Langton Capital – 2017-11-09 – JDW, costs, C&C, Papa Murphy’s, Coke HBC etc.:
JDW, costs, C&C, Papa Murphy’s, Coke HBC etc.:
A DAY IN THE LIFE:
MIFID II is frying my brain.
Because getting your head around it is akin to stuffing a wriggly octopus into a shoe-box in that 1) it seems to do everything in its power to make what you want to do impossible and 2) it won’t fit in, in any case.
For the (blissfully) uninitiated, MIFID II, which comes into force in January 2018, will restrict payments to brokers and it could radically change the way in which we (have to) do business.
It will all settle down, in the end, of course.
Information in a functioning market is critical but, as the FCA and others have said ‘product discovery’ (what clients want) and ‘price discovery’ (what clients will pay) could take ‘some time’ (perhaps 2yrs or more) to determine.
And that’s like telling a big broker, sitting in its glass palace, to suck on its thumb for 24mths without income whilst it awaits the above decision.
But that won’t happen as the brokers will go where the money is. An if the Broker PLC doesn’t do this the brokers themselves as individuals will and, as was seen in the US in 2008-10 when the bright and beautiful from the US’s graduate schools flocked to the West Coast to infest Silicon Valley and eschewed the canyons of Wall Street, there are changes afoot. On to the news:
JD WETHERSPOON UPDATES ON Q1 TRADING:
• Following its update on Q1 trading this morning, JD Wetherspoon hosted a conference call for analysts and our comments thereon are set out below:
• Margin. What has been ‘excluded’? Co won’t go into detail at this stage.
• Margin. Whilst expectations (not spelled out) for the FY margin are unchanged.
• What about the components? In the main, the components are unchanged. Labour c4.5%. Food & drink a little less than prior expectations. Utilities up on tax changes, sugar tax £4m to £5m.
• Why is there not greater beneficial operational gearing? Says cost base has risen. Labour increases in Oct & April. Higher business rates from April. Q1 was the easiest comp for cost base. Co needs 3% to 4% for the full year to stand still. It needed c6.1% in this quarter.
• Trading overall? Various micro-climates. JDW is pleased with its own performance. McDonald’s & KFC are doing well.
• Property gains? They are ‘fairly minimal’.
• Won’t give food vs drink splits.
• No ‘guidance’ on FY margins. Just to say their expectations are unchanged.
• Gap, LfL growth vs total growth? Should be at parity by H1 (as disposals wash through).
• Why are LfL sales so strong? Staycations etc. They won’t stay at this level. No comment on price rises, co ‘doesn’t break this out’.
• Pricing in the market as a whole. Gap between JDW & the rest in terms of price has ‘widened a bit’.
• Balance Sheet:
• Freehold reversions. Average is c£10m per quarter. Q1 this year was not out of the ordinary.
• Langton View: JD Wetherspoon’s conference calls have always been brief and today’s was no exception.
• The group declined to break down its performance between price & volume but did say that the price difference between its own offer and those of its competitors had widened.
• The takeaways are perhaps 1) that the strong performance has continued, 2) that it is still not expected to last much longer but 3) that the momentum should be such that profits should increase despite cost increases.
• Overall, we remain of the view that JDW is an excellent operator but that its shares are not cheap.
• The group is well-positioned to benefit from any trading down but, given its thin margins, it would be particularly exposed if its revenues began to falter. At the time of writing, there is little evidence of that being the case.
PUB, RESTAURANT & DRINK PRODUCERS:
• Coca Cola HBC updates on Q3 saying its has seen ‘excellent revenue performance’ with FX-neutral revenue growth of 6.0%
• CCHBC sees ‘strong quarter for volume growth, up 3.4%, with good broad-based improvements from all three segments.’ Acting CEO and CFO Michalis Imellos reports ‘we are very pleased with the strong revenue delivery in the quarter, well balanced between broad-based volume growth and substantial price/mix improvement. We go into the final quarter encouraged by our progress and confident in delivering on our expectations for the full year.’
• The Laine Pub Co has announced it will expand its partnership with the VR Concept by bringing its virtual reality experience to a third pub, the MCA has reported. The group will bring the concept to the World’s End in Brighton, following success at the Four Thieves in Clapham and the Aeronaut in Acton. Head of the VR Concept, Gavin George said: ‘VR has had a positive impact on business in the same way that other experiential offers have, as customers seek out enhanced pub experiences. We’ve seen a significant uptake in customer engagement in experiential activities, from comedy to circus spectacles and from remote control cars to escape rooms’.
• The branded Indian restaurant sector is expected to grow by 21% to a value of £150m this year, according to research from the MCA. Currently there are 123 branded Indian restaurants in UK up from 90 in 2015.
