Langton Capital – 2018-01-10 – Byron, food costs, Carluccios, veggies, Everyman etc.:
Byron, food costs, Carluccios, veggies, Everyman etc.:
A DAY IN THE LIFE:
Langton is on the road later this morning visiting companies. Hence we’d better get straight on to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Over-extended burger chain Byron is to undergo a Company Voluntary Arrangement administration. The CVA could see the group close stores. Sky news reports Byron ‘will announce plans this week to close more than a dozen outlets and slash its rent bill at many others as part of a financial rescue package.’
• Troubled operator Byron has been negotiating with landlords and other creditors for some time. Sources suggest that the deal will involve the closure of around 15 poorly performing sites. Rents could be cut at 20 others. See earlier Langton comments for our views on overrenting, overexpansion, overcapacity and over-optimism etc.
• Byron to face a creditor vote towards the end of this month. A failed but subsequently slimmed down operator could have a lower cost base & cause problems for its competitors. Sky suggests that Byron could collapse if landlords refuse to play ball. In the event of a successful CVA, Three Hills Capital Partners would become the majority shareholder in Byron.
• Byron (and other companies) have featured in Langton research (Nought to Sixty) on over-expanded chains that have arguably paid too much in rent to secure what they believed would be cornerstone sites. Current owner Hutton Collins paid £100m for the business in 2013.
• The Telegraph quotes KPMG’s Will Wright as saying ‘with gathering economic headwinds starting to impact the sector more profoundly, the directors embarked upon a strategic review of the business as a means of safeguarding its long-term future.’ This presumably concluded that the business didn’t have a much of one unless it did something about its cost base.
• The latest CGA Prestige Foodservice Price Index shows that food price inflation slowed to 3.4% in November. November was the third month running in which the rate of inflation slowed.
• Food price inflation now at its lowest rate since January last year. The Tracker says ‘the news brings some welcome respite to the UK’s foodservice sector, which faced historically high levels of inflation throughout 2017. It shows that key inflationary pressures including the weaknesses of the pound against the Euro and dollar may now have worked through the system, and tentative signs of economic growth and progress on Brexit talks have restored some confidence to the sector.’
• Prestige Purchasing says ‘as we head in to the New Year, it is encouraging to see inflation in foodservice dropping below CPI, however, our prices are still 5% higher than CPI when compared to 2015. The potential impacts of La Niña could still have a significant influence, but we remain cautiously optimistic around the macroeconomic outlook.’
• JustEat’s decision to add 50p to all payments ahead of the 13 Jan ban on credit card surcharges has been branded a rip-off. Customers paying without using a debit card will be paying for customers who use one.
• Coffer Corporate Leisure MD Mark Sheehan has told the MCA ‘the leisure property sector could become one of the biggest beneficiaries of the UK property investment market in 2018, owing to the shortage of prime stock available in other commercial property sectors or mainstream asset classes like offices.’ Mr Sheehan goes on to say ‘in terms of volume of deals, CCL expects to see a smaller number of transactions in 2018 compared to 2017 as market conditions toughen and a smaller pool of property owners are considering selling assets.’
• CCL maintains ‘any investment branded as core, prime, or secure will remain hotly sought-after, and the quirks of the UK leisure property lease mean that, in comparative terms, they will always look less risky than some other domains, regardless of local political issues such as Brexit.’
• Molson Coors may invest as much as £7m in Aspall’s Cyder.
• US parent co Domino’s Inc has reported that its CEO, J. Patrick Doyle, will be stepping down on June 30.
• EI Group has bought back another 125,269 of its shares at 142.9p
• Cost for 4pts in Rotherhithe. Sam Smiths £14.80, Greene King £18.80. Langton is doing its bit to keep pubs’ tills ringing.
• Prices for a pint & a half on the south bank. Sam Smiths, £4.80 (bitter). All Bar One £8.20 (craft lager). Young’s managed £7.35 (pale ale). Independent trendster £7.65 (craft lager). Aldi £1.95.
• UK recruitment continues at high level. Reuters reports that starting salaries are being pushed up. There are labour shortages in some areas.
• Telegraph suggests that early Christmas numbers from retailers ‘paint a grim picture about the challenges facing the retail sector.’ Non-food sales have been poor with a number of exceptions (such as Next), which have benefited from online sales.
• Mark Jones is set to become the new Carluccio’s chief executive replacing Neil Wickers. The restaurant chain commented: ‘Mark Jones, currently chief executive of Goals Soccer Centres, will be joining Carluccio’s in due course as its new chief executive. Mark has a wealth of hospitality experience. His early career was spent with Allied Domecq and then Whitbread, where he rose to become chief executive of Pizza Hut UK, delivering record sales and profit growth’.
• RSM indicates that leisure and hospitality businesses that are offering a distinctive, innovative, personalised and Instagram-worthy experiences will continue to do well with customers.
