Langton Capital – 2018-03-19 – More on JDW, discounts, staff costs & availability etc.:
More on JDW, discounts, staff costs & availability etc.:
A DAY IN THE LIFE:
Having just been away for a couple of nights to a snowy Masham in North Yorkshire, we seem to have lost another phone charger and at least one toilet bag leading us to consider just what might be the most ‘forgotten’ thing when leaving holiday homes, hotel rooms and the like.
Because whilst there must be thousands of toothbrushes, dirty socks under the bed and the like that have gone missing over the years, phone chargers, particularly those ubiquitous mini-USB cables that fit most things these days except Apple products, must be pretty high up the list.
And that’s probably because you leave them plugged into the wall behind the sofa or by the side of the bed and they’re not on your list of ‘phone, wallet, keys’ when you pat yourself down as you leave the building.
Anyway, answers on a postcard but here’s another thought for you, when coming back from the JDW numbers on Friday across the City at around 9.30am, what proportion of people coming in the other direction were on the phone talking, typing, reading or listening to music? How many were smoking, how many were carrying a coffee and how many were doing none of the above? Answers tomorrow but, for the moment, let’s move on to the news:
JD WETHERSPOON – ANALYSTS’ MEETING:
• JDW hosted a meeting for analysts on Friday & made a number of points.
• The strength in food sales is due to no single factor. The group’s least good pubs have been disposed of now over a number of financial periods & this has an impact.
• Bottomless coffee at £1.20 per order (average 1.7 to 1.8 cups per) has been a success. Some takeaway business but not major.
• Wage increases are set to kick in more materially. This because JDW was ahead of the NLW and the latter is now catching up. Hence increases from this point will impact the group more directly.
• Machine income is up – partly due to the increase in bar spend. Although the latter did lag food this time around.
• Around 10-15 new pubs will be opened this year
• Prices have gone up ‘a bit’. However, there has been a widening of differentials with some competitors.
• Overall, H2 will be tougher than H1. That said, the group has been performing very well and a slowdown is to be expected.
• The snow cost around 2ppts or LfL growth over the 6wk period mentioned. The 3.8% (itself pretty good) should therefore have been around 5.8%. The snow will therefore impact around 0.2ppts for the year as a whole. The World Cup (which is traditionally around neutral for JDW) or a hot summer (although JDW is less weather-sensitive than most) could be more material.
• Overall, the group is performing well but its shares are perhaps not as cheap as could be expected at this this point. Other consumer-facing companies are cutting prices in the food arena and, over time, this may make trading more challenging overall.
PUB, RESTAURANT & DRINK PRODUCERS:
• Discounting ahoy. Jamie’s, Prezzo, ASK, Pizza Express and Domino’s are 40%, 35%, 30%, 25% and 25% off respectively.
• EI Group Friday bought back another 283,000 of its own shares for cancellation at 117.9p per share.
• Per Sunday Times, M&B is in a row with its pension trustees regarding its plan to cut retirement benefits for more than 20,000 people. The pension fund currently has a deficit of around £345m, which could be reduced ‘substantially’ were the company to win the legal case. A separate defined benefit scheme for senior bosses is not affected by the dispute.
• According to the Times, Paul Hunt – Jamie Oliver’s top man – is an ‘incompetent bully’. Several workers have claimed morale has collapsed under Hunt, and are desperate to leave after a series of disastrous cost-cutting measures. Jamie Oliver said ‘I absolutely refute the picture they paint of Paul and my business.’
• Per Observer, being able to fully staff a restaurant is becoming harder with some reports expecting a labour deficit in the industry of more than a million workers. Josh Overington runs Le Cochon Aveugle in York and said ‘A lot of it is young chefs don’t have any patience. They just want to go straight to sous chef, head chef. Or they can sign up for an agency or work in a private home and the pay is better, the hours are better, you’re not being shouted at.’
• Hiring emergency chefs from bureaus is likely to be extremely expensive. Versus shutting restaurants, it may be the lesser of two evils but it risks hitting margins.
• Mayor of London Sadiq Khan has reported that ‘five areas of London to trial free tap water ‘refill’ initiative at over 65 businesses’. These will include Costa Coffee, Leon and Tate Modern. Test sites will be operating in Greenwich, Lewisham, the Southbank & Bankside, Regent St and London Bridge. Major Khan’s office comments ‘the average London adult buys more than 3 plastic water bottles every week’. He says ‘a free tap water scheme is long overdue in London and I welcome all of the retailers and business who have shown their strong commitment to reducing unnecessary plastic waste by joining the London Refill scheme.’
• Camra is calling for a fundamental review of the tax system as pubs suffer a ‘triple whammy’ of high beer rates, rising business rates, and VAT. The trade body says that around 18 pubs a week are closing.
• Diana Hunter, the chief executive of Conviviality, is expected to lose her job this week, with chairman David Adams expected to step into an executive role on a temporary basis, per Sky. Investors are expected to stump up more than £100m to rescue the company (in the form of a placing of new shares rather than a rights issue) as the company tries to allay City concerns about its future.
