Langton Capital – 2018-01-19 – More on WTB, Xmas tracker, Bando’s, Gfinity & other:
More on WTB, Xmas tracker, Bando’s, Gfinity & other:
A DAY IN THE LIFE:
I don’t know why but Langton got an email yesterday inviting it to join the ‘expert panel’ at a Business Crime conference.
Not sure if the conference’s title should have been prefaced by the words ‘how to enact…’ and nor, for that matter, sure why Langton was singled out as an expert on crime.
It became clearer which way the crime was flowing, however, when the email went on to say that, as Langton was a ‘preferred partner’ of this bunch of crime experts, it could contribute to the conference by paying only £375 plus VAT. What do they think this is, boom time?
Anyway, with regard to legislation etc., we seem to be feeling the impact of MIFID II a bit these days. Various contacts have needed to unsubscribe from the email whilst others have been only too happy to join us, ask questions and generally pick our brains, for all that’s worth.
However, and here’s a thought, if MIFID II stops professional investors from receiving not-specifically-solicited information, how will they ever know what they don’t know? On to the news:
PUB & RESTAURANT TRACKER – CHRISTMAS 2017:
• The Coffer Peach Tracker for the 6wks to 7 Jan shows pub & restaurant LfL sales down 0.1% over the period. Inflation is 3.0%
• Tracker shows drink led venues outperformed food-led over Xmas period.
• Poor Xmas trading. Peach comments ‘the public still went out to eat and drink, but essentially it was a repeat of last Christmas.’ Only it wasn’t really, was it? With inflation at 3.0%, trading was worse than 2016.
• Tracker says Xmas saw ‘better trading in the second half of the festive season, when people were mainly off work.’ But this ‘failed to provide enough of a boost to beat 2016’s overall numbers.’
• Xmas. Managed pubs (up 0.6% LfL) outperformed restaurants at down 1.0%. Down 1.0%, with wages, rates, food costs etc. doing what they are doing, is not very good at all. Level of current discounting underlines this.
• Pub drink sales performed more strongly than food. Peach comments ‘across the managed pub market, drink sales were up 1.8%, while food was down 1.4%. Food-led operations, both pubs and restaurants, generally had a worse Christmas than 2016.’
• Xmas performance in London and provinces broadly the same.
• London saw a ‘bigger contrast in fortunes between restaurants and pubs, with casual dining down 2.6% inside the M25 and pubs up 1.5%.’ Peach’s Peter Martin comments ‘looking across the six week period, the run-up to the holidays saw generally poor trading, with the snow in particular hitting sales. Trading picked up in the last three weeks either side of the core holidays. Every year the Christmas period seems to be coming more concentrated.’
• Total Xmas sales +3.4% suggesting that capacity has been increased by around 3.5%.
• Coffer Corporate Leisure says it does not think the F&B market is in free-fall. It says the trading environment is competitive but ‘these numbers are not the car crash that has been widely portrayed.’ Tell that to the creditors of Byron etc.
• Coffer says ‘2018 will be a challenging year and we expect to see bars and pubs trading more robustly than restaurants.’
• RSM comments ‘since the New Year a number of high profile brands have already announced site closure plans and with consumer confidence waning and uncertainty ahead of Brexit, we expect our restructuring teams to be kept busy in the months ahead.’
• Langton. The level of discounting in Jan (see many Langton stories) suggests the trade realises it needs to generate cash to pay its bills.
• Langton. The down 2.6% LfL recorded by London restaurants goes a long way to explaining the behaviour of Byron, Jamie’s & others when it comes to closures. Other operators have commented on tough trading.
• Langton. The above doesn’t comment on discounts. These were more apparent this Xmas than last suggesting that, even though sales were under pressure, margins are more likely to have fallen than to have risen.
• Langton. Next rent bills are payable in about 9wks. If any companies are contemplating pre-packs, these could be enactioned sooner rather than later. RSM says that restructuring teams are likely to remain busy.
WHITBREAD Q3 CONFERENCE CALL:
Following its Q3 update this morning, Whitbread hosted a conference call for analysts and our comments are set out below:
• Activist shareholder. Sachem Head Capital. Group intends to work for all its shareholders. It has a plan. Not being deflected etc. Whitbread ‘will not deviate from delivering great value…’
• Outlook? Group guides its growth tracking GDP (presumably plus inflation).
