Langton Capital – 2017-12-20 – Carnival, Itsu, BDO report, wine sales, consumers & other:
Carnival, Itsu, BDO report, wine sales, consumers & other:
A DAY IN THE LIFE:
It’s a good job that Christmas is just around the corner because I think my socks are heading for some sort of extinction event.
And, because when they wear out I just chuck out the one sock, I’m left with what looks like – and in fact is – a drawer full of odd socks with the only theme being that they tend to have a bit of black in them.
Of course, I’m not overly fussed.
Because socks are only something that I thin about for the ten seconds in a morning when I’m putting them on and the five seconds at night when I’m taking them off but, if I catch myself flashing one Santa and one Hull City sock from time to time, then I’m going to have to do something about it. On to the news:
LANGTON RESEARCH, GET IT WHILE IT’S HOT @ £200 + VAT:
Langton is putting together a compendium of 60-seconds pieces for publication early in the New Year.
These are all new (though we may put some historic 2017 efforts in the appendix) & will focus on two areas; companies & themes.
Themes will include discounting, cost pressures, overcapacity, the coffee phenomenon, delivery, the use of apps, Millennials, the grey market and so on and so on. There are more than you might think.
We’ll be busy over Christmas and the doc will be ready in early Jan but, if you would like a copy, please let us know. As mentioned, £200 plus VAT but free to clients.
PUB, RESTAURANT & DRINK PRODUCERS:
• BDO reports on UK economy, says it is holding steady due to household spending. BDO says ‘year to date figures showed a downward trend in growth’.
• BDO reports on low unemployment & high inflation. Says these have combined to produce ‘flat trading quarter for pubs, restaurants and bars across the UK’. It says ‘there is currently little or no growth in the eating and drinking-out market, which is in line with the consumer confidence recent downward trend.’
• BDO says ‘if businesses are forced to pass extra costs onto customers, this could aggravate matters further.’
• Panther Partners (D&D Restaurants) has reported numbers for the year to end-March to Companies’ House saying that ‘the group saw solid growth during the year with LfL revenue growth of 3%’.
• D&D reports £123.3m of revenue with EBITDA up £0.1m at £13.1m. The group has reported a loss before tax of £4.1m due in large part to the £7.4m of interest charged in the year (alongside £3.7m of depreciation, £1.8m of amortisation & other costs).
• Itsu reports rising revenues but 70% drop in EBITDA and £8.9m of losses.
• Itsu reports 52wk numbers (to 29 Dec 16) to Companies’ House, reports revenues +17% to £95.9m.
• Itsu reports growth was ‘underpinned by retail LfL store growth in the period of 0.8%’. It says ‘a further 9 new stores were opened in the period, including a new flagship site at Heathrow Terminal five & regional openings in Manchester, Leeds & Bristol’.
• Itsu reports EBITDA fell by 70% to £2.0m ‘due to continued investment in a new store expansion programme outside of London, losses in the in-house delivery business and significant head office investment behind the future UK & international expansion of the business’.
• Itsu reports ‘loss after tax was £8.9m’. It says it was impacted by a number of one-off factors including investments in the US & investment in a new head office building.
• Itsu raised £25m of new equity in the year. The group now has accumulated losses since incorporation of £5.0m.
• EI Group yesterday bought back another 109,469 of its own shares for cancellation at 144.9p per share
• The UK’s 3rd largest bakery chain, Coopland & Son, has secured £8.5m from the BGF to finance further growth in the north of England. The group says ‘partnering with BGF marks an important step for the business. Cooplands is in great health and we’ve opened a number of new sites this year alone.’
• Darden in the US has said that delivery costs remain a hurdle in casual dining. Consumers want convenience, but they may not be prepared to pay for it.
• CREST consumer data for the year ending September 2017 shows a return to growth for the foodservice markets of Europe’s big five economies (Germany, France, UK, Spain, and Italy). An improvement in economic conditions in much of Europe is also thought to have driven consumer confidence to its strongest levels since 2010.
• MCA’s Consumer Dashboard shows that the UK ‘has gone from firing on all cylinders to showing signs of breakdown’ over the past year. Rising menu prices and lower average visit spend suggests that consumers would rather save cash than swallow higher prices.
• Some 24 of the top 25 branded restaurant chains now have active online promotions, per MCA analysis, with Wagamama the only top brand resisting the trend. The average number of promotions is seven, with 44% of brands having seven or more, including the top three: Prezzo, Zizzi, and Chiquito (each listing 12 promotions). Discounting operators are relying on upselling menu items such as extra toppings to claw back margin. Interestingly, operators with sales projected to grow by 10% or more use juse four promotions on average.
