Langton Capital – 2018-04-13 – March & Easter Tracker, food inflation, new openings etc.:
March & Easter Tracker, food inflation, new openings etc.:
A DAY IN THE LIFE:
There are many faux amis when it comes to learning languages and then there are other words which sort of make sense.
For example, to wh0re in Dutch, Swedish etc. means to rent out but when I was told that slag room tart on the menu in a Dutch restaurant was offering something as innocuous as a cream pie, I took some persuading.
Because the Dutch have some peculiar restaurants, it has to be said.
Many are devoted to herbal or physical relief of one form or another so seeing that I was being offered the local slag room tart for only three Euros made me think that I was either stuck in translation or I was being offered a cut price deal on something much more exotic. On to the news:
CGA PEACH MARCH & EASTER SALES TRACKER:
• Tracker: Bad trading in March (down 3.1%) with London worse than provinces, restaurants worse than pubs.
• CGA March & Easter Tracker says ‘bumper Easter makes up for dismal March for eating and drinking-out’. Easter this year was against soft comps in 2017.
• Tracker says LfL sales +5.9% over Easter weekend but sales in March (incl. snow) fell by 3.1%
• Tracker: London down LfL 4.3% in March, outside M25 down 2.7%. Says managed pubs ‘fared slightly better they were still hit with a 2.0% decline in like-for-likes.’
• Tracker: Peter Martin says ‘it was a month to forget, with the only slight cheer coming for managed pubs outside of London which benefitted by people staying at home and away from work when the snow fell.’
• Tracker says ‘March was bad news, so the uplift in sales over Easter weekend brought almost instant relief.’
• Fair to say that the weather will have an impact. For example, good weather next week (London in 20s) should work wonders.
• Weather, good or bad however, is temporary. Overall, it reverts to the mean.
• Tracker says ‘restaurant chains saw the biggest Easter uplift, with like-for-likes up 8.0% compared to the same four-day, Good Friday to Easter Monday, period last year. Pub group collective like-for-likes were ahead 4.6%.’
• Davis Coffer Lyons reports ‘it’s best not to draw too many conclusions from the March statistics as the adverse weather nationwide makes any meaningful comparison difficult. The Easter performance is, however, a lot stronger than many commentators might have predicted.’
• RSM says ‘March was a brutal trading month for the eating and drinking out sector. The ‘Beast from the East’ persuaded people to forsake their local restaurant or hostelry for the warmth of home and delivery was unable to make up the shortfall. Although the weather was a big factor, these faltering like for like sales are also a clear indicator that the underling spending power of the consumer continues to waver.’
• Tracker 12mth LfLs are running at +0.8% against inflation of 2.7% or so and cost inflation within restaurants of considerably more than that.
• Tracker alludes to overcapacity, terms it ‘more choice’.
• Tracker’s Peter Martin concludes ‘although the public is still going out, their frequency of visits is not really changing, and with new openings still a feature of the market despite some recent high-profile closures, people have more choice and those visits are being spread across more brands. It’s extremely competitive out there, and so operators are right to remain cautious.’
PUB, RESTAURANT & DRINK PRODUCERS:
• The CGA Prestige Foodservice Price Index shows food price inflation dropped back to 0.5% in February, the lowest point since the EU referendum.
• Prestige reports ‘the vote to leave the EU in June 2016 triggered an immediate weakening of the pound and a sharp spike in foodservice prices, especially on imported items.’ It says that this has now more than annualised and food price inflation is ‘barely above zero’.
• Prestige reports ‘there are grounds for optimism that inflationary pressures may continue to ease [further] in the coming months.’
• Prestige reports the drop ‘continues the positive downward movement we have seen over the past few months and will give some much needed respite for the Foodservice industry.’
• This is true though labour costs, particularly in the kitchen, are rising rapidly. Prestige concludes ‘foodservice price inflation of just 0.5% in February 2018 is welcome news after prolonged turbulence.’ It says ‘the worst of recent volatility is behind us.’
• The BBPA and UKHospitality have published employment guidance with Acas that aims to help companies throughout the employment process. Andy Tighe, Policy Director of the British Beer and Pub Association, commented: ‘The newly developed guidance is an excellent tool for employers, supporting you through every stage of the employment process. The jointly written guidance will help any new start up or established business deal with key employment-related issues’.
• Ceviche, the London based restaurant group has announced it will launch what it is claiming to be London’s first Peruvian bakery next month, the MCA has reported.
