Langton Capital – 2018-05-01 – Just Eat, costs, min. prices in Scotland, McDonald’s etc.:
Just Eat, costs, min. prices in Scotland, McDonald’s etc.:
A DAY IN THE LIFE:
We used ‘Ghost Town’ by The Specials as our song yesterday, partly on the back of a trip to York city centre on (an admittedly chilly) Sunday afternoon.
Because there was hardly anyone around. The buskers were looking pretty miserable, the shops seemed to be gearing up to close early and the car parks were a doddle so why the lack of people?
Well perhaps 1) we imagined it, 2) would-be customers had spent up in the sun a week earlier or 3) they hadn’t been paid yet and, though the weather wasn’t very appealing, they had to stay at home to cut the grass.
Whilst it may have been down to a mixture of all three reasons above, maybe no2 is the most compelling as, with GDP rising at 0.1% per quarter and pay rises only just in line with inflation, there isn’t a lot of spare cash to go around.
Factor in higher interest rates (they had been thought likely to rise this month when the Bank’s MPC meets on the 10th) and a bit of de-gearing, higher import costs and a newly-weakened Pound etc. and operators will need to be good to stand still.
On a brighter note, poor trading last year will annualise over the summer and, if Sainsbury / ASDA is serious about cutting prices by 10% and putting the money back in consumers’ pockets, there could be some grounds for optimism. On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Just Eat has updated on Q1 saying orders were up 51% in the period and group revenue was +49% at £177.4m
• JE reports sales growth ‘driven by strong order growth and a greater proportion of higher value delivery orders in the mix.’
• JE reports UK orders +24% with 1.4m of a total of 29.7m orders coming from Hungry House, the purchase of which was completed on 31 Jan.
• JE reports international orders +46% to 21.9m ‘driven by continued triple digit order growth in Canada and strong performances in Italy and Spain, partly offset by softness in Australia.’
• JE reports ‘we continue to progress delivery-based initiatives in key markets, driven by the strong performance of SkipTheDishes in Canada.’ The group says ‘in Australia, we completed the Menulog re-platforming and, in April, launched delivery services leveraging SkipTheDishes’ expertise.’
• JE reiterates guidance given at the time of the 2017 full year results in March of Group revenue of between £660-700m with EBITDA of £165m to £185m.
• JE CEO Peter Plumb comments ‘Just Eat has had a strong start to the year. We delivered our 400 millionth order in the UK, grew well in Italy and Spain, whilst powering continued momentum in our Canadian delivery service SkipTheDishes.’ Mr Plumb says ‘I’d like to welcome all our important new Restaurant Partners to the Just Eat family, including those from our successful recent acquisition of Hungryhouse.’
• Scotland has become the first country in the world to introduce minimum unit pricing for alcohol. A unit of alcohol can no longer be sold for less than 50p, meaning 2 litres of 5% cider will cost £5 or a 750ml 13% bottle of wine will be at least £4.88. Alcohol related illnesses currently cost Scotland’s health system more than £3bn annually.
• Per Telegraph, Conviviality rejected a late rescue deal from Crystal Amber, an Aim-listed activist investor. Crystal Amber had offered the final £18m needed at 5p but wanted warrants for themselves and the other new shareholders at less than 5p if they were to back a turnaround effort.
• In the US, Chipotle has brought delivery to 1,500 restaurants through a partnership with DoorDash. Chipotle now delivers from 2,441 restaurants in total.
• Brakspear will make Honey Bee beer available throughout May to raise money for Friends of the Earth’s Bee Cause Campaign.
• Mike Coupe, CEO of Sainsbury’s, has been caught singing ‘We’re in the Money’ between TV interviews. In a statement, Mr Coupe said: ‘It was an unfortunate choice of song, from the musical 42nd Street which I saw last year and I apologise if I have offended anyone.’
• US fast-food ‘dollar’ deals surged in Q1, indicating a price war between fast-casual chains as consumer spending softens. This follows 2017 data showing US restaurant traffic was flat for the overall year.
• April Price Index from CGA Prestige shows foodservice prices rose by 1.8% in the year to March. This is up on the annual 0.5% seen in February but much reduced on the 5.1% seen in the year to end-December 2017.
• GDP is currently rising by only 0.1% per quarter and, if the government is looking to reduce its deficit, less than that will (or should) be finding its way to consumers. Gearing or de-gearing will skew the numbers but, as interest rates look set to rise, many consumers may choose to reduce debts.
• Prestige comments that ‘Inflation in Foodservice remains fragile.’ Sterling has recently fallen in value and, if no recovery is forthcoming, further price increases could be in the pipeline.
