completion, the German Joint Venture will work with the vendor and Hallo Pizza management to convert franchise contracts to the Domino’s brand over the next 2-3 years.’
• Domino’s acquisition costs. Domino’s reports ‘the purchase price for Hallo Pizza of €32 million will be payable on completion of the transaction. An additional €20-30 million of costs are estimated to be incurred over the next 2-3 years to finance store conversions and other transaction costs.’ It says ‘the consideration and related costs are to be funded by the German Joint Venture’s shareholders, Domino’s Pizza Enterprises Limited and DPG, in proportion to their current shareholdings. Accordingly, DPG will fund one third of the purchase price on closing of the transaction (€11 million) and one third of the conversion and other transaction costs over the next 2-3 years.’
• Darwin & Wallace has announced that it is to open its 6th bar, in Wimbledon, S/W London, in the Spring. The group comments ‘situated in the heart of Wimbledon, South West London, the new location will be adjacent to the tube and rail station and walking distance to the infamous Wimbledon tennis court.’ Mel Marriott, Darwin & Wallace Managing Director comments, “After a long hunt for the perfect spot for Darwin and Wallace in Wimbledon, I am delighted to have finally found this wonderful space, centrally located and adjacent to the station in the midst of Wimbledon’s vibrant town centre. The large external terrace will be an excellent all year round feature and we are extremely excited to bring our passion for great food and drink and unique interiors to this gorgeous leafy London village.’
• US-based Romano’s Macaroni Grill has filed for Chapter 11 bankruptcy and many of its landlords are ‘seeking to recover damages far in excess of anything they would be entitled to under bankruptcy.’ Macaroni Grill has 93 company-owned locations and franchises another 23 units. The company said in its filing that it has $23m in secured debt and had negative earnings before interest, taxes, depreciation and amortization (EBITDA) of $12m on revenues of $230m.
• A quarter of low paid workers are permanently locked in poorly paid jobs in the UK with little chance of earning more, according to research from think tank Resolution Foundation. The Social Mobility Commission said the report shows low pay is ‘endemic’ in the UK, with women more likely to get stuck on low pay, and adds that just one in six low paid workers appear to have escaped into more remunerative employment. ‘This lack of pay progress can have a huge scarring effect on people’s lifetime living standards,’ Conor Darcy, a senior policy analyst with think tank Resolution Foundation, which carried out the research, said, before calling for ‘a more comprehensive response from business and government’ to help people earn more.
• InterContinental Hotels Group is opening the largest Holiday Inn Express in Europe, in the city centre of Cologne, which will have 323 rooms.
• The NFU, the British Summer Fruits association and the Farmers’ Union of Wales said that cabinet minister Chris Grayling was ‘talking tripe’ when he suggested that the UK would simply ‘grow more food’ if it failed to strike a trade deal with the EU.
• Hospitality data and software specialists, Fourth partners, CGA and Prestige Purchasing, are joining forces in order to provide customer benchmarking of inflationary goods and total transparency of how their business is performing against the overall market.
• Real wages declined for the sixth consecutive month in the UK during August. Wage growth failed again to keep up with inflation levels triggered by the fall in sterling following the Brexit result. Basic wage growth was shown to reach 2.1%, lagging the inflation rate of 3%.
• The MCA has reported that the Real Greek is to open its first site in Bristol. The Fulham Shore backed concept currently operates 14 sites.
• The increasing price of ingredients is the number one challenge for operators, according to CGA’s Confidence Survey 2017. The second biggest challenge – according to 78% of the 160 chief executives, managing directors, chairmen and other senior directors and management in the out-of-home eating and drinking sectors, which responded to the CGA Confidence Survey 2017 – was business rates. Third came the fall in sterling, followed by increased costs of imported goods, and increased staff costs.
• The chairman of Global Brands, which produces ready-to-drink brands such as Hooch, VK, and Hoopers, is predicting rising category sales in the future. Speaking to The MA, Steve Perez said: ‘We’re seeing growth in appeal and take up [of the likes of VK] and we think that’s because other RTD brands have declined and disappeared over the years.’
• Some 4.1 million people are thought to be in financial difficulty due to domestic or credit bills, most of whom are aged between 25 and 34, according to a survey of 13,000 people by the FCA. These consumers have failed to pay bills in three or more of the last six months. The Financial Conduct Authority suggests that 25.6 million consumers could be vulnerable to financial harm.
