Langton Capital – 2018-02-09 – YUM, eating out trends, Pernod, US sales & other:
YUM, eating out trends, Pernod, US sales & other:
A DAY IN THE LIFE:
Language is extremely nuanced, isn’t it?
I mean you’d be OK if you were called funny but if you were labelled ‘laughable’, you might find that a little less appealing.
Unless you were a member of the current Cabinet, of course, in which case it would be a step up from pitiable, desperate, woeful etc.
Anyway, we find ourselves crawling slowly towards the weekend so, without any further ado, let’s move to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• MCA’s Eating Out Panel data for Q4 shows a shift away from higher spend occasions by consumers, who are focusing more on health and wellbeing. Customers have also cut back on visit frequency at every daypart over the last year.
• Commenting on the BBPA’s Q4 beer numbers, SIBA CEO Mike Benner said ‘the 0.7% increase in overall beer sales is good news for the craft beer sector’ but he says ‘the continued on-trade decrease in sales is difficult news for craft brewers who rely on cask ales as their primary product. The headline rate of beer duty and business rates on pubs remain two critical issues for the on-trade which SIBA will be campaigning hard on over the course of 2018’.
• The BBPA has called for as ‘training framework fit for the future.’ It says it has submitted 2 responses to the consultation with the government on in-work training looking at first ‘the Catering and Hospitality occupational map’ and secondly at level 4 apprenticeships for brewers. CEO Brigid Simmonds says ‘it is vitally important for pubs that we encourage UK nationals to work in our sector and the introduction of T Levels and occupational maps offer the opportunity to highlight a serious career structure in brewing and pubs.’
• The ALMR suggests ‘the Government is taking a sensible and considered approach to a crucial issue affecting the eating and drinking out sector. However, staffing and skills shortage in our hospitality is so acute that it really must be among those areas addressed in the very first round of implementation.’
• The SBPA has pointed out that the industry in Scotland is different to south of the border & it says that similar legislation may not be suitable. The SBPA points out ‘only 17% of pubs are under a leased and tenanted arrangement here in Scotland, compared to 40% across the rest of the UK. It simply doesn’t work to compare like-for-like in this case.’
• YUM Brands has reported Q4 numbers saying that EPS rose 53% to $1.26. Excluding one-offs, EPS was 96c in Q4, up some 20% on the same quarter last year. CEO Greg Creed comments ‘as we close the first full year of our transformation, I am very proud of the progress we are making towards becoming a more focused, more franchised and more efficient company that generates more growth.’
• YUM says ‘during 2017, system sales grew a healthy 5% excluding the impact of lapping the 53rd week in 2016, with same-store sales growth of 2% and net new unit growth of 3%. As we move forward into 2018, we are particularly excited about our investment in ‘Easy’ with our new partnership with Grubhub.’
• YUM comments ‘we are confident that the continued focus on our four key growth drivers’. The group says ‘despite headwinds from refranchising dilution and lapping a 53rd week, we delivered full-year core operating profit growth of 7%. We are on track with our strategic transformation to accelerate growth and made significant progress towards achieving these objectives in 2017. We look forward to updating you as we c
• GrubHub shares rose sharply Thursday on the back of an increase in profits & a deal with Yum Brands
• Yum! Brands is partnering with delivery company Grubhub to provide KFC and Taco Bell with online ordering, pick up, and delivery at its US restaurants. As part of the deal, Louisville, Ky.-based Yum agreed to buy $200 million of Grubhub stock to help expand its U.S. delivery network. Yum will also get a board seat at the Chicago-based company, which serves 1,300 U.S. cities.
• EI Group has undertaken a poll which suggests that 27% of people visit a local pub at least once a week. Some 10% would pay more for their house if it was near to a good pub and 25% met their partner for the first time in a pub. EI Group’s Steve de Polo comments ‘pubs are the beating hearts of many communities and the value of a great local pub to people cannot be overstated.’
• EI Group bought back another 230k shares yesterday at 132.7p per share.
• Pernod Ricard has announced H1 sales of €5.1bn with organic growth of 5.1%. Net profits rose 25% to €1.1bn. CEO Alexandre Ricard comments ‘H1 FY18 was a very good semester, with an acceleration vs. FY 17, in particular in China, India and Global Travel Retail. For full-year FY18, we will maintain our focus on digital, innovation and operational excellence (including pricing.) We expect sustained and diversified growth to continue across our regions and brands. We are therefore increasing our guidance for full-year FY18 organic growth in Profit from Recurring Operations to between +4% and +6%.’
• Pernod Ricard has upgraded its annual profit growth outlook after surpassing first half expectations, thanks in part to strong sales of its Martell Cognac and Chivas whisky in China. ‘The fact that we raised our guidance at this point of the year reflects our confidence. The Chinese New Year starts in a week’s time. We are clearly confident,’ Chief Executive Alexandre Ricard told analysts. ‘Our vision of mid to high single-digit growth in China is now a reality,’ added Ricard.
• TDn2K reports that LfL growth across US restaurant swung into the red again in Jan 2018. LfL sales were down 0.3% on the year before. It says, however, that ‘January was plagued with external factors that suggest it may be too soon to sound the alarm.’
