Langton Capital – 2017-11-08 – JD Wetherspoon, Royal Caribbean, Marriott, EU staff etc.:
JD Wetherspoon, Royal Caribbean, Marriott, EU staff etc.:
A DAY IN THE LIFE:
So how do you think HMRC will react if I suggest Langton pays money into an Isle of Man shell co that lends me money every month instead of the former paying me in the normal way?
Think they’ll pat me on the back, call me a clever boy & advise me that I don’t have to pay tax anymore?
Probably not. But then again I’m not a royal or a ‘star’ in some 1970s throwback comedy and, as we’ve got an early conference call with JDW this morning & have the Flash Notes etc. to put to bed, we’d better leave that where it is. On to the news:
JD WETHERSPOON UPDATES ON Q1 TRADING:
• JD Wetherspoon has this morning updated on trading for the first quarter of its current year and our comments thereon are set out below:
• Headline Numbers:
• JD Wetherspoon on trading for its first quarter (to 29 Oct) saying that like-for-like sales increased by 6.1% and total sales by 4.3%.
• JDW reports ‘the underlying operating margin, excluding property gains, was 8.6%, although one-off items increased that number in the quarter.’
• Group says ‘our expectations for the full year operating margin are unchanged.’
• More on Balance Sheet etc.:
• JDW reports it has opened two new pubs since the start of the financial year and has sold six.
• The group says ‘we intend to open between 10 and 15 pubs in the current financial year.’
• JDW says ‘the Company remains in a sound financial position.’ It adds ‘as previously indicated, the long-term aim of the Company is for debt to ebitda to be in the range of zero to two times.’
• JDW comments ‘with very low interest rates, we are comfortable with recent levels of about 3.5 times, which are modest in comparison with our main competitors, and are regularly reviewed.’
• JDW chairman Tim Martin says various comments about Brexit have been too downbeat.
• JDW believes that Brexit could reduce the average cost of a meal by about 3.5 pence and the cost of a drink by 0.5 pence.
• Mr Martin says ‘although it is only a short period, the Company has had a positive start to the year.’
• He continues ‘sales have continued at a slightly higher-than-expected level since we last reported on 15 September.’
• JDW comments that ‘costs, as many pub and restaurant companies have indicated, have been significantly higher than last year, and further increases are expected in areas including labour, business rates, utilities and sugar taxes.’
• Chairman Mr Martin concludes ‘we will provide updates as we progress through the current financial year, but we currently anticipate a trading outcome for the current financial year in line with our expectations.’
• Langton View: JD Wetherspoon’s shares have been strong recently, buoyed by good trading and in the past by share buybacks. Poorer-performing sites have been (and are being) disposed of. Openings are at relatively low levels.
• LfL sales continue to be strongly ahead of last year. This is a good performance as comps are not particularly easy (JDW was +3.5% in Q1 last year and it averaged +3.3% for H1 as a whole) and the economy, where Barclaycard and others say that consumers are cutting back, has not been easy.
• JDW’s shares trade at between 17x and 18x this year’s earnings, which is not prima facie cheap.
• However, the group is a superlative operator and, with Mr. Martin’s views on Brexit well-known, the company is likely to continue to pull out all the stops to show that Brexit and the uncertainty that surrounds it, will not prevent it from reporting good numbers.
• Some investors may be inclined to take profits, however.
• The group’s competitors may be feeling the pinch a little more acutely than JDW says it is and they may react accordingly. JDW does not operate in a vacuum and, if competitors continue to cut prices and offer deals, the company could be impacted.
PUB, RESTAURANT & DRINK PRODUCERS:
• Discounting still much in evidence as Prezzo offers 2-4-1 on mains, Pizza Express offers 25% off and Bella Italia goes half-price on main meals
• Barclaycard reports spending growth slows to 2.4% ‘as consumers show continued restraint with household finances’
• Barclaycard reports inflation is squeezing families & says ‘Brits pared back across the board’ in October
• Barclaycard reports essentials spending was +2.9% whilst spending on non-essentials was +2.2% ‘as shoppers cut back on ‘nice-to-haves’’
• Barclaycard says ‘consumers are staying cautious amid concerns over the wider economic outlook, as three in 10 (31 per cent) said in October that an interest rate rise would change their spending patterns.’
