Langton Capital – 2018-02-21 – Hotel Chocolat, discounts, business rates, W Hill etc.:
Hotel Chocolat, discounts, business rates, W Hill etc.:
A DAY IN THE LIFE:
We got some flowers in a pot for the flat the other week. We don’t know what they are. They’re bulbs with bits of green coming out of the mud and, when we asked the vendor, he said ‘they’re red ones.’
And that was good enough for us as they only cost a quid but, as we were leaving, he did say ‘or yellow’ which leaves us a little confused as to just what they will look like if we remember to continue watering them for the next month or so. On to the news:
SHOPOCALYPSE NOW: Coming to a High Street near you…
Pre-internet retailers getting left behind:
• Looking around the High Street and listening to the news gives us a new film idea: Shopocalypse Now
• Starring plucky (and possibly doomed) heroes Debenhams, House of Fraser, New Look, Maplin, and Toys R Us
• Up against dastardly supervillains Online Competition, Business Rates, Rising Rents, Inflation, Soft Wage Growth, and Changing Trends
A big question needs a big answer…
• Distressed debt funds circle like vultures overhead. Many are bloated from stripping the UK High Street over the past couple of years but sense the feast is not over
• Casual dining has filled some of the vacancies but cannot be the only answer
• Other ventures that might step in to fill the void: leisure pursuits, local shops focusing on provenance and artisanship, food markets, butchers, bakers, candlestick makers
• One thing is for sure: the solution requires real vision and creativity
Creative destruction – ‘twas ever thus…
• Retail Week’s Retail 2018 report shows 60% of retailers are prioritising ecommerce investment – the great migration from High Street to online shows no signs of abating
• This exodus provides an opportunity for a more residential and experiential High Street. Whether this happens or not is another story
• Maplin is the latest to announce it is in ‘crunch talks’ with potential buyers
• Unfortunately, we suspect this will be a recurring theme in 2018
DISCOUNTING, CAPACITY ETC.:
• Discounts still much in evidence. Prezzo 2-4-1. Toby, kids eat for £1. Bella Italia, Beefeater & ASK at 30%, 33% and 25% off food respectively. Domino’s Pizza 35% off orders over £25. Does anyone every pay full price at DOM?
• More capacity. Vapiano is to double its London estate with three new units in 2018, at Centre Point, One Tower Bridge, and Cabot Square in Canary Wharf, per MCA. Managing director Phil Sermon said: ‘We are incredibly proud to have secured these three impressive new sites, which underlines our strategy to both open in high profile, high footfall locations and continue to grow our exceptional business within the UK. Whilst we are announcing these three now, we expect to announce more in the next few months.’
• Closures etc.: With £500k to £2m spent on each leasehold restaurant site (an average may be c£800k), it’s hardly surprising that, when they close down, they tend to re-open as another restaurant.
• Capacity is sticky. Meaning that the extraction, kitchen, toilets, back of house etc. are all in place along with the furniture, cutlery and so on are all in place and, if the horrified landlord is handed back the keys, they are more likely to cut the rent to tempt in another restaurateur than they are to advertise it as a pet shop or a funeral parlour.
• Capacity is sticky contd. Such recycling is inevitable but one consequence is that ‘good’ operators, i.e. those that did not go bust, have a pre-pack or whatever, are disadvantaged in that they find themselves trading alongside failed (or purchased from failed) operators, who may suddenly have lower rents, reduced creditors and a reverse premium for their kit.
PUB, RESTAURANT & DRINK PRODUCERS:
• Hotel Chocolat reports H1 numbers, sales +15% to £71.7m with PBT +15% at £12.9m and !PS +15% at 9p. H1 dividedn 0.6p.
• Hotel Chocolat reports it has seen ‘strong sales growth across retail, digital & corporate channels’. It says Xmas was ‘successful’. The group has opened 10 new stores in H1 featuring café drinks. Factory capacity is up 25%. CEO Angus Thirlwell comments ‘this has been another period of strong progress for Hotel Chocolat with growth in both sales and profits. The critical Christmas period was again successful, helped by further improvements in availability, our best ever seasonal range and the extension of our one-stop gift solutions range. We have exciting plans in place for the key spring seasons of Mother’s Day and Easter, and have recently launched a new cacao beauty range and a weekly subscription called Mbox. We are confident of further progress during the year.’
