Langton Capital – 2018-01-26 – Starbucks, Jamie’s, EasyHotel, beer, aviation & other:
Starbucks, Jamie’s, EasyHotel, beer, aviation & other:
A DAY IN THE LIFE:
Dashing around a bit this morning. Added to which, things are moving a little slowly after a number of site visits yesterday evening. All in the interests of research, mind you. On to the news:
• 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.
PUB, RESTAURANT & DRINK PRODUCERS:
• Reuters reports that ‘British restaurant chain Prezzo is in talks with its lenders after the price of its leveraged loans dropped in Europe’s secondary loan market, as the UK casual dining sector comes under pressure.’
• Prezz was purchased by private equity firm TPG in 2014, backed with a £155m leveraged loan financing reports Reuters.
• Prezzo has been offering some of the largest discounts in the UK market in recent weeks in an attempt to attract customers. Reuters says its ‘loans have been in gradual decline since last year, closing the first quarter of 2017 at 98.4% of face value, before dropping to 88 at the end of the second quarter and 86 at the end of the third quarter.’
• Reuters quotes sources as saying Prezzo may be seeking covenant waivers on its loans as it struggles with a tough market.
• Starbucks has reported record Q1 results saying revenues rose 6% to $6bn with same store sales globally up 2%. US same store sales were also +2%
• Starbucks reports Q1 China revenues +30% with same store sales +6%. Group reports Q1 EPS of 65c including a 7c benefit from the Trump tax changes
• Starbucks opened 700 new stores globally in Q1 alone. The group now has some 28,039 units across 76 markets. CEO Kevin Johnson reports ‘Starbucks reported another quarter of record financial results in Q1 of fiscal 2018, with consolidated revenues up 6% over last year – up 7% excluding 1% for the impact of streamlining activities in the quarter. China grew revenues 30% in Q1, with the strategic acquisition of East China positioning us to accelerate our growth in the key China market’. Mr Johnson continues ‘today, Starbucks has two powerful, independent but complementary engines driving our global growth, the U.S. and China. Our work to streamline the company is sharpening our focus on our core operating priorities.’
• Starbucks’ CFO Scott Maw reports ‘we are laser-focused on accelerating growth in China and driving improvement across the U.S. business as we move into and through the back half of the year, and remain committed to delivering on the long-term targets we announced last quarter.’
• Starbucks expects to open some 2,300 net new stores globally this year. It continues to expect 3-5% comparable store sales growth globally but it may be .near the low end of the range for the year’.
• The government’s apprenticeship levy has not increased the number of people being trained per reports. The Institute of Directors said many of its members were yet to fully understand how the system was meant to work.
• MCA writes that under investment in its existing estate and costly newer locations were two of the main reasons for Jamie’s Italian shutting 12 sites and carrying out its Company Voluntary Arrangement (CVA).
• Lancashire-based brewer and operator Thwaites is freezing the price of its beer sold to tenants across its 250-strong estate for the second year in a row, per PMA. Pubs and brewing director Andrew Buchanan said the business took the decision after feedback from tenants about costs pressures they including labour costs, food, and utilities. He added: ‘We know anyone running a pub is continuing to face challenges – from the impact of the national living wage to rates revaluations and there is no need for us to add to that worry… As a brewery, we too are facing increases in the cost of running our business, but we will absorb that rather than pass it on.’
• Bill’s Restaurants is rolling out three concept sites with a different menu and atmosphere in St Martin’s Courtyard in Covent Garden, Westfield, and St Albans. MCA writes that format changes include the introduction of small plates at St Martin’s Courtyard & Westfield suited to after-work drinks, sharing dinner options in St Albans for family dining, and seated bar areas.
• A survey conducted by Marketing Week’s parent company Centaur has found that two-thirds of EU nationals living in the UK in the marketing and creative industries are considering leaving the UK because of Brexit.
• ‘Share bags’ of sweets and chocolates should be banned because children eat them all in one go, campaigners at Action on Sugar have said. Research has found that 22% of adults eat sharing bags alone in one go, with this figure rising to 35% for 16-24 year olds.
• The Canadian-based casual dinner, Freshii, has reported LfL sales up 6.4% in the fourth quarter ended Dec 31.
• Swiss listed Aryzta, which makes hamburger buns for McDonald’s, blamed “Brexit-related pressures” as it warned profits would be some 15% lower this year
• Tesco will introduce ‘Colleague Shops’ by the end of February, which will offer free food to staff in an attempt to eliminate waste.