Premier Inn & Restaurants: :
• Whitbread has opened 2,500 rooms in London over the last 2yrs. Performance in Q4 so far ‘has been positive’
• Cannibalisation? Last year new openings hit LfL sales by around 1.5ppts. This may be similar this year. A ‘tough market’ may mean this takes longer to settle down.
• Premier sees a lot of growth past 85k rooms. Around 100k has been mentioned. There isn’t a milestone as such.
• Supply? London up 4.5% or so last year. Provinces 1% to 2%. London should be 3% to 3.5% next year. There might be 1% coming out p.a. as private operators sell up. Current trading is a bit better but early-Jan is not necessarily a reliable indicator.
• Margin? Guidance flat to minus 20bps.
• Restaurants have performed well. Concepts have been tested. Brand numbers may be reduced. Offer is current & relevant. Prices haven’t really risen. This is still seen as ancillary to the hotel business.
• Costa taking share but declines on the High Street. Group says it has a ‘flexible lease structure’.
• How many stores could you churn? There are virtually no unprofitable stores. Tail very small. Could be 20-30 per annum.
• High Street. Whitbread ‘has no feeling that life on the High Street will be any better in 2018 than it was in 2017’. Strong hint that group will exit some short leases. Costa is aiming for higher footfall areas & is pushing Costa Express.
• Poor High Street may allow the group to churn its estate & acquire ‘better’ sites.
• Very good returns – but not as good as they were? Mid-30s to 40% on a leasehold business remains very good. Perhaps returns had spiked up. They are now more normal.
• Some capital may be redirected into Costa Express & China. There will be c£5m to £6m invested in each of those areas.
• Price increases historically Jan 16 & Feb 17. WTB says this ‘isn’t the first lever they want to pull’. Says they have ‘optionality’. Happy to be cheaper than Nero & Starbucks. They will be lapping last year’s increases next month. No decision on what to do yet.
• Fresco store? This was a method by which to test a food offer.
Debt, balance sheet & cash-flow:
• No further guidance. Re IFRS16, group says decisions are still being made. The group does have a large freehold portfolio.
• Capex £600m to £700m this year FY18 and next.
Margin, costs etc.:
• Whitbread expects around £80m of cost headwinds this year. It says cost savings are on track. This continues into FY18/19. Group will, however, ‘keep on investing’
• Given sales are weaker but profits still in line, presumably margin is better? Yes. Group isn’t giving margin guidance for next year. Says efficiency programme ‘has got good momentum’
• Whitbread has said that growth has ‘moderated’. It’s actually negative (at least on a LfL basis) at Costa, but the group says that January is better.
• WTB’s shares fell by 2.5% yesterday ahead of this statement and they have bounced this morning. Nonetheless, WTB has conceded that, in the short term, there’s a bit of a supply problem in London hotels (partly caused by Whitbread itself) and, for the foreseeable future, the UK High Street is likely to remain difficult.
• A multiple of 15-16x this year’s earnings is perhaps a little on the high side and FY19 numbers will be subject to ongoing review over the next few months.
• Whitbread has international potential, of course, and it has, in its own words, ‘optionality’ when deciding where to invest capital.
• The group will be lapping price increases at Costa next month and LfLs may remain under pressure. News-flow over the coming months will require some managing. Having said that, WTB is a strong, (relatively) stable and well-financed company with good brands and largely freehold assets. In the medium term, adverse news-flow, whilst its impact could be temporary, could win the day.
PUB, RESTAURANT & DRINK PRODUCERS:
• Nando’s has begun trialling a new smaller format that will be more focused towards delivery and on the go food, the MCA has reported. The new concept will be known as Nando’s nino with its first site having opened this week in Twickenham.
• EI Group yesterday bought back 153k of its own shares for cancellation at 140.95p per share.
• The ALMR is pleased by the creation of the All Party Parliamentary Group for New Towns, with Chief Executive Kate Nicholls stating: ‘Pubs, bars and other hospitality venues are valuable social spaces and focal points for communities. The creation of a new town is a fantastic opportunity to produce a new community with its own identity. Hospitality businesses will be vital to a new town’s success’.
