Langton Capital – 2017-10-27 – Food prices, market trends, capacity, BurgerKing & other:
Food prices, Peel Hotels, trends, capacity & other:
A DAY IN THE LIFE:
It’s probably worth nothing that, whilst many if not most of us moan about the number of emails that we receive, be it cash demands, work-related bumph, domestic stuff or spam, if we stop getting them for any reason, we notice almost straight away and get distraught, start to exhibit what the animal behaviourists would call separation anxiety.
Hence, if your mail box is full, emails are bouncing and you don’t notice for a while you start to fidget, check your screen and your pulse rate rises.
The reason might not initially be clear but it’s likely because those random thousand and one consumer goods companies, travel companies, tax consultants and stranded West African princesses with $24m in a bank account that only you can unlock who usually bombard you with emails don’t love you anymore?
So, keep your inbox clear. Watch out for those 12MB emails with loads of photos of beer, cake or whatever that take up all the space and delete them (or move them to your C-drive) on a regular basis. Be warned. Lack of emails can seriously damage your health. On to the news:
SEPT & OCT LANGTON 60 SECONDS COMMENTS:
Trading is more challenging. Profit warnings are a regular thing and margins are under pressure. Langton has been reasonably up on this. Our January outlook piece looked at what we thought could feature this year and comments over the last 2mths have covered:
• Restaurant Group. More than a hill to climb
• Collapsing cinema attendances in the UK
• Profit warnings from casual diners
• Profit warnings spread to the pubs
• Weather comps in September
• The emerging Bull Trap in leisure
• E-sports & experiential leisure
• More on the weather
• The Cinema chill crosses the Atlantic
PUB, RESTAURANT & DRINK PRODUCERS:
• The CGA Prestige Foodservice price index fell to 6.5% in the year to September. CGA reports ‘it is a sign that foodservice price inflation, which has been rampant for much of 2017, might now be starting to ease—though many categories of the market continue to experience volatility in prices.’
• Volatile food price inflation down from 9.3% in Aug to 6.5% in Sept. CGA says ‘it is the lowest figure recorded by the Index since April, though it remains well above both historic levels and consumer-side inflation as measured by the Office for National Statistics.’
• Prestige Purchasing comments ‘the easing in overall inflation means a respite for many businesses where commercial pressures have been rising – not just in input prices but also through the impact of business rates and slowing sales as consumers tighten their purses in the tougher economic conditions. Whilst food prices are not yet falling, we are optimistic that we have seen the bulk of any broad increases coming through.’
• Fleuret’s On Market report suggests casual diners are facing profound change based on overcapacity and slowing demand. It says ‘the restaurant market, perhaps more specifically the casual branded market, is witnessing the most pronounced and dramatic changes of any of the sectors within the leisure market.’
• Fleuret’s suggests ‘sentiment is also turning in the coffee market.’ It says ‘whilst Costa continues to report like-for-like sales increases, the growth trend is clearly declining (6.1% LfL growth in FY14 has fallen to 2.9% LfL growth in FY16 for Costa) and some commentators are suggesting flat like-for-likes from the large branded operators by early 2018.’ Whitbread’s Costa reported only 0.1% growth in its recent Q2 to end-August.
• Fleuret’s reports ‘operators within London and the South East continue to benefit from the greater affluence of its residents and sheer power of numbers.’ It says ‘the clear trend is appearing to be the pub market performing much more strongly than the branded restaurant market as the impact of over supply and perhaps customers becoming tired of indistinguishable offers, really starts to bite this sector.’
• British consumers have more eating-out options than ever before, while operators face an unprecedented level of competition and unrelenting price pressures, according to Pragma Consulting. Operators are battling against a ‘perfect storm’ of external pressures including spiralling business rates, labour costs, COGS (cost of goods sold), rising rents, and market saturation. Given the conditions, many are focussing on trimming estates and moderating site opening pipelines as the market’s rate of new openings continues to fall from 3.9% in 2016 to an expected 3.7% in 2017.
• GBK has cut its openings pipeline for the rest of the years due to disappointing sales at a number of its new stores and falling LfL sales, the MCA has reported. The chain will only open 8 of its planned 10 new sites this financial year to February.
• US Burger King same-store sales grew by 4% in Q3 ending September 30 whereas sister companies Tim Hortons increased by just 0.6% and Popeye’s declined by 1.8%. Parent co Restaurant Brands International said innovative products helped Burger King and heavy competition hurt both Popeye’s and Tim Hortons in the US.
• Debenhams has stated ‘We currently have almost 70 third party managed food and drink offers in our stores including new partners The Real Greek and Nandos. We plan at least a further 50 with partners over the next three years, but we are also testing a new own-brand format, Loaf & Bloom, which will have a health and wellbeing focus’.
• FAT Brands, parent co of Fatburger and Buffalo’s Express, has agreed a franchise deal with Charlie FB Ltd with an aim to open 15 sites in the UK over the next few years. The openings will be a mixture of the two brands, with Fatburger offering burgers in Single to XXXL sizes accompanied by milkshakes and Buffalo’s Express serving up chicken wings. CEO of FAT Brands, Andy Wiederhorn, said ‘We are delighted to have found the ideal partner to grow our presence in the UK, as this has been a goal of ours for some time’.