• On a brighter note, Barclaycard reports spending on entertainment was +7.9% and it says that spending in pubs & restaurants was +10.2% and +11.8% respectively. It says ‘Brits have a gloomy outlook on the UK economy, however, with just 31 per cent expressing confidence. This is the second lowest proportion in the last 12 months and down 6 per cent on September.’ Paul Lockstone, Managing Director at Barclaycard, said ‘household expenditure remained muted in October and, when taking into account inflation, equated to a decline in real terms. This is a reflection of consumers paring back to cope with their reduced spending power, a tactic which, for the moment, has given them confidence in their ability to manage their household finances.’
• The Hony Capital backed restaurant group, PizzaExpress has sold its upscale pizza delivery business Firezza, reports the MCA.
• The MCA has reported that Pegasus Foods will bring the US burger chain, The Habit Burger Grill, to the UK and the Netherlands. The first sites are set to open in the suburbs of London in 2018, before UK wide roll out.
• Shrinkflation has become ‘endemic’ in food and drink, with 76% of 200 manufacturers surveyed in August and September 2017 under pressure to cut prices.
• Alcohol sales to underage customers in the UK has hit record lows. A survey of 12,000 schoolchildren aged between 11 and 15 found that only 5% of those who had drank alcohol had done so from a pub or bar. Brigid Simmonds, Chief Executive of the BBPA stated: ‘These positive figures reflect the huge effort that goes into preventing underage sales, in both the on and off-trade’.
• The Chief Executive of the BBPA, Brigid Simmonds has commented on providing settled statuses for EU citizens: ‘I hope this will provide reassurance to the thousands of EU employees in our industry that they will be welcome in the UK, after Brexit, and that every effort will be made to make the process of gaining settled status as easy as possible. They make an essential contribution to the industry, right across the country. It is good to see the Government making it clear that they will be welcome, and pushing the EU to resolve their status as soon as possible in the Brexit negotiations’.
• Meanwhile, the ALMR’s Kate Nicholls commented: ‘This announcement, particularly the Brexit Secretary’s comment that the Government will “…support everyone wishing to stay to gain settled status through a new straightforward, streamlined system” provides peace of mind for businesses and employees. A simple, low cost policy with no discretion for refusals and plenty of time for completion should help provide assurances for eating and drinking out businesses, and their team members, looking to prepare for future growth and investment.’
• SA Brain has sold 8 pubs to Butcombe Brewery for an undisclosed amount.
• Restaurants in the US are continuing to scale back development as they combat slowing sales and increasing competition, according to US blog NRN. Industry traffic has fallen in 23 of the past 24 months, according to the MillerPulse index — despite low unemployment, a booming stock market, rising home values and a growing economy. This suggests that industry supply has outpaced demand.
• Mary Portas’ ‘Save the High Street’ campaign has failed, figures show, as the towns under her watch have lost nearly a thousand shops in five years. The Government-backed program saw 12 towns handed a portion of a £1.2m grant and support from the retail guru and Ministers, in a bid to transform them into thriving retail hubs. But since its launch in 2012 the towns have lost nearly one in five of their shops, the Local Data Company has found, around the same rate of decline as the rest of the country.
• US restaurant chain Denny’s reported positive sales gains for the third quarter despite some 220 outlets being affected by Hurricane Harvey, Irma, and Maria.
• 2 Sisters, the food manufacturer at the centre of a hygiene scandal, made a loss in its fourth quarter and has warned that Q1 results will also be impacted by the food safety failure at its West Bromwich factory.
HOLIDAYS & LEISURE TRAVEL:
• Royal Caribbean reports Q3 numbers, says US GAAP and Adjusted Net Income were $752.8 million or $3.49 per share. Last year, US GAAP Net Income was $693.3 million, or $3.21 per share.
• Royal Caribbean reports that ‘the unprecedented series of hurricanes this summer devastated many people and places in Texas, Florida and the Caribbean.’ It says ‘the repair and recovery efforts have been intense and most of the affected destinations served by our cruise ships have already been reopened or are about to be reopened.’