• Yesterday was flagged to be the UK’s busiest day for wine sales of 2017 and English fizz is expected to have had a particularly good performance. Fuller’s head of wine, Neil Bruce, told The Guardian that the fall in value of sterling has been an ‘absolute game-changer’ for UK wine. ‘We are showcasing English wine in a way we have never done before,’ said Bruce. ‘Our customers absolutely get the superb taste and quality and value for money.’
• The IFS reports that Scotland’s 50p minimum alcohol price unit will raise the average price of sparkling wine and perry by 116% and cider by 90% when it comes into force on May 1st. The IFS says that heavy drinking households are willing to switch away from a given product when the price rises, but they are more likely to switch to another alcoholic beverage than stop drinking full stop.
• The Coaching Inn Group has acquired The Feathers Hotel in Herefordshire as part of its £50m expansion programme.
• US restaurant group Jack in the Box Inc. has agreed to sell its fast-casual Qdoba Restaurant Corp. to Apollo Global Management LLC for $305m. the cash deal covers more than 700 owned and franchised restaurants and is expected to close by April 2018. Jack in the Box had announced earlier this year it was considering strategic options for Qdoba. The brand’s systemwide same-store sales fell 2.1% in the fourth quarter ended Oct. 1, including a 4% slide at company-owned locations.
• In the US, 7-Eleven is trialling an app that will enable delivery and in-store pickup as part of what it calls a ‘significant digital transformation’. The app, 7-ElevenNOW, will be available to use at 10 locations in Dallas with plans to roll out the programme next year.
• Tesco will invest €70m in its Irish stores in a ‘significant investment programme’ that will continue into next year.
HOLIDAYS & LEISURE TRAVEL:
• Carnival reports Q4 & FY numbers, says revenues rose $1.1bn to $17.5bn. FY net income was $2.6bn or $3.59 per share.
• Carnival says re outlook that ‘cumulative advance bookings for full year 2018 are ahead of the prior year at higher prices’. It says ‘FY 2018 net revenue yields in constant currency are expected to be up approximately 2.5% compared to the prior year.’
• Carnival President and Chief Executive Officer Arnold Donald reports ‘we exceeded the high end of our original full year 2017 guidance.’ He says this was despite ‘a significant drag from fuel and currency.’
• Carnival reports ‘despite booking disruptions from this year’s multiple hurricanes, we are still heading into 2018 with a stronger base of business and higher prices than last year.’ The group concludes ‘we remain on track to achieve double digit return on invested capital in 2018.’
• Hostelworld, the world’s largest hostel-focused online booking platform, has announced that Mari Hurley has resigned as CFO in order to pursue a new opportunity outside the group. Feargal Mooney, CEO of the group said: ‘The Board is very grateful to Mari for her significant contribution to Hostelworld over many years with the Group. She has played a major role during a period that has seen much successful change and growth for Hostelworld, including the Company’s joint listing on the London Stock Exchange and Irish Stock Exchange in 2015’.
• Heathrow has outlined revised expansion plans, that could result in a possible saving of £2.5bn.
• Uber drivers are working ‘excessive hours’, making the taxi app service a danger to public safety, says the GMB Union.
• A sustained hotel supply boom in Manhattan has reportedly sapped the market of its ability to push rate higher despite high occupancies, although hope is returning. ‘I think there’s some reason to be optimistic about Manhattan based on how 2017 has gone,’ said Scott Berman, U.S. hospitality and leisure practice leader at PwC. ‘It’s certainly been better than the past two years, but it’s by no means where the market was prior to that. New York City is absorbing a lot of new supply.’
• William Hill has announced that Roger Devlin will take up the role of Chairman from 1 February next year
• China’s CEFC group and Europe’s Penta Investments have made a joint bid for Time Warner’s Central European Media Enterprises. Two sources familiar with the matter said CEFC and Czech-Slovak financial group Penta have submitted a joint bid for the central European broadcaster, which could be worth around $2bn (£1.49bn) but pricing has not yet been finalised. A third source said the sides were nearing a deal although details were not finalised.
• European regulators have announced a potential crackdown on high-risk online bets sending shares in spread-betting firms plummeting.
FINANCE & MARKETS:
• The London office market is on track for record levels of investment in 2017 reports Savills. It says total transaction value will be double the 10yr average in 2017 at around £12.6bn.
• Oil up 40c or so at $63.95
• Sterling up a fraction vs dollar at $1.3389
• Pound down vs Euro at €1.1301
• UK 10yr gilt yield up 8bps at 1.23%
• World markets: UK up yesterday with Europe & US down. Far East mostly down in Wednesday trade. UK FTSE100 expected (at time of writing) to open around 5pts lower.