• Smith & Sinclair, the creators of the world’s first edible cocktail, is setting up a concessions in 20 John Lewis stores for customers to create their own Edible Cocktails.
• In the US, the monthly MillerPulse report shows same-store restaurant sales declining by 0.6% in September with Hurricanes Irma and Harvey taking the blame in key markets. Larry Miller said the storms cut same-store sales by 40 basis points, but even if you disregard the storms, results were weak. Same-store sales have now been declining in the US for 13 of the past 16 months, with the industry facing its worst period since 2009. Miller said aggressive expansion has increased supply at a rate faster than demand, spreading the same number of customers over a growing number of locations and believes that companies now need to show ‘restraint’ when it comes to construction.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• The CAA has defended itself against allegations that Monarch could have continued to trade after October 2 by saying ‘At no time did the CAA order Monarch to close or stop trading.’ Instead the regulator said Monarch had failed to make a credible application for Atol renewal.
• Hays Travel is set to open concessions in WHSmith stores, with the first concession to be located in the WHSmith’s at Leeds White Rose shopping centre. The first will open on November 9, and if successful, a further 20 to 30 are expected within a year.
• Gatwick is expecting a 21.7% surge in long-haul passengers during the October half-term, compared to last year. St Lucia in the Caribbean and Fort Lauderdale in Florida were the two fastest growing long-haul routes, up 197% and 181% year on year respectively.
• US private equity firm Blackstone Group, via its Blackstone Real Estate Partners Europe V, has agreed to acquire Hotel Investment Partners, which as a portfolio of 14 coastal resorts with more than 3,700 rooms around Spain.
• Donald Trump’s proposed travel restrictions on travel to the US from Chad, Iran, Libya, North Korea, Somalia, Syria, Venezuela, and Yemen has suffered another court defeat. A federal judge in Hawaii issued an order Tuesday blocking the ban, saying that it violates immigration law. U.S. District Judge Derrick Watson in Honolulu said the travel ban ‘suffers from precisely the same maladies as its predecessor: it lacks sufficient findings that the entry of more than 150 million nationals from six specified countries would harm U.S. interests.’
• Rank Group has updated on trading for the 16 weeks to 15 October 2017 saying that revenues fell 1% in its venues but rose by 19% on its digital platforms.
• Rank says ‘Grosvenor Casinos’ venues like-for-like revenue was down 1% in the period driven by a lower than average win margin. Mecca’s venues like-for-like revenue was down 2%.’
• Rank says ‘both Grosvenor Casinos’ and Mecca’s digital channels grew strongly in the period, with revenue up 34% and 11% respectively.’ The group adds ‘management’s expectations for the full year remain unchanged.’
• Crown Resports’ shares fell by 8% yesterday after allegations that the company had rigged poker machines in Australia
FINANCE & MARKETS:
• UK unemployment fell by 52k in the 3mths to end-August to 1.4m. The rate of joblessness held steady at 4.3%, the lowest level since 1975.
• Total earnings in the UK rose by 2.1% on an annual basis in the 3mths to August. This compares to CPI at 3.0% and RPI at 3.9%. TUC boss Frances O’Grady said ‘pay packets are taking a hammering. This is the sixth month in a row that prices have risen faster than wages. Britain desperately needs a pay rise. Working people are earning less today in real-terms than a decade ago.’
• China’s economy grew by 5.8% annually in the quarter to end-September
• Oil down slightly at $58.12
• Sterling up vs dollar at $1.3217
• Pound down vs Euro at €1.1193
• UK 10yr gilt yield up 5bps at 1.32%
• World markets: UK, Europe & US higher yesterday but Asia mostly lower in Thursday trade
o Theresa May to pitch to EU leaders as she travels to Brussels again later today. An EU official told Reuters ‘we do not expect at this stage any new initiatives between now and the European Council.’
o Guardian reports Labour as saying government will be forced to delay bringing the EU withdrawal bill back to the House of Commons for a second time. It is facing ‘100s of hostile amendments’.
o BCC’s Anastassia Beliakova has said ‘a transition period should be at least three years. This is important not just for businesses to prepare, but also for new IT systems to be put in place’ and for extra staff to be hired, taxes raised to pay them etc.
o Mark Corby of the UK Trade Facilitation Expert Panel has said ‘you need three to five years, taking the transition up to 2025, to put in place the untried, streamlined systems ultimately envisaged.’
o Tory politicians are keen to exit the EU before the next election.
o Irish PM Leo Varadkar has said it wants Britain to commit to avoiding a customs border returning to the island of Ireland in the event of a Hard Brexit
PRIOR DAY’S LATER TWEETS:
• Later tweets: Revolution shareholders reject 203p bid for company from Stonegate. Deltic says still willing to talk.