• TDn2K says re US restaurants ‘although January’s sales results are somewhat disappointing, we remain cautiously optimistic about the industry’s performance.’ It continues ‘even if the month posted some small negative growth in sales, January results were better than any other month February through September last year.’
• The US Distilled Spirits Council has reported an eighth consecutive year of growth for spirits, with sales up 4% to a total of $26.2bn in 2017. Volumes were up 2.6% to 226 million cases as consumers displayed an ‘ongoing taste for higher-end distilled spirits’. The trade association also projected a new export record of $1.63bn of US spirits sold around the globe in 2017, rising 14.3% compared with 2016, with volumes increasing by 5%.
• The BBPA’s Brigid Simmonds comments has commented on a new study from Cambridge University on low-alcohol beer, saying: ‘Among alcoholic drinks beer is already the lowest-strength option available. Notwithstanding this, in recent years brewers have worked hard to remove 1.3 billion units of alcohol from the market through producing low or no strength options and reducing the strength of existing products… The findings of this study also run counter to recent research commissioned by Drinkaware, which found that in 2017 a quarter of those who drink alcohol chose an alcoholic drink of lower strength when attempting to reduce their overall consumption of alcohol.’
• German food delivery marketplace Delivery Hero has recorded y-o-y revenue growth of 60% to €544.2m in 2017.
• Debenhams is planning to cut 320 store management jobs in a bid to lower costs.
• Morrisons is to cut out single-use plastic bags by the end of 2018.
HOLIDAYS & LEISURE TRAVEL:
• Turkey is now Thomas Cook’s joint second best-selling summer destination. Turkey is now as popular a destination as Greece and only less sort after than Spain.
• GfK reports family holiday bookings are driving outbound growth for this summer, up 6% YoY to the end of January. However, average selling price of holidays is significantly lower, down 23% for summer 2018.
• Toys R Us could be rescued by the firm which salvaged HMV five years ago, Hilco Capital.
• For the week 28 January to 3 February, the US hotel industry saw occupancy up 1.4% to 56.4%, ADR up 2.2% to $122.35 and RevPAR increasing 3.6% to $69.05.
• Adventure travel specialist Explore reports Britons as losing their sense of responsible and sustainable behaviour when travelling abroad. The study found British travellers were 50% less likely to recycle and 60% less likely to reuse towels for more than a day or two when overseas.
• Greater numbers of Chinese tourists are travelling abroad to celebrate Chinese New Year next week than ever before. Daily international departures are ahead 11% on last year as the Chinese get ready to celebrate the Year of the Dog. Japan, Thailand and Taiwan hold their positions as the top three destinations.
• Walt Disney parks reports revenues up 13% to $5.2bn for the three months to December 30. Operating income was up 21% year on year at $1.3bn in results which benefited from comparisons due to the impact of hurricane Matthew in 2016.
• Expedia shares sharply lower (c19%) after hours yesterday as quarterly profits fall by almost a third. CEO Mark Okerstrom comments ‘we are now operating with a clear focus on our highest priority markets, making concentrated investments across the platform including a step function change in our pace of adding new properties to our marketplace.’
• STR’s Hotel Lender Survey reports that US lenders are less cautious in their short-term outlook when compared with this time last year. STR says ‘we really noticed more optimism throughout the entire survey. Most lenders still believe asset values are near the peak, but more are optimistic about the next 12 months than they were at the beginning of 2017.’
• Ten Entertainment has acquired 2 further sites bringing its estate to 42 sites. The units, in Chichester and Warrington, are ‘geographically complementary to the existing estate and are existing ten-pin operations set within leisure parks.’ Chairman Nick Basing comments ‘these two new deals point to further evidence of the Group’s growing ability to acquire high quality locations, taking the total number of sites acquired so far to 14 since 2014.’
• Twitter shares surged 26% in pre-market trading in New York after reporting net profit of $91.1m for Q4 2017 compared to a loss of $167.1m the year before. The increase was attributed to a rise in video advertising sales as well as a cost-cutting programme. The group also reported 330m active users a months, growing by just 4% YoY but fairly flat QoQ.
FINANCE & MARKETS:
• Bank of England holds UK rates at 0.5% and QE at £435bn. A rate rise could come in May.
• The Bank of England’s February Inflation Report says that the pace of interest rate increases could accelerate. It says that there is little slack anywhere in the economy. The Bank says ‘the Committee judges that… monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report.’ The price of oil has risen and wage growth has picked up.
• The RICS suggests that London house prices could fall again this year as purchasers struggle to save for a deposit.
• Sterling up vs dollar at $1.3942
• Pound higher vs euro at €1.1374
• Oil down a dollar or so at $64.41
• UK 10yr gilt yield up 7bps on back of Bank of England rate comments. 10yr rate currently standing at a 2yr high.
