Langton Capital – 2018-03-07 – Restaurant Group, Stock Spirits, spending, hotels & other:
Restaurant Group, Stock Spirits, spending, hotels & other:
A DAY IN THE LIFE:
Bit busy with results today but here’s a thought: when did you first hear of Google?
It’s changed all of our lives but it only launched Chrome in September 2008. On to the news:
RESTAURANT GROUP FULL YEAR NUMBERS:
The Restaurant Group has this reported full year numbers to end-December and our comments are set out below:
• Group reports LfL sales down, total sales down, profits down, earnings down but maintains dividend
• Group reports LfL sales down 3% in the year. Total sales are down 1.8% on a 52 week comparable basis; down 4.4% on a statutory basis
• Adjusted PBT is £56.7m vs £77.1m last year. Company made a statutory profit before tax of £43.6m
• Exceptional charges of £13.2m (20162: £126.5m)
• Adjusted EBITDA is £95.1m (2016: £121.0m)
• Group sees adjusted EPS of 22.3p (2016: 30.0p) with a statutory EPS of 16.4p (2016: 24.0p loss per share)
• There is ‘continued strong free cash flow of £84.9m (2016: £78.9m)’
• Bank debt (excluding capitalised leases) is £21.6m at year-end (2016: £28.3m)
• Group says maintaining the dividend at 17.4p per share is ‘reflecting the Board’s confidence in delivery of the plan’
• RTN says its ‘proposition enhancements in Frankie & Benny’s are driving improving volume momentum’
• Group adds it is seeing ‘good progress across other Leisure brands’
• Pubs did well. The group reports its ‘pubs business continues to outperform the market and pipeline of new opportunities further strengthened’
• RTN adds its ‘concessions business [is] expanding into new infrastructure hubs, and with relevant new brands’
• Cost reductions are underway
• CEO Andy McCue comments ‘as expected, 2017 was a transitional year for the Group, with significant investments made in price and proposition within our Leisure business, which is driving improving volume momentum.’
• Mr McCue adds ‘we start 2018 with a significantly more competitive offering in our Leisure business, a strengthened pipeline of growth opportunities in both our Pubs and Concessions businesses, and a leaner, faster and more focused organisation.’
• Chairman Debbie Hewitt comments ‘2017 has been a transitional year for the Group, with a test and learn approach allowing us to develop the proposition of our brands.’
• Ms Hewitt adds ‘despite the challenging market context, we have continued to make good progress against…our strategy:’
• RTN maintains ‘we have a rigorous and disciplined approach to the allocation of capital, and that the Group’s brand and location strategy is robust’
• Overall, RTN says ‘we have made solid progress on our strategic initiatives in 2017, resulting in improved volume momentum in our Leisure business, growth in our Pubs and Concessions business, a lower cost base across the business and a more focused growth plan.’
• It concludes ‘we continue to benefit from strong cash generation and a healthy balance sheet. While the market has softened, the Board is confident that we have a robust plan and the team and resources in place to deliver.’
• Restaurant Group has turned in numbers that, though negative on most lines, could have been worse.
• The dividend has been held. We believe that it should have been rebased (AKA cut) a year ago but perhaps that moment has passed as new CEO Andy McCue will have been in situ for two years in the summer and the business has been reshaped.
• Pubs are good. Concessions are good. Leisure is showing some signs of lift but Frankie & Benny is on a journey and that will involve lower prices and lower LfL sales for some time.
• The macro-background is a little worse.
• Shopmageddon is upon us and there are boarded up units around a number of Frankie (and other industry) sites. This will not help footfall.
• It says a lot that, whilst many observers may believe in the recover over time, it says something of the scale of the task that the company’s one year high was a year ago and its one year low was earlier this week.
• We pointed out some years ago that Restaurant Group’s market cap had, at that time, exceeded that of JDW despite the latter having more earnings, more pubs, more freeholds and more sense when it came to offering their customers value for money – even if that meant accepting lower margins.
• Well, the pricing continued to move away from us until, rather dramatically, it didn’t. What we believed was a perverse share pricing situation righted itself with a vengeance such that RTN’s market cap is now little more than a third that of JDW.