• Prestige says ‘the downward trend in inflation has been driven by the increased supply of several key materials including sugar, where a global surplus led inflation to fall dramatically. Meat and Dairy were among the other categories to fall into deflation territory in March.’
• Prestige CEO Shaun Allen says ‘it is encouraging to see that inflation levels in the sector have remained at a lower level in the first quarter of 2018, providing some stability to Operators. However, some very high levels of inflation remain within categories such as Oils & Fats, Drinks and Fruit.’
• Could Sainsbury / ASDA really cut prices by 10%? This wasn’t guaranteed for all products but, with £51bn of sales, even if only half of the 10% flowed through, consumers would be £2.5bn better off. If competitors maintained differentials, then the number would be higher still.
• However, that 10% needs to come from somewhere. It must be either input costs (taking money from suppliers) or labour savings (reducing consumer spending power) of from landlords and capital providers. Good management is essential but alchemy is impossible.
• Discounting. Pizza Express ‘up to’ 25% off mains. Prezzo 2-4-1. Hello Fresh 55% off first & second orders.
• Hello Fresh is attempting to change consumer behaviour. It delivers ingredients to the doorstep and should (should) be more of a competitor for the supermarkets than it is for pubs and restaurants.
• Catapult Ventures, which is developing and operating an app that allows temporary staff to find employment in the F&B space has lodged accounts for the year to end-July 2018 with Companies’ House.
• Catapult raised almost £2m in new equity in the period under review and lost (or ‘invested’) around the same amount. The company now has retained losses of £2.8m.
• Commenting on changing consumer behaviour in France, Pragma Consulting says that hamburgers displaced ‘steak frites’ from around 2014 as the quality of the former rose.
• Texas Roadhouse has reported Q1 numbers saying revenues rose by 10.6% to $628m with net income up 59% to $54.5m.
• Texas Roadhouse reports Q1 LfL sales +4.9% at company restaurants and 3.9% at domestic franchise restaurants. Margins were also higher. CEO Kent Taylor says ‘we are pleased to report another solid quarter highlighted by double-digit revenue growth and comparable restaurant sales growth of 4.9%.’ Mr Kent says ‘this sales growth was largely driven by traffic gains which have continued into the second quarter.’
• Private equity group Alchemy Partners is in discussions to acquire Inn Collection for around £20m, per MCA.
• Analysis by BBC news shows that a year’s rent takes up every penny earned by full-time workers until the first week of May. A middle income earner in England would work 86 days to rent an average two-bedroom home — five more than in 2011 — while the number of working days needed to cover rent in Scotland and Wales fell to 79 and 71 days respectively.
• McDonald’s has reported better-than-expected first-quarter earnings after increasing menu prices and seeing higher check averages in the US. Global same-store sales were also strong, rising 5.5% and topping estimates of 3.7%, as the number of customers coming through the door rose 0.8%. ‘We continued to build upon the broad-based momentum of our business, marking 11 consecutive quarters of positive comparable sales and our fifth consecutive quarter of positive guest counts,’ CEO Steve Easterbrook said in a statement. ‘More customers are recognising that we are becoming a better McDonald’s.’
• Singer songwriter Bob Dylan has launched his own brand of Tennessee whiskey called Heaven’s Door, named after his 1973 hit that was later covered by Guns n’Roses in 1987.
HOLIDAYS & LEISURE TRAVEL:
• AccorHotels has agreed a €482m deal to acquire Swiss-based Mövenpick Hotels & Resorts. Mövenpick has 84 hotels in 27 countries with plans to open 41 new hotels by 2021. AccorHotels’ chairman and chief executive Sébastien Bazin said: “With the acquisition of Mövenpick, we are consolidating our leadership in the European market and are further accelerating our growth in emerging markets
• Eurotunnel and French state-owned SNCF are reportedly discussing the possibility of starting a high-speed London to Bordeaux service.
• European Tourism Association (ETOA) CEO, Tom Jenkins, claims the UK tourism industry is ‘struggling’ to recruit EU workers as the ‘appeal of coming to work in the UK was diminishing’. Jenkins continued ‘Nobody wants to have to abide by two different sets of rules. If the easiest way to trade is to establish offices in both the UK and continental Europe, companies will do that. This spells an increase in administrative burden.’
• A $1.74bn luxury resort in Hainan has been launched by Chinese conglomerate Fosun International.
• PureGym reports turnover up 24% to £198m in 2017, with EBITDA growing from £64m to £101m. The Leeds-based group said growth was driven by new sites and innovative membership schemes. The firm opened 20 new gyms in 2017, taking its total to 192, while also growing membership by 13% to 927,000.