• The craft brewery and taproom, Brew York has told the MCA that it is planning to extend its brewery and add a new street food kitchen. Co-founder of Brew York, Wayne Smith said: ‘Lots of our customers have told us they love our brews and really enjoy visiting our tap room to see where our beer is made. With our expansion plans we want to create more jobs to grow our Brew York family so that we can increase brewing capacity and spread the love a little further’.
• Guinness is the latest brand to pay increasing attention to tee-totalers by introducing a new non-alcoholic beer. The rate of alcohol consumption globally has been decreasing at an increasing rate with volumes down 1.3% in 2016 compared to an average rate of 0.3% in the previous five years.
• The PMA writes that it’s not just restaurants tapping into the delivery craze. PubLove has partnered with Deliveroo after upgrading its food offer and says that the move has increased marketing while driving incremental sales. Head of operations, Chris Clawson, commented: ‘It provide income during kitchen downtime, when you would normally be paying your chef to do a bit of prep or cleaning. Finally, it costs nothing if no one buys anything. So as long as you are careful with your GP then you have nothing to lose.’
• Japan’s beer shipments have hit a record low for the 13th year in a row, according to data released from five major Japanese breweries. The country’s total export shipments numbered 407 million cases. Beer shipments fell 2.9% to 204.59 million cases, while shipments of ‘happoshu’, the low malt, quasi-beer beverage, dropped 4% to 54.99 million cases. In addition, exports of the country’s third-segment beer-like beverage called ‘hodgepodge’ dropped 1.5% to 144.49 million cases, according to the report.
• NRN in the US says ‘delivery remains the Rubik’s Cube of service for most big restaurant brands outside of the pizza segment.’ Although delivery can increase sales, operators ‘were struggling to make the economics work.’
• Nestle is to shake up its board in the face of activist pressure per reports.
• Toronto-based Freshii Inc. has hit out at US rival Subway for allowing its franchisees to switch to the Canadian sandwich brand. Toronto-based Freshii, with 300 locations in 15 countries, published a full-page open letter to Subway in the Chicago Tribune urging the company to consider allowing franchisees to move to its brand. Milford, Conn.-based Subway, owned by Doctor’s Associates Inc., has 44,000 restaurants in 113 countries, but it has closed some stores over the past three years.
• Pernod Ricard has acquired the remaining shares in Avión Tequila from its founder Ken Austin and rapper Jeezy. In July 2011, Pernod Ricard took a minority interest in the brand, in addition to receiving worldwide distribution rights. In 2014 the producer reportedly upped its involvement buying a majority stake in the brand for around US$100m. This week the French drinks giant confirmed it had purchased the remaining shares in the company for an undisclosed sum, taking 100% ownership as part of its growth and innovation strategy in the United States.
• Burger King in the US has introduced a half-pound burger. This will compete with McDonald’s Double Quarter Pounder with Cheese. BK says ‘we’d like to offer our deepest condolences to all the flat-top fried double quarter pound burgers out there. We’re flame grilling the competition.’
• Rumours of a Unilever acquisition of Fevertree sent the stock’s shares up by 50p to £21.72. Apparently, Unilever would have to pay in the region of £28 a share, valuing the company at £3.2bn. The move would help Unilever lift its ailing growth, but is rumoured to face competition from Diageo and Pernod Ricard regarding a Fevertree acquisition.
• Co-op has partnered with Deliveroo to provide online grocery delivery in five stores in the Greater Manchester area.
HOLIDAYS & LEISURE TRAVEL:
• Data from STR reports US hotel industry occupancy of 56.7% (up 0.2%), ADR of $129.08 (up 5.4%) and RevPAR of $73.16 (up 5.5%) for the week 7-13 January 2018.
• Wyndham is set to acquire La Quinta’s fee business for $1.95bn, with the deal expected to be completed in Q2 2018. Wyndham would gain almost 900 managed and franchised hotels, giving the company over 9000 hotels around the world.