• Dual kitchens that enable operators to run dine-in and delivery options without intruding on each other could become essential in dealing with fast-growing delivery market. Founder of pizza chain Firezza, Eric Basic said: ‘You can’t really open a restaurant now without thinking about delivery, it’s part of reality, so why not design a restaurant that can cope with delivery as well, so that you don’t have to limit this side of the business and you can grow as much as you want?’.
• US food service company US Food Holdings has reported Q3 numbers saying that volumes increased by 2% but independent restaurant volumes slipped by 6%. It says net sales rose by 6.2% in value terms to $6.2bn. CEO Pietro Satriano reports ‘strong volume growth with our targeted customers and adjusted EBITDA growth of over nine percent underscored our third quarter performance.’ Mr Satriano continues ‘our Great Food. Made Easy strategy continues to resonate with customers as demonstrated by the increased demand for our portfolio of value added services. Customer response to our most recent Scoop offering has been the strongest to date and highlights the continued momentum in our business.’
• IEA attempts to put numbers on potential costs to families & the F&B sector of imposing tariffs post EU exit. It says the situation ‘isn’t quite as clear cut as many suppose.’ The IEA, like most other observers, has no real answers. Uncertainty is not welcome.
• Antonio Carluccio, founder of the chain of restaurants that still bears his name, has passed away aged 80.
• C&C reported yesterday that it has appointed Jonathan Solesbury as its CFO. CEO Stephen Glancey reports ‘we are pleased to announce Jonathan’s appointment as Group Chief Financial Officer on a permanent basis. During the period in which he has been performing the role on an interim basis, Jonathan has had a positive impact leading our finance function and made a strong contribution to the commercial side of our business.’
• Papa Murphy’s in the US has reported that same store sales fell by 4.1% in Q3. Sales are now down by 9.8% on the same quarter two years ago. The number of locations from which Papa Murphy’s trades is down by 40 over the year to some 1,582. The company is not currently looking to open new sites and it says ‘as the system focuses on top-line growth and absorbing the refranchising of over 100 company stores, we don’t believe new unit openings will be significant.’
• US operator Rave Restaurant Group, which is by no means small, has reported Q3 LfL sales fell by 17.3% in Q3. It says ‘our turnaround plan for Rave is on-course with Pizza Inn showing positive comparable sales and unit growth in the pipeline, while Pie Five successfully exits underperforming markets and works to improve its underlying unit economics.’ Perhaps translated as ‘we were in a hole and we’ve at least stopped digging’.
• Rave suggests that ‘international and non-traditional development are showing great promise for Pie Five.’ It is opening in airports and the like.
• Monster Beverage shares fell sharply on disappointment over Q3 numbers yesterday. The shares, which fell 6%, were friendless on the back of net income growth of ‘only’ 14% to $218.7m from $191.6m in the year-ago quarter.
• A restriction on alcohol multibuys in England and Wales has been ruled out, with legislation in Scotland having little to no impact on shoppers’ alcohol consumption.
• England could be smoke free in 12 years, according to a new study, as smokers continue to switch to e-cigs.
• Leading beer line cleaner FullClear has launched a £250,000 funding campaign on crowdcube to help expand in the UK and internationally.
• The ALMR is against the possible introduction of a new ‘tourist tariff’ on hotels in London and says it would represent ‘not only another cost burden, but also something of a cultural upheaval for UK businesses.’
• Per MA, the traditional pub Christmas dinner market is being undercut by supermarkets trying to encourage people to eat at home. M&B chain Vintage Inns is offering three courses for £18.95, starting November 16.
• In the US, Red Robin Gourmet Burgers has decided to pause unit growth in order to test out new models. The company reported Q3 earnings that missed market expectations on Tuesday, sending shares down 30% at midday.
• Panera Bread has struck a deal with private equity firm LNK Partners to acquire the Boston-based Au Bon Pain Holding Co. Inc, which Panera first sold 18 years ago.
HOLIDAYS & LEISURE TRAVEL:
• The travel sector is urging London not to push ahead with a planned tourism tax as ‘no city imposes a tourism tax unless it is absolutely desperate.’
• The British government says there is no change in its stance on a flight ban to Sharm el-Sheikh despite the Egyptian ambassador calling for British tourists to return to the red sea resort.
• Online travel agents such as TripAdvisor are facing increased competition from the likes of Airbnb and hotel chains.
• Uber aims to have flying transport in the US by 2020 and has struck strategic partnerships with Nasa and Aurora Flight Sciences, Speaking at Web Summit in Lisbon, Uber’s chief product officer Jeff Holden said that flying taxis will cost the same price as an Uber X car ride. ‘We’re trying to work with cities in the early days that are interested in partnering to make it happen, while knowing that there will be pitfalls along the way,’ said Holden. ‘Our ultimate target is to make Uber less expensive than driving your own car. Yes, a super quick flight will be cheaper than driving your own car.’