• But that is history. The rear view mirror isn’t much help when driving forwards and we have remained alert to the possibility that recovery is possible and, though painful, RTN is doing the right things albeit against a worsening and more competitive background.
• A glance at any numbers will show that the shares are prima facie cheap but there remains much to be done.
• Discounts coming on strong to tempt punters out post-snow. Pizza Express 25% off, Bella Italia 30%, Prezzo 35% and Jamie’s and ASK offering 40% off food. Why ever pay full price.
• Discount nightmare 1. Discounts make users feel cheap and non-users feel stupid.
• Discount nightmare 2. Margins are depressed, restaurants work harder for less.
• Discount nightmare 3. There is no clear road back. Any restaurant breaking ranks has the power to force others to discount as well.
• Discount nightmare 4. Brands are expensive to build and easy to lose. Discounting cheapens brands.
• Barclaycard has released its Consumer Spending data for February saying that consumer spending rose 3.8% in the month. Barclaycard says ‘consumer spending grew 3.8 per cent year-on-year in February, marking the third consecutive month in which growth rose above the prevailing rate of inflation.’
• Barclaycard suggests that the rate of spending is higher than both inflation and wage growth meaning that consumers must be either borrowing or running down savings. Barclaycard reports ‘spending growth in supermarkets (3.2 per cent) softened from a peak of 4.4 per cent in January, helping expenditure on non-essentials (3.8 per cent) outpace that on the ‘must-haves’ (3.4 per cent)’.
• Barclaycard reports ‘entertainment remained strong, driven by 7.4 per cent growth in cinema and theatre spending as Black Panther and the much-anticipated second release of Hamilton tickets boosted Britain’s box offices.’
• Overall, Barclaycard reports ‘consumer confidence in household finances remains subdued, with half of Brits worrying that the outcome of Brexit negotiations will have a negative impact on their purchasing power.’ This is somewhat inconsistent with the figures.
• Barclaycard reports ‘restaurants and pubs…remained healthy at 9.7 per cent and 10.0 per cent growth respectively, albeit not quite matching the strong spells of double-digit rises seen in 2017.’ This may be skewed by the move towards payments on plastic.
• Barclaycard’s Paul Lockstone reports ‘this is the third consecutive month that we’ve seen household spending growth above the prevailing rate of inflation suggesting that, while consumers remain cautious about their household finances, they continue to strike a balance between spending on essentials and on luxuries, whether that’s a holiday abroad or tickets for the latest blockbuster.’ Mr Lockstone continues ‘with a year to go before Brexit, consumers are cautious about the potential ramifications of whatever settlement the UK achieves, and half of us fear that the outcome will leave us worse off than we are now. As negotiations continue it’s likely that this will continue to weigh on sentiment.’
WAGE COST INCREASES (AKA ‘INVESTING IN STAFF’)
• CV Library reports that wage growth has picked up in London. It says salaries rose 2.7% last year with vacancies advertised up 6.7% year on year (though they are down on January).
• CV Library says employers are ‘pulling the reins on their hiring plans’.
• CV Library reports salaries in hospitality up by 6.5% in the last year driven, presumably, by chef and waiting staff shortages in the run up to Brexit. Such cost pressure, when allied with discounting, overcapacity and slack demand, will not do much for margins. CV Library, which does not have to pay the wages that it is opining on, says ‘it’s great to see that salaries are on the rise in London, especially given that pay declined in January. However, it’s clear that while employers may be offering higher pay and more jobs than this time last year, they are pulling the reins on their hiring plans compared to an impressive January.’
• Sainsbury has announced that it is to increase shopfloor staff wages whilst ending paid breaks and annual bonuses. Pay will rise to £9.80 per hour in London and £9.20 in the rest of the country. Sainsbury says ‘the retail sector has never been more competitive and we know that our customers really value our colleagues and the excellent service they provide in our shops. Which is why we think it is so important to invest further in our colleagues so they feel rewarded and motivated to do the best possible job for our customers every day.’