• Travis Kalanick is set to officially become a billionaire, after a consortium led by Softbank is buying new and existing shares in an $8bn deal. Reportedly, Mr Kalanick, who stepped down as chief executive in June, is selling $1.4bn worth of stocks.
• Ski Solutions has reported a record start to the ski season this January with Craig Burton, managing director, saying ‘the second week of January saw group trading 21% ahead of the same period last year’.
• Robert Jenrick, treasury minister, has hinted that a cut to air passenger duty (APD) after Brexit. Tim Cade, spokesperson for campaign group A Fair Tax on Flying, said ‘APD is the highest of any form of aviation taxation in the EU and acts as a tax on consumers and on trade. UK businesses are being placed at a competitive disadvantage’.
• Gfinity has announced that Team Alpha Republic of Esport ( a French esports team) is to join the third season of the esports tournament, taking place in March 2018 with a prize pool in excess of £250,000.
• The Gfinity Challenger Series ‘has had over 20,000 18-35-year-old gamers participate from 18 different countries. Season One of the Elite Series created 180 hours of live broadcast viewed by over 3 million people in more than 30 countries, with Elite Series Season Two receiving over 5 million views, giving a combined total of 9 million views for the first two seasons.’ Gfinity CEO Neville Upton says ‘we are excited to have ARES onboard heading into Season Three and we look forward to them bringing their top talent to the Gfinty Esports Arena.’ He continues ‘with a renowned pedigree and a host of top-tier sporting athletes who work closely with the teams, ARES will provide a perfect landing spot for our budding amateurs currently battling it out in the Challenger Series.’
• Hollywood Bowl launched its 2018 investment programme with the £400k rebrand and refurb of the former Bowlplex in Ladywood, Birmingham. This marks the group’s 7th refurb in 6 months, converting the site into an Americana-themed ‘alley.
FINANCE & MARKETS:
• China’s economy grew by 6.9% in 2017.
• Housing starts in the US fell by 8.2% in December vs November
• Oil down at $68.62
• Pound up vs dollar at $1.3906
• Sterling up vs euro at €1.1342
• UK 10yr gilt yield up 3bps at 1.33%
• World markets: UK down yesterday with Europe up & US down. Far East mostly higher in Friday trade
ADMIN UPDATE, RESEARCH ETC.
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
• 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.
PRIOR DAY LATER TWEETS:
• Later tweets: Whitbread says trading tougher. Premier Inn Q3 LfL sales static at 0.0% (despite inflation at 3.0%) with Costa down 0.1%
• WTB’s Costa still in absolute growth as it is piling on the stores. Retail in UK went backwards. Group says it has ‘optionality’.
• Whitbread will hit market estimates by cutting costs. LfL sales better in Jan, though this is a hard month from which to forecast
• Takes two to tango. Demand’s one thing, supply another. Too many London hotels, coffee shops, casual diners etc.?
• Discounting still going strong. Fabled ‘worst day of the month’ due Monday as it’s dark, Monday, credit card bills arriving etc.
• Sterling better, markets down. Carillion a slow creep rather than a Lehman moment. Pause for reflection?
• McCain suggests BBQ trend has ‘reached its peak’ in the UK. Slow cooking, however, has ‘taken hold’.
