Langton Capital – 2018-03-08 – Domino’s, more on RTN, food costs, job losses & other:
Domino’s, more on RTN, food costs, job losses & other:
A DAY IN THE LIFE:
Have you noticed that there are middle-class Aldi-bores out there?
And I think I might be one of them because have you seen the price of their beer? It’s £1.29 for 500ml bottles of Black Sheep, Hobgoblin, Wainwrights and a host of other very good beers that retail at £1.80 in the Sainsbury next door.
Hence mindful of the comment in the first para of this section, I’d better stop there but have you seen their fresh salmon? It’s actually pretty good. On to the news:
DOMINO’S PIZZA FULL YEAR NUMBERS:
• Domino’s Pizza reports 53wk numbers says seeing ‘continued UK growth’ and is ‘building an international platform with attractive long-term potential’
• DOM sees FY system sales +15.1% at £1.16bn (on 52wk basis). Underlying PBT £94.4m vs £85.7m last year (52wk).
• DOM FY. Basic EPS 15.7p (52wk) vs 13.8p last year with total dividend of 9p vs 8p last year.
• DOM CEO David Wild reports ‘2017 has been a year of significant progress for Domino’s, despite the weaker consumer demand and cost inflation affecting the sector.’
• COM CEO continues ‘I am particularly pleased with our performance. In the UK, system sales broke through £1 billion for the first time, helped by a record 95 new store openings.’
• DOM CEO says ‘our international operations are becoming a more material part of the Group. In Ireland and Switzerland, system sales growth accelerated, supported by very strong digital performance. In the Nordics, the move to majority control and the acquisition in Norway demonstrate our increasing confidence in the opportunity.’
• DOM concludes ‘we continue to take a rigorous approach to capital allocation, balancing the long-term needs of the business with more immediate returns of value to shareholders through the ordinary dividend and share buybacks.’
• Co says ‘the market continues to be competitive but the strength of our brand and scale, combined with the expertise of our franchisees, are important competitive advantages in delivering quality, convenience and value to customers. We continue to take share in the pizza delivery market, and the investment in our new supply chain centre in Warrington will leave us well placed to meet our ambition to get to at least 1,600 sites.’
• DOM CEO reports ‘I remain confident in the long-term growth potential of the business.’
• DOM reports its ‘majority-owned Domino’s businesses in Iceland, Norway and Sweden [are] providing long term growth potential in attractive markets.’
• DOM current trading first 8wks of 2018: UK system sales +10.9% or +7.1% LfL.
• DOM expects to open 65-75 new sites in the UK this year. It plans c£50m of share buy-backs during 2018.
RESTAURANT GROUP ANALYSTS’ MEETING:
This is a shorter version of a longer internal piece which considers strategic options for Restaurant Group, competitor reaction, future growth prospects etc. If you would like to discuss this more fully, please drop us a line.
Following the release of its FY numbers this morning, the Restaurant Group hosted a meeting for analysts and our comments are set out below:
• Pricing & discounts.
o Group is engaged in ‘intensified promotional activity’
o It is ‘investing in price’.
o Marketing costs are higher.
o The group is ‘happy to be competitive on price’
o LfL covers at Frankie & Benny’s are better – but they are still negative. They are down 0.4% in the first 8wks (pre-snow) of the current year.
o Given prices are lower, LfL sales will be significantly down. This is broadly anticipated.
o It is good but painful. A move in the right direction.
o Chiquito’s has 30% fewer dishes & lower prices. It is varying spiciness.
o RTN is to introduce a burger concept in the near future.
o Group is working with Deliveroo. It will trial with Just Eat and Uber Eats.
o Group will trial a delivery-only site. It will be multiple offers from an existing site.
• Pubs & Concessions:
o These are performing well. Around 5-10 of each will be opened in the current year.
o This is the area where growth will be focussed for the near term
o Restaurant Group it trialling a click & collect app.
o Current trading is ‘broadly’ in line.
o Dividend has been maintained again. Group says this is a sign of confidence in its turnaround.
o LfL comps this year will be tougher in H1 than H2. However, the wider trading environment has deteriorated
Debt, cash flow & balance sheet:
• Restaurant Group reports it has been able to release provisions on units disposed of (21 gone out of 41) but it has created new provisions elsewhere.
• The group has also changed the discount rate on the NPV of onerous lease costs. This has led to a modest negative restatement of prior year accounts
• Exiting further units is going to be challenging on the basis that 1) the better units shifted more quickly and 2) there are now more sellers around
• Restaurant Group’s share price has jumped by around 8% on the back of today’s announcement.
• The group is pointing in the right direction but the point of departure (over-exposure on retail parks, high prices & margins etc.) is a drag.
• Execution remains key. Fore our thoughts thereon, please get in touch.
• As we mentioned earlier, a glance at RTN’s PER, dividend yield etc. suggest that its shares are prima facie cheap but there remains much to be done.