• Union USDAW says ‘while this is welcome news for Usdaw members working in Sainsbury’s, we will be looking closely at the whole deal. We want to check the effects on all individual workers. We will now enter into talks with the company.’
PUB, RESTAURANT & DRINK PRODUCERS:
• Speaking to City AM, Bill’s founder Bill Collison said that the current adjustment to the casual dining industry, in which a number of operators have rapidly expanded, could be beneficial for consumers. Collison commented: ‘There’s going to be a revolution, and the consumer is going to be happier at the end of it. It’s commerce, the strongest will survive.’
• Just Eat shares fell by 12.5% yesterday on not-good-enough numbers.
• Coca Cola is reported planning to experiment with its first alcoholic drink
• El Pollo Loco is expanding its deal with delivery co DoorDash, adding doorstep delivery of its fire-grilled chicken to more than half of its 470 restaurants in the US.
• Wagamama investor Duke Street Capital is one of three bidders in the running to acquire Laine Pub Company, alongside LDC and Patron, per MCA. The 60-strong operator of pubs around London is believed to be valued at £45-£50m and is looking for funding to take it on ‘the next chapter of [its] exciting journey’.
• Drink-focused venues are beginning to fight back after years of being in the doldrums, according CGA commercial director Graeme Loudon, who said said: ‘The number [of traditional wet-led pubs] has dwindled by almost 20% over the past five years to 24,442, but within the past year, we have perhaps begun to see the sector begin to fight back, slowing the rate of annual decline from 6% in 2014, to 3% in 2017.’
• BBPA Chief Executive Brigid Simmonds said at a parliamentary showcase of apprenticeships: ‘It’s never been more important for the industry to grow its own talent and apprenticeships are a critical element of our strategy to recruit and retain the talent we need to support future growth of the sector.’
• Technomic’s ‘2018 Snacking Occasion Consumer Trend Report’ shows that consumers are more likely now than in 2016 to replace one or two meals per day with snacks.
• Stock Spirits has released preliminary results for the year ended 31 December 2017, reporting revenue up 5.2% to €274.6 with EBITDA rising 9.7% to €56.3m. The group increased its dividend to 5.72 €cents per share from 5.45€cents per share. CEO of the group, Mirek Stachowicz commented: ‘2017 was a year of stabilisation for Stock Spirits, and one in which we embedded the significant changes accomplished in 2016. Turning around the performance in our largest market, Poland, was the Group’s top priority during the year and, through a combination of strategic investment, realigned pricing and numerous other operational initiatives, we believe that the business has now stabilised’.
• Brewer and pub operator Charles Wells has submitted planning permission to local council to build a 30,000hl brewery in Bedford. The Group sold their Eagle Brewery to Marston’s for £55m in May, with the new build being valued at £13m.
• McDonald’s Corp. has changed to cook-to-order beef in Quarter Pounders and Signature Crafted Recipe burgers.
• The Five Points Brewing Co is launching its first round of crowdfunding on Friday 9th March. The funds raised will be used to meet growing demand and accelerate expansion.
• UKHospitality has warned Public Health England not to overburden the hospitality sector as it unveils its Calorie Reduction report. The report included a challenge to the food industry to reduce calories in products consumed by families by 20% by 2024. The Chief Executive of UKHospitality, Kate Nicholls, stated: ‘The hospitality industry has a long track record of promoting healthy lifestyles through reformulating recipes; offering healthier options; and reducing sugar, salt, fat and calories in meal options. To help support businesses, last year we produced an Industry Nutrition Guide to help every chef and catering manager in the UK provide healthier choices for customers’.
• Alpro reports that nearly a third of UK shoppers are cutting meat intake, instead opting for plant-based food and drink over the next year.
• Flippy, a burger-flipping robot, has begun work at a restaurant in Pasadena, LA. The restaurant is the first of dozens of locations for the robots.
• Sweden-based Vitamin Well has launched its Nocco and Barebells brands in the UK, hoping to capitalise on the demand for on-the-go sports nutrition.
• Macron is being accused of ‘endangering the health of the French people’ after nine French doctors say his recent positive comments about wine failed to address the myth that wine is less harmful than other drinks.