• The BBPA has welcomed the Department of Health’s guidance on promoting lower strength beers at or below 3.5% ABV. Brigid Simmonds commented: ‘The consultation acknowledges that the sale of lower strength products, as an option for consumers, helps encourage responsible drinking. Pubs are increasingly providing a growing selection of lower strength alcoholic drinks. Greater clarity in advertising and marketing will allow the lower strength market continue to grow while supporting pubs at the same time.’
• CGA’s Outlet Index shows that independent restaurants and bars in Liverpool, Manchester, and Leeds are growing at more than double the rate of those in London. In the last five years Liverpool had 408 new openings(+25.2%), Manchester had 622 new openings (+24.9%), and Leeds had 341 new openings (+20.5%). London’s restaurant and bar headcount grew by 10.4% during the same period, although this equates to some 3,288 sites.
• Downing, the investment firm, has launched a new £5m fund alongside Oakman Inns, the MCA has reported. Apprise Pubs has acquired its first site on Hampton Hill High Street.
• Rosa’s, the 11-strong Thai restaurant chain has announced it intends to open 2 new sites in Tooting and Ealing.
• The Telegraph has reported that the high street is facing a full-blown crisis as Conviviality tries to avoid collapse and Carpetright prepares to close stores.
HOLIDAYS & LEISURE TRAVEL:
• The high cost of travel, food and drink has been blamed as the reason for a reduction in visitor numbers to London’s top tourist attractions last year. The UK’s top ten attractions saw a 1.7m drop in visitor numbers to 64.2m in 2017.
• The Association of British Insurers say the cost of new travel policies could soon rise if the outline of a Brexit deal is not presented next week. Annual policies that will provide cover beyond Brexit day, March 29 next year, will start being sold in two weeks.
• Iata reports airline passenger demand slowing in January to 4.6% yoy, naming it ‘the slowest increase in four years’. Iata attributed this to ‘temporary factors’ such as ‘the late timing of Lunar New Year’.
• Reuters reports Angela Merkel saying a boycott of the 2018 World Cup will not be discussed by EU leaders in a meeting discussing the nerve agent attack in the UK.
• TfL confirms prices for the Elizabeth line, set to open in December, at £12.10 from Zone 1 to Heathrow and £10.10 for off-peak.
• Moody’s has reported that Clear Channel Outdoor’s ‘separation from a bankrupt iHeart would be credit positive’. It says iHeartCommunications Inc filed for chapter 11 and ‘the filing is credit positive for CCOH, as long as it is not consolidated into the bankruptcy.’
FINANCE & MARKETS:
• The British Chambers of Commerce has raised its UK growth estimate to 1.4% this year and 1.5% next from 1.1% and 1.3% respectively.
• BCC warns UK will be among the worst performing G7 economies until 2020. It’s first estimate for growth in 2020 is 1.6%.
• BCC warns that higher consumer spending is driving its GDP upgrades & implies that, with sluggish real wage increases and stalled productivity, this is not sustainable. The Bank of England has cautioned on a number of occasions that some individuals may be in financial trouble when interest rates rise further. The BCC says ‘while many individual businesses are doing well, the inescapable conclusion from our forecast is that the UK economy as a whole should be performing better than it is, given robust and sustained global growth.’
• Moody’s reports the UK government may struggle to cut spending in line with its announcements. Moody’s says ‘it remains to be seen whether those cuts will be delivered, given the apparent strains on many public services after a decade of cuts and the political pressure on the government to increase funding for health care, defence and education.’
• Rightmove reports UK house prices rose by 1.5% in March. They are up by 2.1% on March last year.
• Three ECB policymakers have commented positively on the outlook for the Eurozone economy. Markets are taking this to mean that QE will be wound down later this year.
• Sterling down vs dollar at $1.3916 but up against Euro at €1.1346
• Oil up at $65.94
• UK 10yr gilt yield up 1bp at 1.44%
• World markets: UK mixed on Friday with US and Europe higher. Asia mostly down in Monday trade.
• Brexit etc.:
o All fixed as UK focuses on sorting out Russia.
o Bank of England FPC warns UK & EU face ‘material risks’ of Brexit, which could “disrupt the financial system directly”. It says ‘Brexit could disrupt the financial system directly. The combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test.’
PRIOR DAY LATER TWEETS:
• JDW sees slowdown in H2. Initially to 3.8% LfL. Still good & would have been 2.0% better but for the snow.
• JDW points to H2 headwinds & says current estimates are about right. Implies H1 a bit better, H2 a bit worse. Momentum perhaps not positive
• Feb Trackers shows flat sales (up 0.2%) despite discounting against 2.7% inflation & rising costs. Pubs > restaurants, London > provinces.
• Tracker says snow hit cash flow. March rent demands (due 26th) poss. hard to meet. Could be ‘further site closures & restructurings.’