• The UK is predicted to experience a slowdown in long-haul travel growth in the last three months of 2017, according to ForwardKeys. The first three quarters of 2017 saw departures up 7.5% yoy but bookings for the last three months of 2017 are 6.3% ahead yoy. The US remains the most popular long-haul destination pulling 29% of traffic.
• A possible Thames pedestrian & bike crossing in East London has taken a step forward after a consultation has been launched into a Rotherhithe to Canary Wharf bridge.
• Five major rail lines were affected yesterday and today due to industrial action taken by the members of the RMT union. Southern, Greater Anglia are affected today, whereas Merseyrail and Northern were affected yesterday.
• Snap has reported that Chinese tech company Tencent Holdings has taken a 12% stake in the company
• Snap is reported to have lost $40m on its Snap Spectacles. Some buyers said that the $129 glasses were too pricey and the picture quality was poor.
• Manchester City has reported record revenues and a third year of profitability on the back of a new broadcasting deal and despite what it called “disappointment” on the pitch. Revenues in the 13 months to June 30 increased 21 per cent to £473.4m.
FINANCE & MARKETS:
• Bank of England’s Ian McCafferty has said that the MPC is for the most part aligned on the path for interest rates rises
• BBC reports most banks are not passing on interest rate increases to savers
• Chartered Surveyors report house prices now falling in London, the South East, East Anglia and North East England
• Oil price up 20c or so at $63.55
• Sterling down a shade vs dollar at $1.313
• Sterling also down vs Euro at €1.1313
• UK 10yr gilt yields unchanged at 1.23%
• World markets: UK mixed with Europe down and US up yesterday. Far East mostly higher in Thursday trade
• Brexit, embarrassing government etc.:
o Some suggestion that our leaders are not leading. Further suggestion that they could not run a bath, let alone a country.
o Mr Corbyn keeping his mouth shut.
o Mrs May has sacked her second cabinet minister in a week. The strongly pro-Brexit Priti Patel had been having unauthorised talks with Israeli leaders, the subject of which is currently unknown
o Times reports that EU leaders are preparing for the collapse of Mrs May’s government in the light of recent sackings
PRIOR DAY’S LATER TWEETS:
• Later tweets: JD Wetherspoon: Strong trading continues into Q1 w. LfL sales +6.1%. Total sales +4.3%. Disposals to slow, openings also.
• JDW. Good numbers but no guidance on food/drink split or on volume versus price in terms of positive contribution.
• Discounting still much in evidence. Prezzo 2-4-1 on mains, Pizza Express 25% off & Bella Italia half-price on mains
• Barclaycard reports spending growth slows to 2.4% ‘as consumers show continued restraint with household finances’
• Twitter doubles limit to 280 characters. Donald Trump has been alerted. Expect sharp increase in the use of the word ‘very’. And ‘mostest’
• You gotta believe me, Donald Trump celebrates increase in Twitter characters to 280. You can only imagine how very, very great this news is. Not fake. Strange gesture with tiny fingers. Very greatest, in the history of the world. Where can I buy thumb supports? #280characters
START THE DAY WITH A SONG:
Yesterday’s song was Mercy by Duffy. Today, who sang:
We would be warm below the storm,
In our little hideaway beneath the waves,
Resting our head on the sea bed
RETAIL NEWS WITH NICK BUBB:
• Sainsbury: The interims today from Sainsbury show that PBT of £251m was down by 9%, “reflecting previously guided price investment, wage cost inflation and consolidation of Argos H1 losses, partly offset by synergies and cost savings”. The headline is “Positive momentum across the business”, but the Q2 sales figures look a bit weak, although Argos is lumped in with the performance of “General Merchandise”. The outlook for the full year underlying profit is said to remain in line with the current market consensus of £572m, however.
• Burberry: The interims from Burberry are overshadowed by a strategic update from the new CEO that says the company will “establish position firmly in luxury and deliver sustainable long-term value”, but seems to be flagging that the next couple of years are likely to be flat, as “non-luxury points of sale” are rationalised…
• Marks & Spencer: We flagged yesterday that it would be interesting to find out at the M&S analysts meeting how much influence the new Chairman Archie Norman is having behind the scenes…In fact, Archie had a starring role at the analysts meeting. He hosted the meeting and after paying fulsome tribute in his introduction to his old friend Helen Weir, the FD, he launched into a long explanation of how not everything he had discovered at M&S since he had joined had been good and that the culture of the business really needed to change, to help it face up to the challenging market environment and to become “special” again…In the Q&A, Archie said later that the sign of a healthy Food business is if it can grow LFL sales at least in line with the growth in its costs (on which basis, the M&S Food business is not in a healthy state at all). And CEO Steve Rowe’s
• News Flow This Week: They’ve been a long time coming, but…one day soon the CMA will issue its delayed provisional findings on the Tesco bid for Booker and the much-awaited Christmas TV ad from John Lewis will be unveiled.