Langton Capital – 2018-01-24 – JD Wetherspoon, Hotel Chocolat, Hostelworld & other:
JD Wetherspoon, Hotel Chocolat, Hostelworld & other:
A DAY IN THE LIFE:
Bit busy today, early conference calls and the like. If you would like to purchase some widely-acclaimed-to-be-wonderful Langton research then see below. On to the news:
JD WETHERSPOON – H1 TRADING UPDATE:
JD Wetherspoon has this morning updated on trading for the second quarter and first half of its current year and our comments thereon are set out below:
• JD Wetherspoon on trading for its second quarter and for the first 25wks of its H1 (being the period to 21 Jan) saying that Q2 sales (12wks) were up by 6.0%
• LfL sales for the first 25wks of H1 are also +6.0%. Total sales, given that there have been some disposals, were up by 4.3%
• JDW says ‘as a result of better-than-expected sales, year-to-date underlying profit before tax is slightly ahead of our expectations.’
• JDW cautions, however, that ‘similar outperformance in the second half will be more difficult to achieve.’
More on Balance Sheet etc.:
• JDW reports ‘since the start of the financial year, the Company has opened three new pubs and sold 10.’
• It says ‘we intend to open approximately 10 pubs in the current financial year.’ At Q1, the group had said that it would open between 10 and 15 units
• JDW says ‘the Company has spent £15m on buying the freeholds of pubs of which we were previously tenants and has bought back £51m of shares in the financial year.’
• JDW says ‘the Company remains in a sound financial position. Net debt, at the end of this financial year, is currently expected to be around £30m higher than the level at the last financial year end.’
• JDW chairman Tim Martin comments that most forecasts ‘have proven to be highly inaccurate.’
• He says food prices could be reduced post Brexit.
• Mr Martin says ‘as regards Wetherspoon’s performance, sales in the second quarter to date matched the strong growth of the first quarter.’ He says, however, that ‘in the second half of the year, sales comparatives will be more difficult.’
• Mr Martin says ‘we face significant costs in the second half in areas which include labour, business rates and the sugar tax. There will also be some uncertainty as to the effects on our business of the FIFA World Cup.’
• JDW concludes ‘nevertheless, given better-than-expected year-to-date sales, we currently anticipate a slightly improved trading outcome for this financial year.’
• 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. Certainly H2 comps will be tougher but this is a good performance as comps are not particularly easy (JDW was +3.3% in H1 last year) and the economic background has been challenging.
• The group says that it faces a number of headwinds in H2.
• JDW’s shares trade at over 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 economic 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.
• Langton has put together a compendium of around 3 dozen 60-seconds pieces (c200 words or so each) for distribution at £200 plus VAT, free to clients.
• Please let us know if you would like a copy.
• Topics will be covered under a number of headings: Introduction (demographics etc.), The Disruptors, Drinks & Experiential, Food and Hotels & Travel.
• Titles include Grey Dawn (Generation Have-It-All), Millennials (Generation Rent), Life in the Slow Lane, Prepacks – A Reward for Failure etc. Full list of titles available on request.
PUB, RESTAURANT & DRINK PRODUCERS:
• What have they got in common; Nando’s, Franco Manca, Meat Liquor, Wagamama, JD Wetherspoon, Marston’s? They either don’t discount at all or they do it very lightly. What have Pizza Express, Byron, Prezzo, ASK, Pizza Hut, Café Rouge, Bella Italia, Harvester, Toby, Beefeater got in common? Yes, that’s right.
• Which is the chicken, which is the egg?
• Langton trip to Nando’s yesterday. As efficient as ever. Good value at c£37 for three. No skimping on the food but just water to drink. As Langton is still between offices, we will visit Croydon today to see what all this Boxpark-has-got-it-right talk is about. Any suggestions as to where we should go, drop us a line.
• Fevertree has released its trading update for the year ended 31 Dec 2017, reporting revenue growth of 66% to £169m, with FY UK revenue expected to be c98% ahead of 2016. Commenting on today’s announcement, Tim Warrillow, Co-founder and CEO of Fever-Tree said: ‘While we have seen strong growth across all regions, our performance in the UK over the Christmas period was once again exceptional. Our growing range of mixers and formats are appealing not only to our loyal customers but also bringing consumers back to the category and importantly attracting a new younger audience. There is clear evidence that the same trends of premiumisation and mixability that we’ve previously highlighted are accelerating and we are increasingly excited by the global opportunity this presents particularly as we transition to our own operations in the US’.
• NRN reports that McDonald’s franchisees believe that the chain’s new $1 $2 $3 value menu will increase LfL sales in fiscal 2018. Margins may come under a little pressure.