• Looking forward, RCL reports ‘the company still expects to generate earnings for the year within the increased range of guidance provided prior to the storms.’
• Marriott International has reported Q3 numbers saying adjusted diluted EPS was 110c, up 26% on Q3 last year.
• Marriott reports Q3 worldwide REVPAR +2.1%. The group added 22.8k rooms in the quarter. CEO Arne M. Sorenson reports ‘in the third quarter, many of our hotels were rocked by destructive hurricanes in the Caribbean, Texas, and Florida and the earthquakes in Mexico.’ He goes on to say ‘for 2018, we expect comparable systemwide RevPAR on a constant dollar basis will increase 1 to 3 percent worldwide and 3 to 5 percent outside North America, while RevPAR in North America should be flat to up 2 percent. Group revenue pace for our North American full-service hotels is up nearly 2 percent.’
• Visit Florida’s UK marketing spend will increase by 45% in 2018 and will launch a $2m winter marketing campaign to drive demand from the northwest of England.
• Research from US wholesaler Tourico Holidays shows that Europeans are taking advantage of the weak pound by holidaying in the UK. Overall UK hotel bookings rose by 29% so far this year over the same period in 2016, with demand from Scandinavia increasing by 17% and Spain jumping 49%. The UK’s core markets, including the US and Canada, have also held up well, according to the data.
• Turkey’s Ministry for Culture and Tourism announced the country has welcomed nearly 30% more global visitors year on year, calling it ‘a great success’.
• During January to September there were one million UK arrivals to Cyprus representing an 8.9% increase yoy. September monthly figures show a 10.8% increase yoy at 165,728 UK arrivals.
• UK hotels experienced a slowdown in RevPAR growth with some cities recording a decline according to the Q3 2017 Hotel Bulletin produced by AlixPartners, HVS, AM:PM and STR. Edinburgh and Belfast were the highest achievers posting RevPAR growth of 11%, and outside Aberdeen average growth for the 11 remaining cities was just 5%. The report also suggests one of the biggest concerns for hotels going forward will be labour costs.
• Technavio’s Global Business Travel Market 2017-2021 report predicts business travel will experience a 5.1% compound annual growth rate for the next 5 years. Technavio researchers cited technological advances, digitisation of travel payments and availability of business services in hotels as the main drivers of this growth.
• Sky Betting & Gaming reports FY numbers saying revenues rose by 38% to £516, with over 80% of revenues now on mobile devices. EBITDA was +38% at £146m. CEO Richard Flint reports ‘the business performed very well in 2016/17, with further investments in product, technology and brand delivering strong financial results. During the year, we invested in people and technology in our Yorkshire base, with a 40% increase in headcount, helping us to cement our position as the UK’s most popular online betting brand.’ Mr Flint concludes ‘we enter our 2017/18 financial year with strong momentum, and we will maintain our focus on investment in Yorkshire, delivering innovative and quality products and offers to our customers, leaving us confident that we can deliver further growth.’
• Sky could shut down Sky News if its ownership of the channel proves to be an obstruction to the company’s £11.7bn takeover by Twenty-First Century Fox.
• Snapchat owner Snap is working to overhaul its signature messaging app in a bid to attract users, following its most recent quarterly loss of more than $400m. Snapchat said the changes would make the app easier to use and more compatible with Android phones. However, it warned the transition could be rocky.
• Facebook Messenger payments, a service where users can send money to each other via the app, has launched in the UK.
FINANCE & MARKETS:
• House prices in the UK rose 4.5% in year to Oct reports Halifax, up from 4.0% in year to September
• Oil down a short dollar at $63.38
• Sterling little changed vs dollar or Euro at $1.3165 and €1.135
• UK 10yr gilt yield down 4bps at 1.23%
• World markets: UK down, Europe down, US down yesterday. Far East mostly higher in Wednesday trade
o Post Brexit trade policy to become clearer as proposed legislation published.
PRIOR DAY’S LATER TWEETS:
• Later tweets: BRC-KPMG sales monitor shows non-food sales +0.1% in quarter to Oct. Non-food sales fell 2.9% on a LfL basis
• High street rents under pressure. Some talk of failed £150k lets coming back on the market at £90k or even £80k.