• ETM Group will open the Broadleaf next month in the City’s Old Broad Street, marking the group’s 14th site.
• In the US, DineEquity (formally IHOP) has opened its first post-security airport site in Dallas Fort Worth International Airport, a key point in the firm’s $200m remodelling initiative that will refresh 1,000 sites by the end of 2018.
• Refresco, a Dutch soft drink bottler, is to be bought by PAI partners and British Columbia Investment Management Corp for €1.6bn, equating to €20 per share. This follows a rejected bid of €1.4bn from PAI in April.
• The BBPA has welcomed a scheduled debate in parliament on the taxation in the beer and pub sector which will take place next week.
• Butcombe Brewing has invested £4m in a new brewery facility that will increase ‘capability, capacity and quality’ of its brewing.
• The Metropolitan Transport Authority has banned alcohol adverts on the New York subway.
• BJ’s Restaurants in the US reported yesterday that weather hit its sales with LfL sales down by 1.7% in the quarter to end-Sept.
HOLIDAYS & LEISURE TRAVEL:
• Peel Hotels has reported H1 numbers & warned on trading. Sales down 5.1% to £8.6m. Op. profit down 31.3% to £605k.
• Peel Hotels says REVPAR down 4.2%, occupancy fell by 3.3% and PBT was down by 46.1% to £319k.
• Peel Hotels reports diluted EPS 1.8p vs 3.st year. Chairman Robert Peel comments ‘it is difficult to move forward from an earnings point of view without sales growth however we continue to generate sufficient cash to continually decrease our net debt and to continue the reinvestment in our properties.’
• Peel Hotels comments ‘the comparative shortfall in EBITDA in the first three periods will be difficult to make up by the end of the financial year however sales have now stabilised, REVPAR currently is growing (reversing the trend in the half year) and costs are under control. The ongoing diminution of financial charges will be of great benefit to the Company and net debt will continue to decrease satisfactorily whilst leaving the Company sufficient surplus cash to continue the reinvestment in its Properties.’
• Fleuret’s reports ‘across in the hotels sector, investor appetite for hotel property stock is at a high. Transactional volumes in this sector are predicted to reach over £5 billion for 2017, representing growth above 2016 volumes of 28%.’ London purchases by overseas buyers are said to be pushing the market.
• Research by UKinbound has found that inbound tour operators see Brexit problems in the future despite a good summer, with only 53% of respondents saying they are confident about future bookings and revenues. This cautious view comes in spite of the fact that 81% of members reported that revenue had either increased or stayed the same compared to 2016. The main reason behind the drop in confidence could be due to ‘looming concern’ about the rules regarding free movement regarding workers and visitors. USA remained the top growth market at 26% growth, with Germany replacing France as the main declining market, down 9%.
• Hilton Worldwide Holdings reported Q3 net income of $181m, adjusted EBITDA up 11% yoy to $524m and diluted EPS of $0.55.
• Increased security checks by US authorities means travellers to the US face longer delays to check in and take-off. The additional security includes questions at check in and inspection of electronic devices and was ordered by Donald Trump.
• Uber has launched its own credit card in partnership with Barclays and Visa which will be available to apply for from 2 November.
• London City airport reports £400m will be spent on development in an announcement that marked its 30th anniversary. The project will increase runway and terminal capacity by as much as two million more passengers per annum and is due for completion in 2021.
• Admiralty Arch is to become a Waldorf Astoria hotel. Prime Investors paid £60m for a 250-year lease in 2015. It will spend a further £100m to renovate the property.
• STR reports US hotels saw a 0.9% rise in occupancy for the week to 21 Oct. Rates rose 1.7% and REVPAR was 2.6% higher
• Twitter reports its could make a profit in Q4 as losses narrowed from $103m to $21m in Q3 and users grew four million to 330 million in the same period. The company’s revenue reached decreased 4% year on year to $590m for Q3.
• Alphabet, parent company of Google, shares jumped above $1,000 on reporting sales up 24% to $27.8bn with profits increasing from $5.6bn to $7.8bn in Q3 yoy.
• Amazon saw Q3 sales rise 34% to $43.7bn year on year, with profits increasing from $252m to $256m. CEO Jeff Bezos said the sales increase was in part down to the growing demand for the firm’s smart home products.
FINANCE & MARKETS:
• ONS stats show that real wages fell by 0.4% in the year to April. This was the first fall in 3yrs.
• ECB says it will half its purchases of assets (QE) from €60bn to €30bn from January next year. President Mario Draghi reports ‘our programme is flexible enough that we can adjust its size smoothly.’ He says there will be no sudden end to the bond-buying programme.
• ECB keeps key rates unchanged.
• Euro down sharply on back of ECB QE easing comments.