• Stelios has stated that he ‘still has ambitions for easyFoodstore chain’ two years after the first stores launch in Park Royal.
• Shops, cafes and businesses will offer free water refill points in all major cities and towns in England by 2021. Water UK says that this scheme should reduce disposable plastic bottle use by tens of millions a year.
• Nestlé is to move its chocolate R&D division from Switzerland to York by 1st May.
• EIG yesterday bought back another 138,094 shares for cancellation at 143.8p.
HOLIDAYS & LEISURE TRAVEL:
• EasyHotel has reported that it has acquired a hotel in Milton Keynes for a new easyHotel. This increases the committed owned hotel pipeline to 941 rooms
• EasyHotel reports it has ‘conditionally acquired a 125-year leasehold of part of Norfolk House on Silbury Boulevard, a central site in Milton Keynes. The development has already received planning permission and the acquisition will be completed subject to planning being finalised at the end of the judicial review period.’
• EasyHotel updates on openings saying ‘the Group opened its new hotel in Newcastle in December 2017 on time and on budget. Whilst the hotel has only been open for a few weeks the Board is pleased to see this hotel trading in line with the strong performance of the hotels opened during the last financial year.’
• EasyHotel now ‘owns seven hotels comprising 702 rooms, and it has a further 19 franchised hotels with 1,641 rooms.’ CEO Guy Parsons reports ‘we are delighted to have secured this site in Milton Keynes. Now in its 50th year, the town is home to many international business, has the third highest business start-up rate of any UK city and boasts an impressive range of shopping and leisure facilities.’
• EasyHotel comments on its funding options. CEO Mr Parsons says ‘we continue to see a good number of attractive potential development opportunities, both in the UK and Europe to further accelerate the Group’s growth. These are both larger and more numerous than we had originally anticipated. Consequently, the Board is considering its finance options, which may include new equity and debt, to fund more hotels.’
• Airbnb generated earnings of c$100m last year while bookings grew around 150 per cent reports the company.
• Securing aviation arrangements on Brexit are of the utmost importance, Abta has stressed to the government. The committee reported: ‘It is important that the government sets out progress on negotiations regarding the single aviation market, and reassures the tourist industry that contingency plans are being made in the event of no deal’.
• Leeds Bradford airport reports record numbers for 2017, seeing over 4 million passengers and marking three years of yoy growth. The figures come despite the collapse of Monarch but the airport will face BA trimming back flights to London this year.
• Football fans hoping to travel to the World Cup in Russia this year are reportedly being charged 5400% more than market price for hotel rooms. One example is the zero-star Agora hotel in Kaliningrad, where England will play Belgium on June 28, has been advertised at £1600, rather than the government-set price of about £30.
• Eurotunnel reported revenues up 4% last year to €1.033bn, with carryings up 3% to 10.3m over 2016. Rail revenue increased 4% to €292.8m with Eurotunnel saying ‘The upcoming launch of services between London and Amsterdam bodes well for the growth of this traffic through the tunnel.’
• The STR has reported that the US hotel industry underperformed on last year for the week 14-20 January 2018. Occupancy was down 1.5% to 55.4%, Average daily rates had fallen 1.7% to $120.55 and RevPAR had declined 3.2% to $66.79.
• ‘Pay as you go’ services boosted sales at Sky plc, which reported LfL sales up 5% to £6.7bn for the six months to the end of December. The company said it sold 20 million pay-as-you-go products to customers during the period.
• The world’s most valuable marijuana company is set to be created following a merger between Canadian firms Aurora Cannabis and CanniMed, worth £4.2bn. Canada plans to legalise recreational marijuana before July.
• Hornby has released a profit warning after ending discounting to retailers and suffering late deliveries to international customers over the Christmas period. Retailers have shown resistance to the model-maker new pricing strategy, with Hornby stating: ‘rebuilding the trust in the pricing architecture takes time and some of our retail partners are taking longer than others to accept the new approach’.
• Casino company MGM China shares fell around 8% yesterday after the Macau based operator said it was delaying the opening of its new $3.5bn resort.