• Fever-Tree to beat expectations. Conviviality says progress continues. Fourth says leisure & hospitality productivity falling in 2017
• Bowmark says Drake & Morgan takeover has boosted Corney & Barrow LfL sales by 25%.
• Halifax says house prices rising strongly, up 4.5% in year to Oct from 4.0% in year to Sept. Says base rate hike unlikely to choke demand
• Oil at 2yr high, Nikkei at 26yr high, Wall St at all-time highs. SMMT says car sales poor, BRC says High St poor etc., etc.
• Barclaycard reports consumer spending up 2.4% in year to Oct (so down 0.6% in real terms). Says spending on non-essentials up only 2.2%
• Barclaycard: Consumer spend on pubs & restaurants +10.2% and +11.8% respectively. But fall in spend at cinemas (down 7.8%)
START THE DAY WITH A SONG:
Yesterday we had ‘Me and Mr. Jones’ by the great AMy Winehouse. Today, who sang:
I don’t know what this is but you got me good,
Just like you knew you would,
I don’t know what you do but you do it well,
I’m under your spell
RETAIL NEWS WITH NICK BUBB:
Marks & Spencer: We flagged yesterday that the market was expecting a 10%/12% fall in first half profits, ahead of today’s interim results, but M&S, as usual, has engineered a positive beat, as the outcome of £215m in adjusted PBT is only 5% down (thanks to a surprisingly strong recovery in International profits)…Mind you, that is before a chunky £101m of exceptional costs, including an embarrassing £46m charge for under-recording of historic depreciation and £27m for the “consolidation” of the London HQ. As for the all-important Q2 sales numbers: both Non-Food and Food are down by 0.1% (aka a tad), which is mildly disappointing, but gross margins have gone in opposite directions, with Food gross margins down by 130bps in H1, but Non-Food gross margins up by 140bps. There is nothing about current trading, but the focus of the 9.30am analysts meeting is on CEO Steve Rowe’s plans
New Look: We flagged in August that it was not surprising that New Look’s CEO Anders Kristiansen got the order of the boot, after presiding over a 2 year UK Retail LFL sales decline of c15% in Q1 (-7.5%, followed by -7.4%), but the Q2 performance (to end September) announced yesterday was even worse, at -9.5%, on top of around -10% a year ago (amounting to -20% LFL over 2 years…), despite helpful weather. That sort of operating de-leverage, given rising costs, demolished the P&L, pushing the beleaguered New Look into a small EBITDA loss in Q2. Yet the interims announcement yesterday, flagging the return of Alistair McGeorge as Executive Chairman with immediate effect, was headlined “Adequate liquidity and cash position”…And the South African boss Jon Gnodde said that “Brait remains committed to being a long-term shareholder of New Look. Whilst the second half of the year is likely to
John Lewis Partnership Sales Watch: Given the unhelpfully warm weather and tough comps, that great bellwether John Lewis had a terrible October, but yesterday’s sales figures for last week from JLP showed that John Lewis has also started November on a very weak note: sales slumped by 3.7% in gross terms (c4.5% down LFL, ex Oxford) in w/e Nov 4th, the fifth bad week in a row. Fashion sales were 4.5% up gross, driven by the price matching of the Debenhams promotion, but Home was 7% down gross and there was an 8.4% slump in gross Electricals sales, despite the launch of the new iPhone X smartphone. Over the last 14 weeks, John Lewis sales have been cumulatively up by 1.0% gross or c0.5% down LFL. Over at Waitrose, sales were down by 0.6% on last year, but in part this was due to the different timing of promotional activity compared to the same period in 2016. Over the last 14 weeks Waitrose
News Flow This Week: Tomorrow brings the Sainsbury interims, the Burberry interims, the Halfords interims, the SuperGroup pre-close and the Lookers Q3 update (phew!). And any day now the CMA will issue its delayed provisional findings on the Tesco bid for Booker. Finally, the much-hyped Christmas TV ads (including the famous John Lewis ad) get going this week (with the Marks & Spencer “Paddington” ad getting a lukewarm reception in this household).