HOLIDAYS & LEISURE TRAVEL:
• PwC has revised its outlook for the UK hotel sector in 2018 saying it sees ‘relatively lacklustre UK economic growth’ and ‘a continued squeeze on real incomes.’
• PwC sees slack demand and overcapacity as an upcoming hotel problem. Doesn’t that sound familiar?
• PwC sees ‘a large supply spike in London this year, with more new rooms opening than we saw during the last growth peak in 2012.’
• PwC sees more new rooms coming on stream in London than did so ahead of the Olympics in 2012.
• PwC says it believes ‘weaker UK economic growth is expected to persist in 2018, as considerable uncertainty still relates to Brexit. We estimate GDP growth to remain at around 1.5% in 2018, edging up to 1.6% in 2019. In addition, there remain pressures on UK household spending and real income growth is expected to continue to be subdued in 2018.’
• PwC sees boost to inbound tourism driven by weaker pound as likely to ‘fizzle out’. It sees daily rates as being ‘depressed’.
• PwC says ‘another issue impacting revenue per available room growth is the impact of expected high levels of new supply, which we believe will dampen occupancy during 2018, especially in London. A marked supply spike in new room openings in 2018 means London could see over 9,000 rooms opening – more than the 8,000 rooms that opened in 2012, the Olympic year.’
• Despite strong GDP growth in key inbound markets, there are indications that 2017’s boost to inbound holidays from the weak pound may have started to ‘fizzle out’ towards the end of last year.’ It says ‘a recent survey by UK Inbound reports sliding business confidence in prospects for inbound travel in 2018’
• Thomas Cook has stated that it will close 27 of its shops, meaning that group will have more than halved its store count in the last five years.
• The government has hinted to Sky News that British consumers may have to pay roaming and data charges when travelling in the EI after Brexit. British travellers have not had to pay these charges on their mobile bills since June 2017.
• IHG is believed to be close to acquiring a ‘small, asset-light’ luxury brand, with group CEO, Keith Barr, commenting: ‘We are making really good progress; we hope to have more news in a short period of time’.
• Carlson Rezidor Hotel Group has announced that it is rebranding to Radisson Hotel Group, effective immediately. The company claims the new identity, which is part of a five-year operating plan, will allow it to leverage the ‘international brand equity of the Radisson name’.
• Paddy Power Betfair has reported prelimianry results for the year ended 31 Dec 2017, showing revenue increased 13% to £1745m and EBITDA up 18% to £473m. The group has increased total dividends for the year by 21% to 200p per share. Chief Executive of the group, Peter Jackson, commented: ‘The business saw continued good growth in 2017, with operating profits increasing by 19%. Our Australian and Retail operations performed particularly well, growing profits by over 40%’.
• Paddy Power commented on current trading, stating the new financial year had started with sports results favouring bookmakers, however, this has also had an impact on customer activity, including reduced recycling of customer winnings.
• The UK’s four largest secondary ticketing agencies have been banned from using ‘misleading’ price strategies. The Advertising Standards Authority stated that the groups had not been clear enough about extra fees added at the end of bookings.
• Lego reports its first annual fall in sales in 13 years with revenues down 8% to £4.2bn in 2017. Niels Christiansen, CEO, blamed excess stock as the reason for the drop and said ‘2017 was a challenging year and overall we are not satisfied with the financial results.’
FINANCE & MARKETS:
• IEA says it is ‘better late than never’ as the Tories have now eliminated the budged deficit when capital spending is excluded
• Republicans have raised concern that president Trump’s tariff plans could start a trade war. Trump said ‘I don’t think you’re going to have a trade war.’
• Trump says it is ‘impossible’ for American firms to do business with the EU. This will be news to the thousands of companies that do so daily.
• EU to target motorbikes, whiskey and T-shirts from US in building trade (mini) war
• Nationwide has reported UK house growth was 2.2% in the year to February.