• Consumer credit levels are close to a 2008 peak and a worrying number of households may be ‘in too deep’ re borrowing per FCA
START THE DAY WITH A SONG:
Friday’s song was Last Nite by The Strokes. Today, who sang:
But you see it’s not me
It’s not my family
In your head, in your
Head they are fighting
RETAIL NEWS WITH NICK BUBB:
• Saturday Press (1): The main focus in the Saturday papers was on the continuing problems of the drinks distributor Conviviality, after the news on Friday that it is looking at raising new equity: the Guardian said that it is looking to raise at least £50m in an emergency rights issue, but the Times said that it is planning on a £100m rights issue. The Business editorial in the Times noted that the drinks industry wants to keep the group afloat and that there should therefore be some equity value left, although it said that “if the shares hadn’t been suspended they’d probably be trading around 30p”, implying a market cap of only £55m…and thundered that CEO Diane Hunter (who was the “Zero of the Week” in the Daily Mail) is “well past last orders”. And the veteran City columnist in the FT, Neil Collins, flagged that, despite the rapturous Buy notes from analysts on Conviviality after the
• Saturday Press (2): The Companies column in the FT looked at the collapse of the heavily indebted Toys R Us and thundered that “Private equity is partly to blame for High Street’s demise” and the FT had a separate article on its Capital Markets page, headlined “UK High Street struggles under severe junk debt burden as web rivals take toll”, highlighting how in Chichester seven heavily indebted High Street chains (New Look, Holland & Barrett, Iceland, House of Fraser, Prezzo, Pizza Express and Wagamama) trade in close proximity. The lead Business story in the Daily Mail was about the hunt for the missing millions from Toys R Us in the UK (noting the continuing mystery about the £580m transferred offshore shortly before its collapse), whilst the Guardian had a big feature on how the London housing market is fizzling out. Finally, the continuing slump in the Mothercare share
• Sunday Press (1): The problems of the drinks distributor Conviviality (often dubbed “the owner of Bargain Booze”) continued to be a focus for the Sunday papers as well, with the Sunday Telegraph suggesting that it may be asking shareholders to stump up as much as £150m, although the Sunday Times stuck to the line that it is asking for at least £100m (although the price is likely to be “sweeping changes to management”, including the expected resignation of the CEO Diane Hunter). The Sunday Times turned the screw by highlighting that the Directors of Conviviality gave the company’s internal controls a clean bill of health in a review last year and it ran through the rise and fall of Conviviality and its acquisition spree in detail in a separate article, headlined “Conviviality’s one too many for the road”.
• Sunday Press (2): In other news, the Sunday Times flagged that the owner of the Poundstretcher discount chain faces “a credit crunch” and the Sunday Telegraph noted that Carpetright has also joined “the emergency ward” and is planning a CVA restructuring. The Sunday Times also had a major feature interview with the boss of Domino’s Pizza, “the Tesco old hand”, David Wild, noting that he left Halfords unhappily in 2012 (“I wanted to change the company more quickly than it was ready to be changed”). On a happier note, the “How we made it” column in the Sunday Times was devoted to the owners of the Seasalt clothing chain, Neil and Sophie Chadwick, and the paper also noted that the Online furniture business Made.com has raised £40m to invest in European expansion. In terms of results previews for next week, the Sunday Times had an odd snippet that Kingfisher would blame “a soggy summer”
• Hammerson: Despite all the speculation in the weekend press about Conviviality and Carpetright there have been no official announcements from them today, but the French shopping centre company Klepierre has confirmed the Times’ scoop today that it bid 615p in shares and cash for Hammerson on March 8th and that this apparently generous offer (a premium of over 40% to Friday’s close) was summarily rejected by Hammerson, which is intent on pursuing its takeover of Intu Properties instead…It will be interesting to see how this M&A battle plays out…
• Today’s News: The Times has a scoop today that the French shopping centre company Klepierre bid £5bn for its embattled UK rival Hammerson recently, to scupper their bid for Intu, and that their offer was summarily rejected by Hammerson. Otherwise, there’s plenty more about the embattled Conviviality, with the Times flagging that the CEO is “on the brink after a sobering week”, whilst the Small Cap column in the FT looks in detail at how “Accounting blunder takes fizz out of Conviviality success”. In terms of results previews, the Daily Mail goes to town on Next for some reason, trumpeting “Now Next profits to be hammered in High Street bloodbath”, although it also flags that Ted Baker will defy the gloom, whilst the Telegraph flags that Kingfisher is under pressure to revive its French business
• News Flow This Week: A busy week kicks off this morning with an analyst’s preview visit to the new John Lewis store that opens in the Westfield London shopping centre extension tomorrow. The Ocado Q1 is also out tomorrow and then the Kingfisher finals and ScSinterims are on Wednesday (along with the New Look CVA vote). Thursday brings the Ted Baker finals and the ONS Retail Sales figures for February, together with the “Retail Week Awards” (aka “the Retail Oscars”) in the evening. Then we get the much awaited Next finals on Friday.