• UK wages rising at 2.2% (was 2.1%). Still 0.8% below inflation. Jobless number down but rate sticks at multi-year low of 4.3%
• Millennials prefer texts to phone, don’t use cutlery, like burgers, are faddy, feel good about their humanity & stay in a job for 2yrs
• Carney says is “more likely than not” inflation will rise further in Oct & Nov. Rate rise next month pretty likely
• 3% CPI but most of it external. Currency & oil vs UK pay rises. Could contain inflation but only if consumers continue to take the hit
• OECD says second referendum may be a good idea. Likely to be ignored. Sick of experts etc.
• Warm mid-Oct weather hits J Lewis sales. Supermarkets buoyed by food inflation. See 17th month of growth per Kantar
• Discounting. Prezzo 50% off. Pizza Express 2-pizzas-for-a-fiver. Revolution 50% off all food. This way disaster lies?
START THE DAY WITH A SONG:
As many of you correctly guessed that was Echo & The Bunnymen yesterday with ‘ The Killing Moon’. Today’s song:
Plucked her eyebrows on the way,
Shaved her legs and then he was a she
RETAIL NEWS WITH NICK BUBB:
• Travis Perkins: The giant builder’s merchanting group Travis Perkins is a good barometer of the state of the UK economy and their message today with their Q3 sales update is “Trading conditions in our markets continue to be mixed, with consumer discretionary spending under pressure from rising inflation and ongoing uncertainty in the UK economy”, but the statement is headlined “Trading on track despite a challenging market backdrop” (of input cost inflation and market volatility). Helped by a strong recovery in the struggling Plumbing & Heating division, overall LFL sales growth for the group was 4.1%, but, interestingly, LFL sales growth in the Consumer division slowed in the third quarter to 2.4%, “primarily due to more subdued growth in Wickes, reflecting very strong comparatives from Q3 2016 and an increasingly difficult market environment”.
• Games Workshop: Following on from the update on September 5th, the high-flying toy chain Games Workshop (market cap £650m, which makes it nearly as big as Halfords…) has confirmed that “sales to date have continued strongly. Given the high operational gearing of the business, any movement in sales is directly reflected in profits. Sales and profits to date therefore continue to be well above the same period in the prior year”.
• Today’s Press and News: The front page story of the FT is headlined “Half of British adults financially at risk as wealth divide deepens”, flagging up the FCA’s concern over the rise in high-cost credit products and the fact that millions have to borrow from friends or family. The main Retail focus is on the news that Sainsbury’s is seeking to cut up to 2,000 admin jobs (mainly in its payroll and HR departments). In the Times, Tempus column looks in detail at ASOS and thunders that the shares are an “Avoid”, because “though, unlike other online retailers, Asos is open about how it expects to grow, the rating still requires a high degree of faith”. Incidentally, yesterday’s Times highlighted that the fast-growing carpet chain Tapi, the business set up by Martin Harris that has been a thorn in the side of Carpetright, racked up a loss of £10m on sales of £30m last year.
• News Flow This Week: The current focus in the sector is on how weak Non-Food trading has been in October, but the ONS Retail Sales figures for September are published this morning (see below)…
• Planet ONS Watch: In the real world, September (the 5 weeks to Sept 30th) was another reasonable month on the High Street overall, as per the recent BRC-KPMG Retail Sales survey, thanks to the boost to Clothing and Non-Food sales from the autumnal weather. But we will find out at 9.30am what life was like last month on that bizarre parallel world, the Planet ONS, as per the Office of National Statistics Retail Sales figures for September…Our friends at Capital Economics have pencilled in a small 0.2% month-on-month dip in seasonally adjusted sales volume, which would put the year-on-year growth rate at +2.1% in September. We will obviously be focusing on the non-seasonally adjusted sales value figures and the volatile ONS figures for “Small Businesses”…