PUB, RESTAURANT & DRINK PRODUCERS:
• Stop the press as judgement day is upon us, the British Pie Awards have collected pies for all the 963 entrants. Breathe is held as the pie-tasters graft.
• Lower food cost inflation something of a relief to the hospitality industry. With chef wages & other staff costs rising, every little helps.
• Foodservice price inflation has fallen to 2.5% in the year to Jan 2018 per the CGA Prestige Foodservice Price Index.
• CGA Prestige reports food inflation in Jan ‘is a fall from year on year inflation of 5.1% recorded in December 2017, and marks the lowest point reached by the Index since early last year.’
• CGA says fall in food price inflation ‘is partly the result of seasonal trends driven by the supply and demand of key foodservice items, but may also be an indication that some of the inflationary pressures that have beset the industry in the last couple of years might be easing. It also pulls inflation in the foodservice sector down to broadly in line with the wider level of UK inflation as measured by the Consumer Price Index.’
• CGA Prestige says several inflationary challenges ‘lie in wait for the sector in 2018 and beyond.’ It says ‘they include the impact of Brexit on the availability of migrant labour, on which vegetable, fruit and fish and meat processing industries depend.’
• Prestige comments ‘FPI has seen another fall this month as multiple categories see dramatic drops, notably Fish and Dairy which are by far the most volatile categories. If the index continues downwards we may finally see FPI reach levels comparable to those of 2016, however, price fluctuations and continued uncertainty about Britain’s economic future will exacerbate volatility.’
• Tossed, the healthy eating group, has acquired Vital Ingredient for an undisclosed sum, the MCA has reported. Vital Ingredient had entered into administration last year. Vincent McKevitt leads Tossed and stated: ‘We are very excited to create one of the largest healthy eating groups in the UK. We look forward to growing the business and taking healthy eating to even more people. Our companies have different strengths and we are looking forward to taking the best from both’.
• Langton was out last night & managed to pay £21.10 for a round of four drinks. Only beer, nothing mind-boggling. Outrageous.
• The European main markets have seen food and drink purchased outside the home increase 2.5% per year since 2015, with the market valued at EUR335.9bn in 2017.
• Pizza Rossa has ceased trading, with the group blaming street works near its only restaurant in London for reducing revenue 40% last summer, Propel has reported. The group had completed two rounds of crowdfunding on the platform Crowdcube, raising £600,000.
• Potatoes and asparagus seasons could be delayed for about two weeks following last week’s cold weather.
• Brown-Forman’s has reported that sales rose 9% in the first nine months of its fiscal-2018 year. The distiller of Jack Daniels stated that US sales increased 6%, while emerging market sales climbed 15%.
• New Look faces the prospect of closing 60 stores, putting 980 jobs at risk. The high street fashion retailer has instigated a CVA and is seeking approval from its lenders.
• EI Group yesterday bought back another 293,126 of its own shares at 123.3p for cancellation.
• Moody’s has pointed out that US President Donald Trump’s decision to add tariffs to aluminium imports into the US will raise costs for beer producers who supply drink to the retail industry in cans.
• Hull-based Atom Brewing has invested in tripling its production levels during 2018 to 2.5 million units this year.
• Shepherd Neame are likely to increase its emphasis on accommodation following strong half year results, the MCA has reported. Accomodation LfL sales increased 6.4% over the 26 weeks to 23 December 2017.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook has launched its hotel fund, Thomas Cook Hotel Investments, in a JV with Swiss-based hotel property development company, LMEY investments. The investment group will consist of five seed assets worth around £150m and will help accelerate Thomas Cook’s growth of its own-brand hotel portfolio.
• Travelodge expects to open 20 new hotels containing over 1,900 rooms across the UK in 2018, creating 550 new jobs and expanding its network to 578 Travelodge hotels in the UK, Spain and Ireland. Peter Gowers, Travelodge, Chief Executive said: ‘Today’s announcement demonstrates Travelodge’s continued investment in the UK. Despite the uncertainty caused by Brexit and economic pressures, the UK budget hotel market remains attractive, and we are extending our network to put us where our customers want to be, while creating hundreds of new jobs across the country.’
• Marriot says that nationalism is a threat to the global hotel industry. Brexit and America First could increase trade friction & discourage travel. Boss Arne Sorenson said ‘the risk for us in the travel business is that even though travel is different than immigration, if people aren’t careful about the way they talk about it, they seem to be the same issue.’
• Flights from China to Europe are expected to boom this year following growth in capacity to the US and Australia over the past two years. A total of nine new routes and one resumed service will start during the first half of 2018, with another three in the pipeline, while at least four China-Europe routes are planned for the second half of the year, according to the latest figures from ForwardKeys, which predicts future travel patterns by analysing 17 million daily booking transactions.