• Brexit etc.:
o EU’s Barnier says there is ‘no place’ for a bespoke deal to protect the City in a Canada style deal
o Mrs May says UK wants to set rules ‘right for our situation’ after Brexit
o EU says best deal is stay in EU. Next is circa Norway. Pay into pot, no vote, free movement, free trade. Next is Turkey. Then S Korea, Canada etc.
o Brussels said to be kicking off about Gibraltar. Madrid likely to have a veto on any deal. Ditto Ireland re Ulster.
PRIOR DAY TWEETS:
• Later tweets: Admiral Taverns ‘robust trading’ but profits down. Nichols ‘in line’ but problems in Yemen. Escape Hunt ‘in line’ but planning delays
• Discounting. Strada offered £5 per pizza yesterday, one week before Christmas. Café Rouge 30% off food till 29 December.
• Allegra says UK is most developed (a.k.a. oversupplied?) coffee market in Europe. Maintains more growth to come
• Farm gate milk to be had for 32p per litre. Was 24p a year ago (+33%) and 20p at nadir in June 2016 (+60%). Farmers bit better off
• Koovs still losing £ for every £ of sales. Not sustainable longer term. See Nick Bubb’s comments. May need more cash
START THE DAY WITH A SONG:
Yesterday’s song was Don’t Worry Be Happy by Bobby McFerrin (not Bob Marley, who recorded a cover). With minds turning increasingly to thoughts of presents etc., who sang:
A crowded room, friends with tired eyes,
I’m hiding from you, and your soul of ice
LANGTON IS CURRENTLY HOMELESS:
We are between offices. Alie Street no longer works & nor does the phone number shown below. We’re not really set up to pay two lots of rent so, rather than there be an overlap, there is currently a gap. The new office (on London Wall) should be functioning early in the New Year. Details to follow but, for the moment, please communicate via email.
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RETAIL NEWS WITH NICK BUBB:
Tesco Booker: Christmas has come early for Tesco and Booker, as the wretched CMA has finally and unconditionally cleared the merger, on the somewhat surprising grounds that it does not raise any competition concerns: “Booker does not own the shops it supplies and these retailers are free to set their prices and decide which products to stock…During the course of its phase 2 investigation, the CMA surveyed hundreds of retailers which showed that most shops use more than one wholesaler and frequently switch”. The recent demise of the wholesaler Palmer & Harvey does not seem to have affected the decision and the naturally delighted companies are pressing on with the deal: “We anticipate respective shareholder meetings towards the end of February 2018 and completion in March 2018”.
Retail Sales Watch: All the focus now is on how well December will turn out on the High Street (see below), after all the continued post-Black Friday discounting, but we haven’t seen the final word yet on how good the outcome was for November. We flagged on Friday last week that the ONS Retail Sales figures for November (the 4 weeks to Nov 25th) were pretty good, as the Office of National Statistics (the ONS, aka the “Planet ONS”) had reported non-seasonally adjusted total sales by value up by 4.8% last month (ex-petrol), driven by suspiciously strong growth for Small Non-Food Retailers, whereas the BRC-KPMG measure of gross sales (which focuses on Large Retailers) was up by “only” 1.5% (up by 0.6% LFL). So, who was right? The ONS or the BRC? Well, the consultancy group, Retail Economics (RE), which is run by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey), has
John Lewis Watch: We forecast yesterday that John Lewis, that great bellwether, would, given the snow disruption on Sunday Dec 10th, see gross sales in w/e Dec 16th some 3%-4% down on last year, but the outcome wasn’t so bad…Total sales of £171m lifted quite nicely on the previous week, as trading picked up later in the week, and were only 0.6% down (nearly 1.5% down LFL) on last year. Fashion sales were down 1.0% on last year and Home sales were down 2.2% on last year but Electricals and Home Technology sales were up 1.5%, helped by the launch of “Star Wars” merchandise. Over the last 20 weeks John Lewis sales have cumulatively been up by 1.3% gross (about flat LFL) and they will do well to hold that run-rate over the last 6 weeks of the financial year.
Waitrose Watch: Over at Waitrose, discounting has helped to bolster recent performance, with gross sales flat in w/e Dec 16th, despite the snow disruption, thanks to “one-day-only half-price” promotions on party food and desserts. Over the last 20 weeks Waitrose sales have cumulatively been up by 1.4% gross (down slightly LFL).
News Flow This Week: There is no company news scheduled before Christmas, but the wretched CBI Distributive Trades survey for “December” is out this morning and then the widely-followed monthly GFK Consumer Confidence Index is out first thing tomorrow.