• Commenting on current trading, Hotel Chocolat reports ‘recent trading, including the Valentine’s period is in line with the Board’s expectations and we continue to make good progress against our three key strategic objectives of opening more stores, improving our digital capability and increasing our production capacity.’
• Data from MCA’s Eating Out Panel shows an encouraging start to 2018, with both visit frequency and average spend across all day parts up in January year-on-year. This is just the second time in 13 months that visit frequency has gone up year-on-year at any of the day parts, albeit from a particularly weak January 2017.
• Colliers International has warned that restaurant and casual dining chains are also struggling to cope with the ‘onerous’ business rates regime that has stung many retailers. Rising rates have ‘substantially’ added to the costs of casual diners and recent high profile casualties include Byron, Jamie’s Italian, and Prezzo. Of these, Colliers estimates that Byron’s total rateable value has risen by 40% to £10.6m, while Jamie Oliver’s restaurants are reeling from a 28% increase to £7.3m. Prezzo’s rateable value is estimated to have jumped 23% to £15.9m.
• EI Group has bought back another 290.094 of its own shares for cancellation at 128.23p per share
• Texas Roadhouse has reported Q4 & FY numbers saying that it increased revenues to $2.2bn for the year (+11.5%) with EPS of 184c, up 13%.
• Texas Roadhouse reports ‘comparable restaurant sales increased 5.8% at company restaurants, including a positive impact of approximately 0.4% related to the calendar shift of the Christmas holiday, and 4.7% at domestic franchise restaurants.’ CEO Kent Taylor reports ‘we delivered another strong year of results, with double digit revenue and diluted earnings per share growth for both the fourth quarter and full year.’ Mr Taylor continues ‘for 2018, our top-line momentum has continued with comparable restaurant sales growth of 4.7% during the first 55 days of the year.’
• Rhone Capital is to buy US steakhouse chain Fogo de Chão Inc. in a cash deal valued at $560 million.
• Fuller’s has acquired West Sussex craft brewer Dark Star, which will retain managing director James Cuthbertson and will continue to operate as a standalone business. Cuthbertson commented: ‘Since our inception in 1994, we have continuously grown from those early days in The Evening Star Pub in Brighton to the current brewery in Partridge Green. The partnership with Fuller’s, another independent brewery with fantastic heritage and great beer at its very core, will allow us to take the brewery to the next level. The deal means we will continue to do what we do, but gives us huge opportunities to brew more one-off small batch beers hand-in-hand with exploring the export market and expanded bottle and can formats.’
• The BBPA has welcomed the Night Time Commission’s call for evidence on London’s evening and late-night sector. BBPA Chief Executive Brigid Simmonds said: ‘It is vitally important that London’s night time economy is supported and continues to evolve. Partnership working between the trade and bodies such as the Commission and the Night Czar will help support the Night Time Economy.’
• Meanwhile, ALMR chief executive Kate Nicholls commented: ‘This is a great opportunity for businesses in and around the late-night sector to inform the Commission and support late-night venues. The Night Time Commission exists to provide the Mayor with independent advice directly from the sector, so pubs, bars, nightclubs, music venues and more should take this opportunity to make their voices heard.’
• Pukka Pies grew revenue 2.2% to £45.8m in the year to 29 March 2017 although profit before tax fell to £3.6m, in part due to raw food material inflation.
• The London Borough of Brent has approved the planning application for London’s biggest Boxpark, in Wembley Park. The 20,000 sq ft joint venture between Boxpark and Quintain will accommodate 27 independent operators and is set to open later this year.
• The ‘rapid repositioning’ of DIY retailer Homebase contributed to an 86.6% tumble in profits for its Australian owner Wesfarmers in the second half of last year. The majority of Homebase sites are being rebranded as Bunnings, while 40 could be closed, putting up to 2,000 jobs at risk.
• The pensions lifeboat is demanding that directors of Toys R Us UK appoints an ‘independent’ administrator if rescue talks break down in the next few days. The Pension Protection Fund (PPF) has written to the directors of Britain’s biggest toy retailer to urge them not to appoint their existing adviser on its restructuring to oversee any insolvency proceedings, per Sky News.
HOLIDAYS & LEISURE TRAVEL:
• UK hotels are projected to continue from 2017’s encouraging inbound business this year with help from two royal weddings. Expedia group reports demand for London remained strong, up almost 20% over 2016. The regions experienced healthy growth; Surrey up 40%, Scotland’s Highlands and Islands, Oxford and Yorkshire, all rose by around 35% year-on-year.