• US international inbound numbers from flights were flat year on year for the first two months of 2018 after arrivals slumped by 2% in 2017. The decline in 2017 followed the Trump travel bans implemented on mainly Muslim countries.
• Reportedly, Ryanair is threatening to ground aircraft after Brexit in an attempt to persuade voters to ‘rethink’ Brexit. CEO Michael O’Leary said that after the UK leaves, British people are ‘no longer going to have cheap holidays.’
• Rank CEO Henry Birch is to step down to take over as CEO at Shop Direct. Mr Birch has been CEO at Rank for four years
• Scottish based escape games group, Breakout Games is to open its 4th site in York, reports the Insider Media Ltd. The site will be branded ‘Mindlock York’ and will feature a Viking Valhalla room.
FINANCE & MARKETS:
• Halifax reports rate of house price growth in the UK only 1.8% in the year to February. That’s below inflation and the slowest rate of growth since March 2013. Halifax says this slowing is despite a strong labour market.
• President Trump’s economic adviser, Gary Cohn, has quit his job over the president’s trade tariffs.
• Airbus has said that 3,700 jobs could go across Europe. New Look could be making 980 staff redundant.
• Sterling up at $1.39 and risen to €1.1202
• Oil down at $64.38
• UK 10yr gilt yield down 2bps at 1.50%
• World markets: UK up yesterday with Europe also higher but US down. Asia mostly up in Thursday trade
• Bitcoin back below $10k at $9,722
• Brexit etc.:
o Chancellor Hammond has tried and reportedly failed to get City included in any EU trade deal.
o Hammond and May are to meet some of the EU’s biggest employers in the UK to discuss jobs per Sky.
o Reportedly EU offer on a trade deal falls short of expectations. Donald Tusk has said that trade will get more difficult. He says ‘because of Brexit, we will be drifting apart.’
• 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. No telephone number yet so for the moment, please communicate via email. MIFID II is now in operation.
START THE DAY WITH A SONG:
Yesterday’s song was LCD Soundsystem’s ‘Dance Yrself Clean’. Today who sang:
See, don’t ever set me free,
I always want to be by your side,
RETAIL NEWS WITH NICK BUBB:
John Lewis Partnership: There is an analysts meeting at 10am this morning at Peter Jones in Sloane Square for the JLP finals results presentation, but by tradition the key Partnership Bonus is announced on the shop floor of John Lewis Oxford Street at 9.30am, so last year the results were not announced to the City until 9.15am and we expect the same pattern to be repeated this year. As a reminder, given the underlying pressure on Waitrose and John Lewis operating profits, our best guess is that group pre-tax profits will be 10% down for y/e Jan at £333m, before exceptional items. Even so, that would leave room to edge up the Bonus, after last year’s big cut from 10% to 6%, to say 7%, if the Board felt confident about the year ahead, but a same again 6% Bonus is the most likely outcome. Current trading is pretty mixed, after 5 weeks of H1 so far, with John Lewis running nearly 3.5% down
Sainsbury: It is a matter for considerable regret that Sainsbury has decided not to do a Q4 trading update this year, but, to coincide with its financial year end, it is at least holding an analyst’s lunch today, hosted by CEO Mike Coupe and CFO Kevin O’Byrne. No doubt the weak Kantar grocery market share performance for February, along with the recent staff pay deal and the outlook for Argos, will be the principal topics for discussion…
RWL Watch: The big two day “Retail Week Live” industry conference continues today in London, out at the Intercontinental Hotel next to the O2 Arena, with another packed programme of presentations and workshops. The headline speaker yesterday morning was John Rogers, the CEO of Argos, and the headline speaker this morning will be Steve Rowe, the CEO of Marks & Spencer (who is being interviewed on the subject of “Making Marks & Spencer special again”), but at lunchtime there is an interesting session on “A nation of shopkeepers? Britain, Brexit and the fate of the High Street” with the venerable Vince Cable.
Today’s Press and News: The news that the embattled New Look fashion chain wants to close 60 stores (including its Oxford Street stores) as part of a CVA deal (subject to a creditor’s vote on March 21st) gets plenty of coverage in today’s papers, notably in the Times (“Struggling fashion chain hopes new look will stop profits slide”). The Times also has a neat headline to sum up the news that the Shop Direct group has recruited Henry Birch, the boss of Rank Group, as its new CEO (“Shop Direct takes punt on gambling industry veteran”). We can’t see much about the results from the Motor dealer Lookers , but Tempus column in the Times looks at the company in detail and says the shares are a Buy (“Dealer unperturbed by bumps in road”). The Telegraph has a snippet about the comment at yesterday’s Retail Week conference from John Rogers of Argos that 60% of its sales are now made Online. The
News Flow This Week: As flagged above, today brings the second day of the big “Retail Week Live” industry conference in London (note that the celebrated “Retail Week Awards”, aka the “Retail Oscars”, are being held later this year, on March 22nd) and the much-awaited John Lewis Partnership finals.