• Portuguese wine sales in the UK have increased 60% year-on-year according to data from Oakley Wine Agency.
• Scott Waddington is to step down from his chief executive role at SA Brain, after holding the position for 17 years.
• The American Restaurant Association and Wedbush Securities has found that food costs for US restaurants have remained stable, easing pressure on restaurant profits.
• American whisky is the latest to fall foul the ongoing trade spat between the US and China, with China announcing an additional list of 106 products to be hit with a punitive 25% tariff.
• NRN reports that restaurant sales in the USA rebounded in March ‘fuelling optimism for improved results for the industry.’ It says that March same-store sales rose 0.8 percent. This was ‘the second-best month for restaurant industry sales growth over the last two years.’
• Cannabis producer Hydropothecary has signed a five-year deal with Quebec’s alcohol distributor to distribute an estimated 200,000kg of cannabis products ahead of Canada’s expected marijuana legalisation.
• McDonald’s shares fell 0.6% yesterday as health officials in Kentucky said they are investigating of a food handler being infected with hepatitis A. So far this year, McDonald’s shares are down 5.1 per cent. Although the company enjoyed strong sales growth in the December quarter.
• The remaining 75 UK Toys R Us stores are scheduled to close by April 24, resulting in the loss of 2,054 jobs. Administrator Simon Thomas said ‘Extended discounts of up to 70% are in place from today.’
• Carpetright has confirmed its CVA and the closure of 92 underperforming stores, which will result in 300 job losses. Wilf Walsh, chief executive of Carpetright, said: ‘These tough but necessary actions will enable us to address the burden of a legacy UK property estate consisting of too many poorly located stores on unsustainable rents, and are essential if we are to restore our profitability and deliver a successful turnaround.’
HOLIDAYS & LEISURE TRAVEL:
• An improving Eurozone economic outlook and strong international demand is set to boost hotel trading across most European cities in 2018, according to PwC’s seventh Euro Cities Hotel Forecast. Measured by revenue per available room (revpar) Porto tops the city growth table in 2018 with 10.3% growth forecast followed by Amsterdam (7.1%), Lisbon (7%), Prague (6.8%), Milan (3.9%), Paris (3.6%), Geneva (2%), Rome (1.8%), Berlin (1.3%) and London (0.6%). Looking to 2019 and measured in local currency, Lisbon (6.5%) and Paris (6.4%) are expected to come top, followed by Porto (5.2%), Frankfurt (4.3%), Amsterdam (3.5%), Prague (3.4%), Milan (2.6%), Berlin (2%) and London (1.9%).
• US hotel profitability increased in 2017, according to a report from HotStats, up 2.9% in terms of profit per room.
• Legal cost controls similar to those in place for personal injury claims will now be applied to holiday sickness claims, in an attempt to deter false claims. The Association of British Travel Agents (Abta) said there were about 35,000 claims over holiday sickness in 2016, a 500% rise since 2013.
• STR reports US hotel KPIs for the week ending April 7; with occupancy down 2.7% to 68.3%, ADR up 0.7% to $128.84 and RevPAR down 2% to $88.03.
• Gatwick long-haul flights grew by 23.2% in March, pushing passenger numbers up to record levels up 2.5% yoy to 3.5m and an annual total of 45.7m. New transatlantic routes by Norwegian to Austin and Chicago helped push up numbers to North America by 37%.
• Manchester Airports Group reports handling almost 59m passengers in the financial year to March. The airports group expects growth to continue as Emirates, Primera Air and Wow Air start flying from Stansted.
• Labour will give free bus travel to under-25’s in areas where local councils bring services back under public ownership. The £1.4bn policy would be paid for by cash from vehicle excise duty currently earmarked for building new roads.
• Disney must offer to acquire all of Sky if it completes its own planned purchase of a majority in 21st Century Fox, according to the Competition and Markets Authority. Fox, which already holds a 39.1% stake in Sky, agreed at the end of 2016 to buy the remainder of the company in a deal valuing it at £18.5bn.
• Google is preparing to launch a redesigned Gmail with a suite of new features including snooze emails, offline access and smart replies.