FINANCE & MARKETS:
• Dominic Raab tweets fixing broken housing market is government priority. Spelling does not appear to be his strong point
• The number of mortgages handed out by UK banks was at a 5yr low in December. Some 36k were approved
• ECB has held rates where they are for the Eurozone. It has also left its level of stimulus unchanged
• Sterling down vs dollar at $1.4176
• Pound lower vs Euro at €1.1407
• Oil down at $70.19
• UK 10yr gilt yield unchanged at 1.41%
• World markets: UK down yesterday with Europe also lower. UK up and Asia mostly up in Friday trade. UK set to open up maybe 21pts
• Brexit etc.:
o Donald Trump has said there will be a “tremendous increase” in UK-US trade. No details were given. He said he and Mrs May, currently the UK Prime Minister “like each other a lot”.
o Chancellor Philip Hammond has been ‘slapped down’ for predicting a soft Brexit per reports.
o Goldman Sachs boss Lloyd Blankfein told the BBC that the bank is at the point of no return on some Brexit related staffing issues
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
• Later tweets: Greene King update. Capex & good London failed to lift managed LfLs. Down 1.4% at H1, still down 1.4% at w37. Ex-snow, would be better
• GNK reports deceleration in growth at leased & tenanted in Q3. Implies a short 3% LfL decline in Q3 (which was snow-impacted)
• GNK beers move to cum. Q3 decline of 0.9%. Implies 3% plus decline in Q3. UK ale market cumulatively down 3%
• Restaurant Group down 2.5% at H1, down 3.0% by year end. Implies perhaps down 3.5% in H2. Direction of travel not positive
• Fuller’s 42w update has managed LfLs +3.0% vs +3.6% at w26. Implies slowdown to c2% in the last 16w. No snow in London
• Sterling up vs dollar, up vs Euro, oil price up, wage growth up, employment up, 10yr gilt yield up. Higher interest rates coming?
• Yesterday’s mention of a ‘melt-up’ saw shares drop. Catchy phrase. Just meaningless?
• Europe is failing say Brexiters, growth there at 12yr high say PMIs.
• Boris. £100m / week to NHS, airport island, garden Thames crossing, Channel bridge. What’s next; a stairway to heaven…?
• Boris, Telegraph Brussels correspondent, petulance etc. See Spiegel for the German take – http://www.spiegel.de/international/europe/uk-conservatives-face-brexit-crisis-under-may-leadership-a-1189484.html#ref=nl-international
• Vertu Motors down on continued big-ticket hit. Pizzas still selling but too much capacity etc.
• UK wages grew at 2.4% in year to Nov, still below inflation. And higher wages aren’t an end in themselves. We need growth.
• Check out creeping downgrades (to avoid profit warnings), Minsky on complacency, correlation of short RNSs with bad news etc.
START THE DAY WITH A SONG:
Yesterday’s song was ‘Our House’ by the Madness, today who sang the following:
And every time I let you leave,
I always saw you coming back to me
When and where did we go cold?
RETAIL NEWS WITH NICK BUBB:
• Pets at Home: Any hope that the reassuring trading update on Tuesday from Pets at Home would lead to a rally in the share price was dashed when its former private equity backer KKR dumped its remaining stake in the business on Wednesday, selling 6m shares through Merrill Lynch at 174p.
• New River Watch: We flagged yesterday that the community/convenience based shopping centre and retail park property company NewRiver Retail has been pushing the recent view of GlobalData that the discount retail sector is forecast to grow slightly faster than Online over the next 5 years. Time will tell about that, but in the meantime discounters dominate its list of top tenants; at present Poundland is their most important tenant, with its 23 stores accounting for 2.6% of rental income (mighty B&M is 7th on the list, with 9 stores), but once the current development programme is finished then mighty Primark will move to the top of the NewRiver tenant list.
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis had a slightly better time last week, despite the cold weather, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday Jan 21st, flags that Fashion Store LFL sales dipped by 2.5%, against a comp of -1.3% last year. Including Homewares and Lifestyle chains, total Store LFL sales were also down by 2.5% (vs +0.3% a year ago). Overall Online sales were relatively subdued, however, at +18.2% (versus +27.3% a year ago), with Online Fashion sales 19.6% up.
• Trade Press: The front cover of Retail Week magazine today is a photo of Alex Baldock and Seb James, to flag up a feature on “All change at the top” and the outlook for Dixons Carphone and Boots. RW also has features on the key themes from the big NRF industry conference in New York and an extract from RW’s Retail 2018 report. In terms of News stories, RW highlights the news that Marks & Spencer has unveiled a new marketing department structure, The Range is looking at a £2bn IPO and Tesco and Sainsbury’s this week both revealed plans to radically overhaul their store management teams. And in his column the Editor thunders that “Baldock’s move is symbol of new leadership era”, flagging that “the meteoric rise of Alex Baldock epitomises how Retail is changing”.