• KFC is to introduce a third sauce, Smoky Mountain BBQ, to its range in the US in the near future.
• Greene King has announced that Kirk Davis, CFO, whose resignation was announced last year, will leave the business on 31 January. Richard Smothers will join the board on 1 February as chief financial officer.
• California Pizza Kitchen has named former Ruby Tuesday CEO Jim Hyatt as its Chief Executive Officer.
• The Ivy Collection is to open a new site in Norwich this summer.
• Business Growth Fund has announced it has invested £2m in Crepeaffaire, the 18 site strong operator.
• Zamora Company, the Spanish beverage company, has acquired a majority stake in the British brand Martin Miller’s Gin.
• The ALMR has called on the Government to support pubs by revitalising the gaming machine sector, with the group’s Chief Executive Kate Nicholls stating: ‘Gaming machines have historically been vital revenue streams for pubs, but their impact is dwindling due to a combination of factors. Red tape and costs prevent venues from utilising machines fully and customers have increasingly been lured away by other forms of gaming’.
• Punch is the latest pubco to ban the use of straws in its retail pub estate, and has urged its c1200 leased and tenanted pubs to follow suit.
• Star Pubs & Bars is increasing its support to licensees with a new nine-strong buying department focused on securing products and prices, providing market insight, and delivering category training.
• Ei Group has announced that it will no longer use plastic straws across its managed estate, replacing them with environmentally-friendly alternatives.
• Under 5% of England’s population are responsible for a third of all alcohol consumption in the UK, according to research conducted by Public Health England (PHE). PHE advocates the introduction of minimum unit pricing.
• South Africa is believed to be facing its smallest grape harvest in over a decade, mainly due to persistent droughts that have been ravaging the Western Cape area for months.
• Hotel Chocolat updates on trading for the quarter to end-Dec saying group revenue for the period increased 15 per cent compared to the prior year. Hotel Chocolat says ‘retail, digital and wholesale channels all achieved growth. The business opened 10 new stores during the six months ended December, and there are now 100 stores in the UK.’
• Hot Choc on current trading. The co says ‘trading since December continues to be in line with management’s expectations.’
• The Board expects to announce the Group’s results for the six months ended 31 December 2017 on 21 February 2018. CEO Angus Thirlwell comments ‘we performed well, our new store openings contributed 6% of our growth in the period, with the balance of the growth coming from existing stores, digital and wholesale channels.’ He adds ‘constant innovation saw our largest ever seasonal range in Christmas 2017 and we maintained strong availability of products to capitalize on the last minute rush, without any excess stock overhang.’
• Time Out updates on FY trading saying it has delivered strong growth. It says ‘the Board is pleased to report that revenue and adjusted EBITDA are anticipated to be in line with its expectations for the full year.’ Revenues should be up 19%. CEO Julio Bruno comments ‘Time Out Digital continues to make substantial progress in its core areas and in particular e-commerce has seen excellent growth with more transactions across more verticals. Our Time Out Market in Lisbon continues to perform particularly well and we are excited about rolling out this incredibly successful format globally, with plans on track for new markets which have been recently announced in Miami, Boston and Chicago.’
• Palmer & Harvey faces losses of more that £700m following the wholesaler’s collapse last year, PwC has reported.
• Tesco is set to scrap more than 1700 managerial jobs, as the group cuts costs.
• The British Beer and Pub Association (BBPA) has congratulated the Association of Licensed Multiple Retailers (ALMR) and British Hospitality Association (BHA) on their proposed merger. BBPA CEO Brigid Simmonds commented: ‘As a sector, brewing and pubs contributes £23 billion to the UK economy and we look forward to working closely with the new Association on our shared concerns. Congratulations to Kate Nicholls on her new role. It is thoroughly deserved and a big challenge, but she has all the attributes to make it work. Thanks must also go to Ufi Ibrahim for all her hard work and particularly for the Big Hospitality Conversation which attracted new employees into our sector. We wish her well.’
• Mike Clist of the British Institute of Innkeeping added: ‘We congratulate the ALMR and BHA on reaching agreement to recommend to their members a proposed merger to form UK Hospitality. The sector being the third largest private sector employer and one that is growing rapidly on an annual basis, needs representative bodies that will be listened to in Government.’
• Spending in restaurants and bars rose 13.2% year-on-year over Christmas, according to transaction data from Worldpay. MCA writes that the busiest day of the festive period was 22 December, with spending up almost a quarter on 2016 figures at 23.1%, while total hospitality spending across the pre and post-Christmas period was £491m. A total of £8.1m was spent on Christmas Day.
• Sainsbury’s is preparing to cut thousands of store management jobs as it seeks to reach £500m of cost savings over the next three years. On Monday Tesco also announced it was cutting 1,700 shop floor management jobs.