• Some 23% of the 2,000 respondents to a poll by audit tax and consulting service RSM are planning to spend less on eating and drinking out over the next 12 months. This compares to 59% who will spend the same and 12% who claim they will spend more. However, just 19% of Millennials included will spend less on eating and drinking out and 26% aim to spend more.
• MOD Pizza has raised $33m in equity and closed a $40m credit facility. The Seattle-based pizza chain has 300 stores and plans to use the funds to continue its expansion.
• The 5p charge for plastic bags is set to be extended to cover nearly all carrier bags, as Environment Secretary Michael Gove aims to tackle our ‘throwaway culture’.
• Amazon is bringing new ad tech tools for publishers to Europe in an attempt to take on Google and Facebook in the digital ad market. Amazon’s Transparent Ad Marketplace, which went live in the US a little over a year ago, is now launching in the UK, Germany, France, Italy and Spain. It offers digital publishers and app developers a new means to monetise their content using header bidding (a technology that allows multiple ad buyers to bid on ad space at the same time, meaning the highest bid should always win).
• Vianet has secured a three-year contract extension to its existing long-term partnership with Fuller’s and will continue to provide data driven insights on beer quality management and retail performance. Commenting on the new partnership agreement, Steven Alton, Managing Director of Vianet, said: ‘We recognise that great businesses use real time insight to ensure they know how they are performing and more importantly are able to act before consumers are impacted and profit lost. As our customers evolve their commercial models, Vianet is enabling them to drive improvements in retail standards, yields, stock and team performance.’
Cocktail bar The Alchemist has secured a £16m finance package to be invested in the ‘continued innovation of the brand, rejuvenating existing sites and the acquisition of new locations’. The 12-strong group is currently in talks for another site in London and has confirmed openings in Nottingham, Bristol and Cardiff for the year ahead.
• Struggling US casual dining chain Ruby Tuesday has appointed Ray Blanchette as CEO and is eager to tap into his turnaround experience.
• Constellation Brands has acquired a stake in the spirits maker Copper & Kings.
• US chicken restaurant chain Wingstop is set to open its first UK site in central London, the MCA has reported. The chain currently has 10303 locations worldwide.
• Deliveroo has noted a 147% increase year-on-year in the amount of orders for vegan food in 2017.The online food delivery company has seen the number of vegan restaurants on the platform more than double in the last year, with more than 20,000 vegan dishes available nationwide on Deliveroo, up 133% on 2016.
• UK-based Chinese takeaway chain Zing Zing has extended its latest crowdfunding round by another week, having sailed past its £500,000 target.
• Alibaba will ‘seriously consider’ listing in Hong Kong, which is preparing to allow dual-class share listings.
• US private equity firm Rhône Capital has offered to acquire Nestlé’s US confectionary business, joining rivals including Ferrero and The Hershey Company.
HOLIDAYS & LEISURE TRAVEL:
• Alastair Pritchard, lead partner for travel at Deloitte UK, forecasts solid demand in the UK travel and tourism sector for 2018. Kantar TNS data for the Insight Report suggests the number of UK consumers planning to travel abroad in 2018 is up three percentage points year on year.
• Alexandre de Juniac, Iata CEO, has warned of an infrastructure crisis looming over the aviation sector. De Juniac claimed air navigation services in US, Europe and China struggling to keep pace with the technical capabilities to manage demand and governments are not preparing to make investments.
• Mike Cooper, boss of delivery service firm Yodel, is set to take the helm at Eurostar on March 12.
• Richard Branson has hit back at criticism over Virgin’s decision to pull out of its East Coast rail franchise early, saying ‘The partnership of Stagecoach and Virgin did agree to pay £3.3 billion to the government over the eight-year franchise, which was originally due to run until 2023, however that bid was based on a number of key assumptions and a promise of a huge upgrade of the infrastructure by Network Rail’.
• Everyman Media has updated on FY trading saying it has been in line with market expectations. The Company now operates from 22 venues. The group says ‘since its last update, Everyman opened its permanent three-screen venue in Kings Cross in November 2017 and the reconstruction of its Oxted location has also now completed, adding a further two screens to the venue. A four-screen venue in York, opened on 30 December, after the year-end following its acquisition and refurbishment in 2017. The Company expects to open five further venues in 2018.’
• Everyman says ‘the directors maintain a positive outlook for 2018 and beyond.’
• Facebook and Sony/ATV Music Publishing have signed a deal that will allow Facebook users to post songs from artists from the label without the content being taken down.
FINANCE & MARKETS:
• The World Bank has said that global economic growth will speed up this year to take it back to pre-credit crunch levels. It expects the global economy to grow by around 3.1% this year and by slightly less next.
• Eurozone unemployment has fallen to 8.7%
• Sterling down half a cent or so at $1.3525
• Pound down vs Euro at €1.1332
• Oil up a dollar or so at $69.16.