FINANCE & MARKETS:
• Donald Trump has postponed tariffs on some metal products on the UK in the face of trade war fears.
• Sterling down vs dollar at $1.3754 but up a fraction vs Euro at €1.1392
• Oil up at $74.86
• UK 10yr gilt yield down 3bps at 1.41%
• World markets: UK & Europe up but US down yesterday. Far East mostly higher in Tuesday trade.
o All settled. Just need to solve N Ireland border by next month.
o Brexiter Jacob Rees Mogg quoted in Times as saying the UK is lucky to have Donald Trump in the White House
PRIOR DAY LATER TWEETS:
• Later tweets: Rudd gone. How many’s that since Mrs May took over? Crisis, what crisis? Barnier says make your mind up on Northern Ireland. Northern what?
• Industry statistics suggest that beer consumption in the on-trade declined by more than 5% in March vs March last year.
• GfK: UK ‘consumer confidence is stuck in the doldrums.’ GDP in slowest growth since 2012. Any causality here??
• Sainsbury. Save £350m in ‘harmonised buying terms’. Not pay the higher of the two costs, then? Implications for suppliers…
• MCA says home delivery not cannibalising eating out, just cooking at home. With GDP not really rising, that can’t be true, can it?
• Big drop in Pound as rate rise (possibly) postponed. Input inflation to return? Always a delay but Oil > $74.
• If SBRY/ASDA is to cut prices by 10%, there will be more left over for the consumer to spend on beer & pizza
• What is J Sainsbury now if not a department store? But on one floor & with better parking but Habitat, Argos etc. now often parcelled up
START THE DAY WITH A SONG:
Yesterday’s song was Ghost Town by The Specials. Today, who sang:
Business men, they drink my wine,
Plowman dig my earth
None were level on the mind
Nobody up at his word
RETAIL NEWS WITH NICK BUBB:
Walmart Watch: Although Walmart International boss Judith McKenna took part in yesterday’s Sainsbury/Asda merger presentation, along with Asda CEO Roger Burnley, it was striking that Mike Coupe singled out her predecessor Dave Cheesewright for special thanks, as the main architect of the deal from the Walmart side. When he stepped down in January, Walmart said that he wanted to step-back from a full-time role, but would continue to work for the company on “special projects”. So it is pretty clear that Walmart have been working on a way of easing themselves out of their UK exposure for some time, even though Judith McKenna gushed about Walmart’s new approach to international partnerships (and said they are very happy to only own 42% of the combined business). It is also pretty clear that Walmart have other things to do with the £3bn cash they will be taking out of Asda, if the deal goes
Grocery Market Share Watch: In the light of the Sainsbury/Asda merger plan and CEO Mike Coupe’s comment yesterday that their combined market share would be only 25%-26%, not the c31% quoted by Kantar, it will be interesting to see today’s latest monthly Kantar/Nielsen grocery market share figures (covering the 4 weeks and 12 weeks to April 21st/22nd) at 8am.
Carpetright: After the successful CVA vote last Thursday, the embattled Carpetright issued a gloomy Q4 trading update mid-morning yesterday (flagging that the group now anticipates reporting an underlying pre-tax loss for the year ended 28 April 2018 in the region of £7m to £9m…), but it failed to disturb the share price much, implying that the equity funding planned for May 18th is “in the price” and that investors are confident that the rent reductions and store closures will help the group soldier on. Interestingly, the alarming 10.5% slump in UK LFL sales in Q4 was blamed by Carpetright on “continued weakness in consumer confidence, coupled with some inevitable disruption to trade arising from the publicity associated with the group’s ongoing restructuring activities”.
Today’s Press and News: The Asda/Sainsbury’s merger gets loads more coverage today in the papers, with a lot of rather unfair focus on the news that CEO Mike Coupe was caught off camera in a TV studio singing “We’re in the money”, as the share price jumped by 15%, to the chagrin of short sellers…The Times’ sober headline is “Sainsbury’s shareholders back merger with Asda”, but City AM highlights the musical gaffe with the front page headline “We’re in the money” and the Telegraph goes with “Sainsbury’s “in the money” after shares jump 15%”, noting that “CEO makes PR faux pas with song as colossal merger leaves short sellers counting cost”.
News Flow This Week: Tonight brings the Apple Q2 out in the US. Tomorrow we get the Howden Q1 update, the Pendragon AGM update and the DFS Capital Markets Day in sunny Croydon. Things then quieten down ahead of the Bank Holiday weekend (the Next Q1 update originally scheduled for tomorrow has been put back to May 10th), with the Local Council Elections taking place on Thursday.