• The Irish Travel Agents Association claim that as many as 85% of Irish consumers are financially unprotected when they travel.
• CNBC reports Uber exploring sale options for its Southeast Asia business, with the ride hailing giant considering selling to Singapore-based app Grab in exchange for a stake.
• US Hotel F&B revenue per occupied room grew 1.6% to $105.56 in 2017, according to data from STR.
• William Hill has incurred a £6.2m penalty for breaching anti-money-laundering and social responsibility regulations. Ten customers were able to deposit money linked to criminal offences and William Hill gained £1.2m. The company was found to have not done enough to determine the source of the money or if they were problem gamblers.
• Emirates has signed a five-year extension as Arsenal’s shirt sponsor, marking the largest sponsorship deal in the club’s history.
• Discovery Yachts has successfully raised £2m from crowdfunding in less than a fortnight. The Southampton-based yacht maker originally had a target of £750k.
• Michelle Obama has congratulated the makers of Black Panther after the Marvel blockbuster racked up more than $235m over the four-day President’s Day weekend.
FINANCE & MARKETS:
• Jeremy Corbyn has said he will take on the City of London if he becomes PM. There would need to be a “fundamental rethink” of the finance sector and its regulation.
• Sterling little changed vs dollar at $1.3976. Down a bit vs Euro at €1.134
• Oil down at $54.74
• UK 10yr gilt yield down 2bps at 1.58%
• World markets: UK mixed yesterday with Europe up and US down. Far East is mostly up in Wednesday trade
• Politics & Brexit:
o Bloomberg suggests threats that UK could withhold its £40bn divorce bill are hollow as it will be legally binding.
o David Davis says UK will not be ‘plunged into a Mad Max-style world borrowed from dystopian fiction.’ Keir Starmer says his ‘promise…isn’t worth the paper it’s written on.’
o UK Cabinet retires to Chequers tomorrow to discuss Brexit. Some say they will be locked in until they can come to some sort of decision as to what they want.
o Reuters reports business demands clarity. Quotes trade leaders as saying Brexit is an ‘absolute shambles’.
o BBC reports 62 MPs have written to current PM Theresa May with ‘suggestions’ as to how she should push ahead with a hard Brexit
o Meanwhile in the real world, HSBC alone is said to have spent $28m on Brexit ‘advice’ to date. Implementation of any plans would be much more costly and wasteful in terms of time, effort etc.
o Michael Gove has called for UK agriculture to recruit from around the world post Brexit
PRIOR DAY TWEETS:
• SHOPOCALYPSE NOW (1) Barbecoa officially in administration. High-priced, high-footfall units can’t make ends meet.
• Walmart numbers suggest ASDA had a bit of a recovery over Xmas. People still having to pay more for food, apparently
• SHOPOCALYPSE NOW (2) Men’s shops. DVDs, electricals, books, CDs, cameras, pubs etc. Closures suggest blokes not spending. But they never did, really, did they?
• SHOPOCALYPSE NOW (3) Number of UK restaurants going into administration up a fifth in last year. Feels like more than that.
• KFC is without the C. Hopes to have something to sell by later today. Staff taking holidays (but not forced to). Margins akimbo.
• Intercontinental Hotels reports Q4 global REVPAR +4.0% vs +2.7% for year as a whole.
• Brexit. Everyone after a special deal. Cars, farmers, fishing industry, Japan, Ireland etc. Langton demands special status etc.
• David Davis: UK won’t be ‘plunged into a Mad Max-style world.’ Keir Starmer says his ‘promise…isn’t worth the paper it’s written on.’
• Langton is between offices. We should be moving into London Wall later this month but, for the moment, please communicate via email. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday’s song was Lonely Boy by The Black Keys, who had a bit of an argument with Jack White a couple of years ago. We would put our money on White — he has always looked a little crazy… Today, who sang/snarled:
• With the lights out, it’s less dangerous,
• Here we are now, entertain us
• I feel stupid and contagious
RETAIL NEWS WITH NICK BUBB:
• Hotel Chocolat: Today’s interims look fine and Angus Thirlwell, the co-founder and CEO, says: “This has been another period of strong progress for Hotel Chocolat with 15% growth in both sales and profits. The critical Christmas period was again successful, helped by further improvements in availability, our best ever seasonal range and the extension of our one-stop gift solutions range. We have exciting plans in place for the key spring seasons of Mother’s Day and Easter…Recent trading, including the Valentine’s period is in line with the Board’s expectations and we continue to make good progress against our three key strategic objectives of opening more stores, improving our digital capability and increasing our production capacity”. Analysts meeting 9am.