• Toys R Us plans to cut around a fifth (c180 units) from its US estate. The company, which is currently in bankruptcy protection, has around 1,600 stores worldwide. A note to customers (in Canada) said ‘today the difficult decision was announced that about 180 stores in the United States will close in the coming months’.
HOLIDAYS & LEISURE TRAVEL:
• Hostelworld, the hostel-focused online booking platform, has reported its pre-close trading update for the year ended 31 December 2017. The group has seen overall bookings increase 6%, with bookings in its flagship Hostelworld Brand increasing 13%. The group’s average booking value for 2017 was €11.5, flat on a the prior year. Feargal Mooney, Chief Executive of Hostelworld, stated: We are pleased with the performance of the business in 2017. During the second half of the year we delivered an efficient booking mix with marketing costs for the full year marginally lower than our previously guided range. We continue to execute well on our strategy and this positions the Group well to make further progress in 2018’.
• CDL has announced that, as at 1pm yesterday, the first closing date of its bid for Millennium & Copthorne, it had received acceptances from 44.2% of the shares that it did not already own. The offer is being extended to 1pm on Friday. CDL says ‘the Final Offer will not be further extended and will be incapable of further acceptance after 1.00 pm on 26 January 2018 unless the Acceptance Condition has been satisfied by that time.’ The acceptance condition stipulates that CDL must have received more than 50% acceptances from shares that it does not already own.
• PPHE has announced that one of its wholly owned subsidiaries, has exchanged contracts to buy from its joint venture partner its fifty percent interest in its joint venture company, Aspirations Limited for £35m. CEO Boris Ivesha comments ‘we are excited about this latest transaction which is part of realising the next phase of growth for our group.’
• The US hotel industry is set to report record-breaking performances through 2019, according to STR and Tourism Economics. The VP of STR, Carter Wilson stated: ‘After another record year in 2017, we’re looking at continued growth in 2018 fueled by strong underlying economic indicators and upgraded GDP forecasts. Coupled with moderating supply growth and a slight uptick in pricing power, the industry should see record fundamentals through 2019’.
• STR predicted that in 2018 the US hotel industry should increase occupancy by 0.3% to 66.1%, ADR will increase 2.4% to $129.77 and RevPAR will climb 2.7% to $85.82. STR also gave 2019 forecasts for occupancy up 0.1% to 66.2%, ADR rising 2.3% to $132.81 and RevPAR increasing 2.4% to $87.89.
• Reuters has predicted that business travel will increase in 2018, with the group stating that the growth will be driven ‘largely on the strength of economic progress in China and India,’ but also warned that ‘increasingly protectionist policies across the globe and looming geopolitical instability’ could be a negative.
• Travelzoo has reported that holidaymakers will take cheaper holidays rather than not have one at all. Trading down has been a feature of prior consumer squeezes. Travelzoo says that 78% of the consumers that it interviewed intended to take three holidays or more this year, up 32% on last year. However, the amount spent per break may go down. This may favour staycations. Travelzoo says ‘those intending to spend less per person per holiday has increased – so the travel industry should take heed that the price-sensitivity of this market isn’t going away soon. If the responses of our members are indicative of a wider trend, then the British public want to travel more in 2018, but spend less on each trip, if they can.’
• Holiday Pirates has conducted a survey that suggests 70% of consumers will search for reviews from previous customers before deciding which trip, hotel stay, or restaurant visit to make next. Some 58% trust an online customer review as much as a personal recommendation.
• MPs are being urged to ban cold calling by Abta, claiming that its is one of the main methods claims management companies (CMCs) use to encourage false holiday sickness claims. Alan Wardle, Abta’s director of public affairs, said ‘Not only are these calls irritating, they can also encourage people to unwittingly break the law, risking a fine, criminal record or imprisonment.’
• Heavy snow and a higher risk of avalanches has cut off nearly 9,000 people in the Alpine ski resorts of Zermatt and Cervinia. Connections to Davos in Switzerland where world leaders are gathering for the annual World Economic Forum were temporarily closed.
• According to the British Airline Pilots’ Association, only one in ten pilots think leaving the EU will be positive for UK aviation. Half thought it would bring negative effects and 39% said it would have a neutral impact.
• Staycity Aparthotels has appointed Matt Roberts to Head of Sales, a newly created position. Roberts was previously responsible for corporate sales in London and key account management for SACO The Serviced Apartment Company.
• Netflix shares rose to $227.79 yesterday, valuing the company at over $100bn for the first time. Netflix reported that it added 8.33m more subscribers in the last three months of 2017, of which 6.36m were in international markets.