• Oil up a dollar at $59.39
• Sterling down vs strong dollar at $1.3131
• Pound up against weak Euro at €1.1284
• UK 10yr gilt yield down 3bps at 1.38%
• World market: UK up yesterday with Europe & US also higher. Far East up in Friday trade
PRIOR DAY’S LATER TWEETS:
• C&C sees ‘strong performance in our Tennent’s businesses’. But cider volumes down. Says trading ‘less predictable’
• C&C concludes ‘volatile market conditions remain across the industry.’ Says investment in Admiral will help distribution
• UK Q3 GDP better than feared but construction down. Times reports housebuilders building less in London.
• Big ticket spend struggling. UK car production down in Sept per SMMT. Fall driven by 14% drop in demand
• Debenhams on massive yield. Market concerned company selling wrong things to wrong people from wrong sites?
• Retail economics says food sales +3.1% in value terms last month. Starting to make Waitrose look not too good
• Post its recent purchase, Bunnings MD saying ‘the performance of Homebase is disappointing…’
START THE DAY WITH A SONG:
Yesterday’s song was Blossoms with Charlemagne. Today who sang:
I see skies of blue and clouds of white,
The bright blessed day, the dark sacred night,
And I think to myself …
RETAIL NEWS WITH NICK BUBB:
Footasylum: The intention to float by the fast-growing sports chain Footasylum was only flagged up last Tuesday, but things have moved on quickly and the company has announced this morning that a £65m institutional placing has been completed already and that dealings will start in the shares next Thursday. Despite the nervousness in the City about High Street spending, the market cap at the placing price of 164p is higher than the c£150m expected, at £171m, but the free float will only be 37%, with the founding Makin family (of JD Sports fame) holding 63%. Clare Nesbitt, the youthful CEO, says: “We are delighted that our product-led, multi-channel expansion strategy has resonated so strongly with investors, and are thrilled to have received such a strong level of demand for the Placing”.
Retail Sales Watch: We said yesterday that all the focus now is on how badly October will turn out on the High Street. We also always say that the wretched CBI Distributive Trades survey really isn’t worth the paper it’s printed on, but…As the first survey of monthly Retail Sales, it is still followed slavishly by City economists and yesterday’s view of a slump in “October” gets the usual uncritical coverage in today’s papers, eg the Guardian…The CBI survey is, of course, just a snapshot of industry sentiment (as the survey is completed mid-month) and it only tries to assess movement in sales volume (which is less useful when inflation is high, eg in Food). And just 49 retailers took part this time, so the fact that only 15% of them said that sales volumes were “up” in October on a year ago, whilst 50% said they were “down”, giving a rounded percentage balance of -36%, is not that
BDO High Street Sales Tracker: As the debate begins about just how bad Retail Sales have been in October and whether it is a blip or a trend, we flagged on Wednesday that John Lewis had another tough time in Fashion last week, as the weather stayed unseasonably warm. And today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains last week flags that w/e Oct 22nd saw Fashion Store LFL sales slump by as much as 9.4% (versus a modest comp of -1.2% LFL a year ago), which is the worst result so far this year. Including Homewares and Lifestyle chains, total Store LFL sales were down by 6.6% last week (versus +0.3% a year ago) and overall Online sales were “only” up by 8.2% (against a weak +14% a year ago).
Debenhams: None of the analysts dared to raise the subject of current trading in the Q&A after yesterday’s final results presentation by Debenhams (for y/e August), but management are no doubt pleased to have banked a decent September, to offset the weak October in the sector…although they will have hoped for a better reception to the showing of a video of this year’s heart-warming Christmas TV ad (“You Shall find your Fairytale Christmas”), with the shares closing slightly down, despite an initial mark-up. The new CEO Sergio Bucher made much in his presentation of the “strategic partnerships” that will be key to accelerating the pace of change in the business (upgrading the mobile website with Mobify, moving into Beauty services with Blow and trialling gyms with Sweat), as well as the success of the recently opened and re-designed Stevenage store (with 20% of its sales coming from
Trade Press: The front cover of today’s Retail Week magazine flags up at timely feature on “Generation Next”, the “CEO’s of tomorrow”, with a look at the rising stars like Tom Athron of JLP, Robbie Feather of Argos and Melanie Smith of M&S. In terms of News stories, RW focuses on the news that Sainsbury’s is to axe 2,000 jobs in a cost cutting drive, John Lewis has launched ‘concierge-style’ shopping in its new store in Oxford and the former New Look boss Alistair McGeorge has returned to the ailing fashion chain following the recent departure of CEO Anders Kristiansen. And in his column the acting Editor of RW looks at the problems of New Look and thunders that “New Look is right to turn to an old face”.
News Flow Next Week: With the end of the month coming up very quickly, first thing on Tuesday we will get the widely-followed GFK Consumer Confidence Index for October. November then starts with a bang in the form of the much-awaited Next Q3 update on Wednesday. Thursday is then very busy, with the Morrisons Q3 update, the Howden Q3 update and the Intu Properties Q3 update, together with first dealings in the Footasylum IPO, the much-awaited MPC interest rate decision at mid-day and the Apple Q4 results in the US in the evening. And, by tradition, the much-hyped Christmas TV ads get going in early November…