• CapCo: Today’s finals reveal contrasting news about the world of London property: “The Covent Garden estate, which now represents over 70% of property value, delivered strong performance and value growth. Economic and political uncertainty has impacted the London residential market, resulting in a decline in the valuation of our Earls Court interests”. The property value of Covent Garden increased by 4.3% to £2.5bn, but the value of the Earl’s Court development fell 11.8% to £1.0bn…
• Bunnings Watch: The Australian conglomerate Wesfarmers announced a couple of weeks ago the huge write-offs on its ill-fated Homebase DIY acquisition and warned of huge first half losses, so today’s interims don’t tell us much more: the UK business of Bunnings lost a massive £97m, compared to a loss of £28m in the first half of last year, with revenue down by 15.5% to £517m. “The loss for the half reflected continued trading and execution challenges as a result of the rapid repositioning of Homebase following the acquisition. The management team has been strengthened and a review is underway to identify the actions required to improve shareholder returns”.
• Asda Watch: The formidable Asda PR team was spinning away yesterday about the modest 0.5% LFL sales recovery in Q4 and the stronger Christmas in the period, on the back of the Walmart Q4 results, with Walmart CEO Doug McMillon saying “Asda delivered positive comp sales again this quarter, with particular strength during the Christmas period. We’re pleased to see customers responding to our investments in the value proposition through improved in-store experience scores and the strengthening of our private brand and online grocery offerings”. But the gross margin in the quarter declined (“driven by ongoing price investments”) and Q4 net income was also down.
• Today’s Press and News: Given the slump in its share price, Dunelm doesn’t get much coverage in today’s papers, although Tempus column in the Times says Buy. The big focus in the market reports is on the Sports Direct buyback, with headlines stories in the Times and Daily Mail, with the Telegraph quoting our view that Sports Direct is signalling that it doesn’t plan to spend its spare cash on rescuing the likes of Debenhams. The main story in the Telegraph market report is that Ocado may be closing in on an American licensing deal.
• John Lewis Watch: We flagged a week ago that, after a weak start to February, John Lewis had picked up slightly, but yesterday’s weekly sales update from JLP (for w/e Feb 17th) revealed that last week was weak again, with gross sales down by 0.7% versus last year (nearly 1.5% down on a LFL basis, on our calculations). In terms of sales mix, Fashion sales remained quite good, up by 3.3% gross, but Electricals were down by 1.5% gross and Home sales were down by 3.7% gross. The H2 cumulative sales run-rate to end Jan was +1.5% gross (slightly up LFL), but after the 3 weeks of H1 so far John Lewis is running up just 0.3% gross (nearly 0.5% down LFL).
• Waitrose Watch: Over at Waitrose, last week was better, with gross sales up by 3.5% in w/e Feb 17th (over 3% up LFL, on our calculations), boosted by the Valentine’s Day meal deal. The cumulative outcome for the last 3 weeks is now +2.2% gross, which is below the rate of Food price inflation, but over 2% up LFL.
• Retail Sales Watch: All the focus in the sector now is on how well February will turn out on the High Street, after a quiet start (see the JLP sales above), but we haven’t seen the final word yet on how good the outcome was for January…We flagged yesterday that the ONS Retail Sales figures for January were a bit disappointing overall, as the Office of National Statistics (ie the ONS, aka the “Planet ONS”) had reported non-seasonally adjusted total sales by value up by 3.6% last month (ex-petrol), driven by surprisingly weak Food Retail sales, 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 come out with its own overview and their
• Philip Green Watch: After the bizarre denial by the embattled Philip Green that he is trying to sell his struggling Arcadia empire, the picture is clearly confusing, but “the scourge of Philip Green”, Oliver Shah of the Sunday Times, promises more revelations this weekend…In the meantime, there has been some good commentary on the situation in the Bloomberg Gadfly column. On Friday it thundered about Topshop that “Memories of Kate Moss Aren’t Enough to Revive Topshop”, flagging that the former fashion leader has lost its way and that billionaire Philip Green needs to dig deep to save it. And on Monday it published a follow-up piece headlined “An Expensive End to 50 Years in Retail”, thundering that “Selling or fixing Arcadia will mean a lot of investment”.
• News Flow This Week: Tomorrow we get the Intu Properties finals (in the world of regional shopping centres).