• Whitbread says rising costs will remain a problem in its next financial year (starting in March). Others suggest they may abate
START THE DAY WITH A SONG:
Yesterday’s song was Weapon of Choice by Fatboy Slim. Today, who sang:
I’m gonna start a revolution from my bed,
Cause you said the brains I had went to my head
RETAIL NEWS WITH NICK BUBB:
• Bonmarche: The share price of Bonmarché, “one of the UK’s largest women’s value retailers”, has been pretty firm recently, implying that the business was on the recovery trail, so it’s a bit of shock to see in today’s Q3 update that LFL sales were nearly 7% down in the 13 weeks to Dec 30th (with Stores nearly 10% down LFL and Online sales 28.5% up. Helen Connolly, the CEO of Bonmarché, says: “The clothing market became more challenging during this quarter, especially on the High Street; consequently our store LFL was disappointing”. But reduced discounting helped to slightly improve the gross margin and costs were tightly controlled, so, surprisingly, the Board says that the full-year profit outlook remains in line with its expectations. Whether profits are in line with the City’s expectations is another matter…
• Dignity: Talking of profit expectations…the embattled funeral provider Dignity has issued a pre-close update today to say that the results for the year ended 29 December 2017 will be in line with market expectations, but that it is taking “decisive action on its funeral pricing strategy with a view to protecting market share and repositioning the group for future growth” and so, consequently, the Board believes that the results for the period ending 28 December 2018 will be substantially below the market’s current expectations. It is tackling “the continuing acceleration of price competition facing its funeral business” by immediately cutting its basic prices by 25% and although it is looking to cut its operating cost base that move will obviously wipe out a big chunk of its bottom line, which is exactly what the bears have been saying would happen…It will be interesting therefore to
• Planet ONS Watch: In the “real world”, December (the 5 weeks to Dec 30th) was another reasonable month on the High Street overall for the big retailers, as per the recent BRC-KPMG Retail Sales survey, with Food sales buoyed by high food price inflation and Non-Food sales propped up by discounting. But we will find out at 9.30am this morning what life was like last month on that bizarre parallel world, the Planet ONS, as per the Office of National Statistics Retail Sales figures for December…Our friends at Capital Economics have pencilled in a 0.8% month-on-month drop in seasonally adjusted sales volume (a bit worse than the -0.6% City consensus), but that would leave the year-on-year growth rate at a decent +2.9% in December. We will obviously be ignoring these silly seasonally adjusted volume figures and focusing on the year-on-year, non-seasonally adjusted, sales value figures and
• Ocado: We flagged yesterday that Ocado’s FD Duncan Tatton-Brown was hosting a presentation in the afternoon to analysts, to provide greater clarity on the planned sales and EBITDA split between Ocado Retail and Ocado Solutions…The aim is to enable a valuation of the Retail business excluding any benefits from the Overseas licensing deals for Ocado Solutions and to allow the Solutions business to be valued on the potential from future deals, which is fair enough. Inevitably, however, the split of Technology and HQ costs is to be fudged, with a large “Other” line for unallocated costs…
• BDO High Street Sales Tracker: John Lewis had another quiet time last week, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday Jan 14th, flags that Fashion Store LFL sales rallied by 5.1%, against a weak comp of -6.0% last year. Including Homewares and Lifestyle chains, total Store LFL sales were up by 4.8% (vs -4.5% a year ago). Overall Online sales were relatively weak, however, at +14.8% (versus +39% a year ago), with Online Fashion sales 14.9% up.
• Trade Press (1): The front cover of Retail Week magazine today is a photo of Oxford Street, to flag up a Christmas trading feature headlined “All that glitters is not golden”, posing the question “Was the festive period as bright as it needed to be?” RW also has features on “a peek behind the scenes at beleaguered House of Fraser” and an interview with Stuart Machin on how he has run Bensons and Harveys during the recent Steinhoff crisis. In terms of News stories, RW highlights the news that Maplin is seeking new funding and rent cuts amidst tough trading and that New Look is mulling a CVA as it bids to shutter 60 stores, but it also flags that Kingfisher has re-hired former Hobbycraft boss John Colley as group trading director. And in his column the Editor looks at “Lessons from Sainsbury’s pioneering past”.
• Trade Press (2): In Drapers magazine today the Editor thunders in her column that “Menswear growth adds vitality to the market”, to flag up a bumper issue focused on the growing potential in Menswear, the first in a series of autumn 2018 seasonal specials. The main News story in Drapers is that Independent retailers have expressed confidence about 2018 after a “buoyant” Christmas trading period, but it also flags that Matalan said it had “planned rigorously” for volatile trading conditions last autumn (which helped it to announce a rise in EBITDA and full-price sales in the third quarter and over Christmas), although Marks & Spencer CEO Steve Rowe has blamed a “very difficult” October for a decline in clothing sales during their third quarter.
• News Flow Next Week: It may feel like the Christmas reporting season is over, but there’s actually plenty of news to come…Tuesday brings the Dixons Carphone update, the Carpetright update, the Pets at Home Q3 and the N Brown update. On Wednesday we get the WH Smith AGM and update, plus the Hotel Chocolat update. And then Thursday brings the ASOS Q1 update.