• UK 10yr gilt yield up 4bps at 1.28%
• World markets: UK up yesterday with Europe & US also higher. Markets in Asia mostly down in Wednesday trade
• Brexit etc.:
o Treasury Minister Mel Stride has told MPs that the UK could re-join the EU’s customs union after Brexit. Lots of things are possible, though that does not mean that they are likely.
o Reuters reports fewer jobs than previously feared could be lost in the City post Brexit.
o Telegraph reports reshuffle was the ‘night of the blunt stiletto’.
o Reuters says reshuffle ‘only seems to have made matters worse.’
o David Davis has said that the EU could be damaging Britain’s interests by talking about the threat to companies doing business with Europe in the absence of a trade deal.
o The EU has defended its right to make plans for a “no-deal” Brexit
• Please let us know how Christmas trading was. And how does January feel?
ADMIN UPDATE, RESEARCH ETC.
• Langton is between offices. Please communicate via email.
• We are putting together a compendium of 60-seconds pieces for publication this month at £200 plus VAT, free to clients. Please let us know if you would like a copy.
• MIFID II is now in operation.
PRIOR DAY TWEETS:
• Later tweets: Discounting moves from distressed casual diners to casual diners as a whole to majors (WTB & MAB) to deliver (DOM)…
• Tasty expects trading to deteriorate further in 2018. Not willing (or able) to yet call the turn
• Visa, Barclaycard, ONS, BRC all have somewhat different views on what’s going on. Seems patchy at best, some poor areas (cars) but food OK
• PM’s reshuffle. Inept, overcautious, powerless, shambolic & blundering say her friends. Enemies considerably less kind. EU wondering WTF
• Foggy picture. Essential spending OK (what’s the choice) with big ticket (cars) poor. Casual dining blighted by overcapacity, wet sales OK
• Trump, Brexit, May election/conference/reshuffle blunders etc. open whole new level of idiocy previously thought extinct or illegal or both
START THE DAY WITH A SONG:
Yesterday’s song was No Woman, No Cry by Bob Marley. Today, who sang:
Caught your hand inside the till,
Slammed your fingers in the door,
Fought with kitchen knives and skewers
RETAIL NEWS WITH NICK BUBB:
o Sainsbury: The Q3 update today from Sainsbury covers the 15 weeks to Jan 6th, so it is “bang up to date” (as former CEO Justin King used to like to say), but the top-line figures are a little lacklustre: the 1.1% LFL growth in “Grocery” is no better than expected and the news that “General Merchandise and Clothing grew market share in a challenging market” translates into overall sales of -1.4% and +1% respectively. That does not imply that Argos had a great time overall, despite boasting about strong sales of video games and mobile phones. But Sainsbury have softened the blow by saying that “while market conditions remain challenging and we are cautious about the consumer environment in the year ahead, we now expect to achieve £80m-£85m of EBITDA synergies from the Argos acquisition by March 2018, ahead of our previous guidance of £65m EBITDA. As a consequence we expect 2017/18
o Other News: Superdry: The group changed its name yesterday from SuperGroup to Superdry (with the ticker changing from SGP to SDRY) and today has reported its interims. The recently floated, Scottish-based fashion retailer QUIZ has reported strong Christmas trading, with sales up by 31.2% for the seven-week period to 6 January, driven by 119% growth in Online sales. In the middle of all the Christmas trading updates, the discount shoe retailer Shoe Zone has announced its finals. And there is a trading update from mighty Ted Baker. But our eye is drawn to a gloomy update from Moss Bros: “due to lower footfall than anticipated during December, particularly in stores, the business expects to report a full year profit before tax performance within a range of £6.5m to £6.8m, which is slightly below current market expectations”.
o Grocery Market Share Watch: Although Tesco has been said to be the big winner recently in the “Big 4”, the detailed Kantar grocery sales figures yesterday for the 4 weeks to Dec 31st showed its rivals picking up more at Christmas: over this period, Tesco’s total sales were up by 3.8%, Sainsbury was up by 3.0%, Asda was up 5.3% and Morrisons was up 4.9%, with Aldi/Lidl up by 18.1%. Total market growth was 4.6%, but ex Non-Food it was +5.4% (albeit there was a calendar timing boost to the figures) and on this pure Grocery market basis Marks & Spencer Food was a surprise winner, with gross sales up by 6.0%.
o News Flow This Week: The trading announcements come thick and fast this week and this afternoon brings the Signet update in the US. Tomorrow is “Super Thursday”, although without the Debenhams and Mothercare updates it is not quite so busy as it could have been…we get the Marks & Spencer Q3, the Tesco Q3, the Boohoo Q3, the John Lewis Partnership update, the House of Fraser update, the Game Digital update, the Debenhams AGM and the AO.com update. And then on Friday we get the B&M Q3 and the Booker Q3 update.