• Sterling up vs dollar at $1.3881 but down vs Euro at €1.1176
• Oil down at $65.19
• UK 10yr gilt yield up 3bps at 1.52%
• World markets: UK higher yesterday with Europe & US also better. Asia mostly lower in Wednesday trade
• Brexit etc.:
o All sorted. Chequers & PM’s speech etc. In the real world, Guy Verhofstadt met Davie Davies yesterday to lay out some facts and point to the misplacing of certain others.
o Bloomberg reports a trade deal ahead of Brexit is looking unlikely.
PRIOR DAY TWEETS:
• Later tweets: Snowmageddon 60 seconds’ piece. Will be gone by Mothers’ Day but did hit pay-week. Rev losses England 5% to 40%. Scotland 30% to 100%
• Third of UK top 100 restaurant groups in loss says UHY Hacker Young. Could be PE house capital models but still true, trading is tough
• Brexit fixed post Chequers & brilliant PM speech. But then we woke up. Guy Verhofstadt meeting with Davey Davis today
• Greene King shares at c6yr lows. Restaurant Group reports numbers tomorrow. Really should, we think, cut its dividend this time
• BRC/KPMG still has strong spending on food, much less strong on non-food. Furniture holding up but cars poor. Lookers tomorrow
• Langton has got the keys to its new office. Triumph of persistence over bureaucracy. Refurb delayed ‘by the snow’. We’ll be occupying rooms 80-81, no65 London Wall, EC2M 5TU. Hopefully before too much longer but, for the moment, please communicate via email. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday’s song was indeed ‘Fast Car’ by Tracy Chapman. But today who sang:
Talking like a jerk,
Except you are an actual jerk
And living proof
That sometimes friends are mean
RETAIL NEWS WITH NICK BUBB:
• Lookers: The Manchester-based Motor dealer Lookers (which had 6% of the UK new car market last year) has announced its finals today and puts a brave face on things, with the headline “Solid underlying growth in a challenging market, with increased dividend and £10m share buyback plan announced”. And the new-year has started in-line with management expectations, despite the further dip in new car sales; “The order book for new cars in the important month of March is in line with our expectations and…we expect to make further progress over 2018 with good momentum in used cars and aftersales and a resilient performance in new cars.”
• John Lewis Watch: After all the snow disruption last week John Lewis was the first big retailer to reveal its impact, via yesterday’s weekly sales update from JLP (for w/e March 3rd) and the news was worse than we expected, with gross sales down 14.4% (c15% down on a LFL basis, on our calculations). Fashion sales were down by 18.8% gross, Electricals were down by 6.3% gross (despite a surge in sales of heaters!) and Home sales were down by 17.2%. After the 5 weeks of H1 so far John Lewis is running down by 2.8% gross (nearly 3.5% down LFL), but they should regain some lost ground this week.
• RWL Watch: The big two day “Retail Week Live” industry conference kicks off today in London, over at the Intercontinental Hotel next to the O2 Arena, with c1200 delegates to a packed programme of presentations and workshops. The location data specialist Yext has become the main sponsor of the conference this year, which will be chaired by Cathy Newman of Channel 4 News. The headline speaker this morning is the estimable John Rogers, the CEO of Argos, who will outline his thoughts on “What lies in store as retail moves online”.
• Grocery Sales Watch: We flagged yesterday that the latest monthly Kantar grocery sales survey said that grocery price inflation had fallen back from 3.6% to 2.9% and that, as a result, the rival Nielsen survey highlighted much slower growth in overall sales last month. Kantar themselves reported that the 4 weeks to 24 February saw industry growth slow from 1.5% to 1.1%, but the mix shift was interesting, with Aldi/Lidl slowing from +13.3% in January to “only” +9.7%, whilst the “Big 4” picked up from 0.6% to 1.7% growth. Within the “Big 4”, Tesco was the big winner last month, with +3.4% gross sales, versus +2.0% for Morrisons, +0.9% for Asda and -0.6% for Sainsbury. A big loser was M&S Food, which fell back from +6.3% to -1.1%…
• News Flow This Week: Tomorrow brings the second day of the big “Retail Week Live” industry conference in London and the much-awaited John Lewis Partnership finals.