FINANCE & MARKETS:
• The Royal Institution of Chartered Surveyors has reported that there are few signs of any pickup in the UK housing market
• Sterling on a tear, up at $1.4231 and €1.1544
• Oil price down a shade at $71.92
• UK 10yr gilt yield up 6bps at 1.45%
• World markets: UK up yesterday with Europe & US also higher. Far East mostly higher in Friday trade
PRIOR DAY LATER TWEETS:
• Later tweets: Greene King shares sharply higher on assurance that FY18 will be in line with expectations. FY19 could be tough
• GNK update includes Easter this year but not last. Group still sees a worsening of sales at w49 vs w37. Shares bounce that it wasn’t worse
• GNK says food is the weak link. City Pub Group agrees. GNK has wet & accommodation rising, food sales slower
• NIESR: Estimates UK Q1 growth at 0.2%. Weather impact but puts a drag on FY forecast.
• RICS: UK housing market slowed in March. 12th month in row. No sign of upturn. Pleas for no rise in interest rates (which will rise in May)
• CGA Prestige survey has food price inflation falling to ‘barely above zero’. Several key F&B areas have led the decline. Helpful for operators
• Lower Food Price Inflation does highlight just how well food is doing on the high street vs non-food. Also makes TSCO look good
START THE DAY WITH A SONG:
Yesterday’s song was Martha by Tom Waits. Today, who sang:
Well, I’ve been afraid of changin’
‘Cause I’ve built my life around you
But time makes you bolder
Even children get older
And I’m getting older, too
RETAIL NEWS WITH NICK BUBB:
• Yesterday’s News: We thought the WH Smith interim results yesterday were slightly disappointing, with profits edging down a bit, but the City seemed happy and pushed the shares up by c2%, after more dividend growth noises. The Dunelm Q3 update was much stronger than feared, given the snow disruption impact, and the shares jumped by nearly 9%. The QUIZ pre-close was also surprisingly strong, thanks to more robust Online sales growth, and the shares were 4% up. And the Mothercare Q4 was no worse than expected, with better Middle East sales helping to offset weakness in Russia (the shares rallied by nearly 7%). But the big news was the Carpetright update, with news of a CVA involving 92 store closures and a contingent £60m equity funding, which sent the shares down by 8%, despite no further change to full year profit forecasts.
• Today’s Press: There is plenty of coverage of the news yesterday from WH Smith, Dunelm, QUIZ and Mothercare, but the main focus is on the CVA store closure news from Carpetright, which coincided with the final Toys R Us store closures and gets wrapped up in the usual “High Street crisis” stuff: even the FT has such an article, headlined “High street hit by weak trading and closures” (“Carpetright shuts stores as sector struggles with costs and changing habits”). The Times article about Carpetright flags that “It’s the only way, says Carpetright boss as 92 stores are set to close” and it also highlights that “Top marks for Quiz thanks to web sales”, “WH Smith profits slip after colouring craze fades”, “Dunelm lifts high street retail gloom” and “Mothercare chief takes first steps”. And the FT market report notes that Pets At Home fell yesterday, after a Morgan Stanley report queried the
• Trade Press: This week Drapers magazine launched the first of its excellent sector-by-sector “Hit or Miss” store review series, with a visit to the new Westgate Oxford shopping centre on March 13th to road test the womenswear offers. And on the back of that the Editor thundered in her column today “Don’t miss out on creating a hit customer experience”. In terms of News stories, Drapers focused on the news that Bestseller is to buy the womenswear chain Toast, Amazon has launched a women’s occasionwear brand called Truth & Fable for spring 18, fears are growing for Mothercare amidst CVA rumours and the CEO’s exit and Fashion retailers have reported mixed fortunes over Easter trading. The winner of “Hit or Miss Womenswear” was Reiss, with 21 marks out of 25, but, inter alia, Ted Baker (“Oxford references and strong product mix make Ted Baker a unique treat”) came joint second, on 20
• BDO High Street Sales Tracker: We flagged on Wednesday that although John Lewis did quite well last week, thanks to strong Electricals sales, today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday April 8th, would look a lot worse because of the bigger Fashion weighting and the impact of the cold weather. And Fashion Store LFL sales were indeed down by as much as 10.1%. Including Homewares and Lifestyle chains, total Store LFL sales were down by 7.6%. But overall Online sales were up by 16.7% (versus +21.3% a year ago), with Online Fashion sales 23% up.
• News Flow Next Week: Another busy week kicks off on Monday with the 5pm Klepierre/Hammerson “PUSU” bid deadline. Tuesday then brings the ABF(Primark) interims, the JD Sports finals and the Majestic Wine Capital Markets Day in the City. On Thursday we get the Debenhams interims and the ONS Retail Sales for March, with Friday bringing the Bonmarche trading update and the Steinhoff AGM.