• The proposed Fox Sky takeover has been deemed to not be in the public interest on the grounds of media plurality, the UK’s Competition and Markets Authority has found.
FINANCE & MARKETS:
• UK government borrowing fell in December 2017 vs a year ago. Public Sector Borrowing was £2.6bn in December 2017, some £2.5bn lower than the same month in 2016. Public borrowing in the financial year to date is £50bn, down 12% on 2016/17.
• Fitch Ratings has said that expects house prices to rise in all major economies next year with the exception of Greece, Norway and the UK.
• EU creditors have begun talks on the next round of potential Greek debt relief.
• CBI reports that business optimism rose in Q1 this year against last year.
• Eurozone consumer confidence index rose in January.
• The proportion of UK firms saying that orders were running above normal levels fell in January.
• Sterling through $1.40 for the first time since Brexit vote. Currently trading at $1.4024.
• Pound down vs Euro at €1.1386
• Oil up at $69.90
• UK 10yr gilt yield unchanged at 1.36%
• World markets: UK up yesterday with Europe & US also higher. Far East is down in Wednesday trade.
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
PRIOR DAY LATER TWEETS:
• Later tweets: Langton research, compendium of all-new 60 seconds pieces on a diverse range of topics available for £200 plus VAT.
• Marston’s 16wk update. Destination down 0.9% (on snow, up 1.1% without), Taverns (wet-led) +2.6%, Leased +2% & brewing +33% (Charles Wells)
• MARS will open 15 pubs & 6 lodges this year. Says ‘we continue to achieve growth against tough market conditions’
• Association of Licensed Multiple Retailers and the British Hospitality Association are to merge to form a ‘powerful unified voice’
• Airbnb has reportedly withdrawn from the race to sign Wyndham Worldwide’s UK travel brands
START THE DAY WITH A SONG:
Yesterday’s song was ‘Song 2’ by Blur. Today who sang:
Got some cash, bought some wheels,
Took it out, through some fields
Lost control, hit a wall
RETAIL NEWS WITH NICK BUBB:
• WH Smith: Ahead of today’s AGM WH Smith has issued a reassuring trading update. Since the Card Factory profit warning, investors have been worried about how the much-maligned High Street Division would have done at Christmas, but the -4% LFL sales for the 20 weeks to Jan 20th were in line with expectations, despite tough comps. “Our stationery and seasonal ranges, including cards and wrap, performed well with good sales growth versus last year. Book sales were more challenging due to the decline in spoof humour titles and no new, big publishing trends”. The decline in the spoof humour book market punctured High Street gross margins a little, but that was offset by even more cost savings, whilst the lucrative Travel Division delivered 3% LFL sales growth. And if you’ve been through Gatwick South recently, you’ll be interested to hear that the recently opened new concept store has
• Hotel Chocolat: Today’s update from Hotel Chocolat is also reassuring and the company has split out its new store sales contribution for the first time (6%) to flag that sales growth from Retail, Online and Wholesale was as much as 9% for the 13 weeks to Dec 30th. CEO Angus Thirllwell says that “Constant innovation saw our largest ever seasonal range in Christmas 2017 and we maintained strong availability of products to capitalize on the last minute rush, without any excess stock overhang” and trading since December “continues to be in line with management’s expectations”.
• John Lewis Watch: Yesterday’s weekly sales update from JLP (for w/e Jan 20th) flagged that John Lewis picked up a bit, with gross sales up by 2.6% versus last year or nearly 2% up on a LFL basis. In terms of sales mix, Fashion sales were up by 7.7% gross, thanks to the cold weather, with Home sales were down by 0.5% and Electricals up by 2.6%. That outcome lifted the 25 week cumulative run-rate a notch to +1.4% gross (slightly up LFL), with just one week left in the second half.
• Waitrose Watch: Over at Waitrose, last week was also a bit better, with gross sales up by 1.2% in w/e Jan 20th (c1.5% up LFL), to hold the cumulative run-rate at +1.5% after 25 weeks of the second half (c1% up LFL).
• Retail Sales Watch: All the focus now is on how well January will turn out on the High Street, after a quiet start (see above), but we haven’t seen the final word yet on how good the outcome was for December, in the aftermath of “Black Friday”. We flagged on Monday that the ONS Retail Sales figures for December (the 5 weeks to Dec 30th) were not bad overall, as the Office of National Statistics (the ONS, aka the “Planet ONS”) had reported non-seasonally adjusted total sales by value up by 4.4% last month (ex-petrol), driven by suspiciously good growth for Small Non-Food Retailers, whereas the BRC-KPMG measure of gross sales (which focuses on Large Retailers) was up by “only” 1.4% (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 just
• News Flow This Week: Tomorrow brings the ASOS Q1 update.