• World markets: UK, Europe & US down yesterday, the latter by over 1,000 pts for the second time this week. Asia down in Friday trade
• Brexit etc.:
o Japan has warned Mrs May that Japanese firms will be unable to stay in the UK if they become unprofitable following a disruption to trade.
o Mrs (I’m not a Zombie PM) May has said that Brexit will allow a UK/Japan free trade deal. But that’s not the point, it’s about their UK factories having seamless access to the continent.
o Japan’s ambassador Koji Tsuruoka warns of “high stakes” in Brexit trade negotiations
o Food & Drink Federation tells Lords that rationing may result from a poor trade deal
o Guardian reports EU as saying Northern Ireland will stay in the single market post Brexit. Any wedge driven between Northern Ireland and the rest of the UK is unlikely to please Unionists.
• Langton is between offices. There is some light at the end of the tunnel but, for the moment, please communicate via email. MIFID II is now in operation.
PRIOR DAY LATER TWEETS:
• Later tweets: EI Group in line with expectations, Compass a bit better. Thomas Cook ‘encouraging Q1’, ditto On the Beach, Revs & Goals announce new CEOs.
• M&C Chairman Mr Kwek Leng Beng comments ‘underlying hotel performance was flat last year.’ Group cuts divi to pay for capex
• Platinum Equity set to buy Wyndham European holiday business (cottages, James Villas etc. in the UK)
• Halifax says house prices in UK fell by 0.5% in Jan after 0.8% December fall.
• Wales & NE of England to be worst off under Brexit scenarios. Strains health care, education etc. NE England may be 16% worse off
• DFS Furniture relatively chipper re their part of the big-ticket universe. Says is ‘on track’. But market ‘likely to remain challenging’
• New Look: LfL down 10.7% in 39wks. Implies down 15% or so in Q3. Says margins down on discounting. What price the High Street?
• New Look plunges to cumulative Q3 loss (including Xmas period) from £111m profit in the same period last year. Pretty abrupt decline?
• Nissan meets PM/Chancellor today in light of est. 16% shortfall in NE England wealth post Brexit. Will need ‘assurances’ (aka Bribes?)
START THE DAY WITH A SONG:
Yesterday’s song was Hate to Say I Told You So by The Hives. Today, who sang:
Why don’t you all f-fade away,
And don’t try to dig what we all s-s-say
RETAIL NEWS WITH NICK BUBB:
• Today’s Press and News: The solid DFS pre-close trading update gets rather overlooked today, with all the focus on the Bank of England warning about higher interest rates and the renewed 1000 point slump for the Dow on Wall Street last night…The main Retail story is the 320 store management job cuts at the embattled Debenhams (eg “One in four Debenhams managers to lose jobs in £10m cost-cutting plan” in the Guardian), which the Times illustrates with a photo from the 1970’s TV sitcom “Are you being served?”. The Guardian also notes the Sky News scoop the other night that the so-called scavenger fund Hilco is looking to buy the near bankrupt Toys R Us UK chain. The Times also notes that the beleaguered New Look has parted company with its UK MD Danny Barroso and that an American hedge fund Sandell is still agitating against the terms of Booker sell-out to Tesco.
• Trade Press (1): The front cover of Retail Week magazine today is a photo of a rather grand-looking H&M store facade, with the headline “Opening the door to digital” (to flag up a major feature on “How retailers can learn from H&M’s mistakes”). RW also has features on “how Ocado is redefining food fulfilment worldwide”, via an interview with Ocado Solutions boss Luke Jensen, and how a new generation of jewellery retailers is shaking up the sector. In terms of News stories, RW highlights the news that M&S is shuttering eight more stores (leaving the future of almost 500 staff hanging in the balance) and Wesfarmers has admitted it is reviewing the future of Bunnings in the UK (after revealing a AUS$1bn write-down relating to its Homebase acquisition), but RW also notes that House of Fraser is losing two more executives (amidst a restructure of its senior management team) and
• Trade Press (2): In Drapers magazine today, which is a Womenswear special, the Editor focuses on the problems of New Look, thundering in her column that “perhaps with the exception of its impressive footwear range, New Look has all but lost its unique appeal to the customer”, but concluding that “although womenswear isn’t easy, there is positive news to be found in this saturated sector”. The main feature article is on the Womenswear market, flagging that “In an overcrowded market, versatile, quality product and a positive in-store experience are key”. The main News stories in Drapers are that House of Fraser suppliers are “keeping calm and carrying on” (despite credit insurance worries) and that H&M may struggle to steal market share in the competitive UK off-price market with its new discount retail format, Afound, according to industry experts.
• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis had a quiet start to February last week, thanks to weak Home sales, and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday Feb 4th, also flags that things were uninspiring, with Fashion Store LFL sales down by 0.6%, despite a soft comp of -2.7% last year. Including Homewares and Lifestyle chains, total Store LFL sales were also down, by 1.6% (vs -0.9% a year ago). However, overall Online sales were up by 15.4% (versus +16.2% a year ago), with Online Fashion sales 24% up.
• News Flow Next Week: On Tuesday afternoon Footasylum are holding an analyst’s teach-in. Wednesday brings the Pendragon finals and the first ever H&M Capital Markets Day. And on Friday we get the ONS Retail Sales figures for January.