Langton Capital – 2018-05-10 – More on JDW, Gregg’s, Goals, Coke HBC, OT Beach etc.:
More on JDW, Gregg’s, Goals, Coke HBC, OT Beach etc.:
A DAY IN THE LIFE:
Popping into town the other day to spend some money in the city’s struggling shops, I drove into a car park with which I was unfamiliar.
I parked up, popped to the machine & realised that I didn’t know how on earth to pay, what to pay with or, basically, what to do at all.
There were buttons, card slots and a 500-word ‘explanation’ that I just could not make myself read so I drove out and drove back in again thinking that I should have picked up a ticket and yes, there were another rank of buttons.
One said ‘residents’ another said ‘help’ and another two said nothing at all so, being in a bit of a rush, I pressed all of them.
But nothing happened and, as a better-informed motorist had now pulled up behind me, I drove in again, scratched my head a bit, and drove out.
I then found a meter, paid a quid or two, and did my duty as a dedicated spender but, as there was some kind of number-recognition camera on the exit gate, I would imagine that I could be getting a £70 fine some time soon.
Or more likely two despite the fact that I have a valid sticker from a nearby parking meter showing that I had in fact paid to park. Just not where they took my photograph.
So that’ll be me in a few days. Round and round the houses on the telephone until I can find a human being with a bit of common sense. On to the news:
JD WETHERSPOON – Q3 UPDATE – ANALYSTS’ CONFERENCE CALL:
Following the release of its Q3 trading update earlier this morning, JD Wetherspoon hosted a conference call for analysts and our comments thereon are set out below:
• JDW points out that last year included the Sunday of the Bank Holiday weekend. Says this is responsible for around 50bps of performance. This is the biggest day of the long weekend typically.
• Sugar tax? JDW has put through the increase on impacted products. E.g. Pepsi. Can’t see any trends at present.
• Snow? Two periods of disruption? The group didn’t want to use this as an excuse. The weather over the 13wks ‘probably evened itself out’.
• Underlying rate of LfL growth may be around 4%. Hard to get comps due to early Easter, weather, etc. H2 could be more representative of underlying trends
• How much of the 4% above is price? Underlying prices are up c1%
• Group needs ’3% to 4% to stand still in terms of margin’. No further margin guidance at this stage.
• Won’t split out food & drink relative sales. But nothing has changed since H1.
• Matthew Clark problems within Conviviality did lead to a week or two of disruption. JDW has its own distribution network. Not a material cost.
• Repairs? No real change on last year. Will be 7% to 8% of turnover, split between repairs and maintenance capex.
• World Cup? JDW will show it. Not that many TVs per pub. Probably put the sound on for England games, silent for others. Group is often neutral to up a bit on England games and down on other games. An early England exit would be mildly negative.
Balance sheet etc.:
• Why did you refer to the asset value being ahead of book? It was to highlight the fact that, whilst some pubs that are being sold are at a loss, those remaining in the estate are higher quality
• Openings this year were estimated at c10 but are now 6. There ‘has been no real change in strategy’. Sites are large.
• Openings & disposals next year? Say 10-15 openings and maybe a couple of closures.
• Net debt at end-Q3 was in line with H2. It should come down a little towards the end of the year.
• This is mostly down to share buybacks and buying in freeholds. Reversions are coming in at a yield of c5%. JDW’s blended interest rate is circa 200bps below that level.
• JD Wetherspoon has suggested that underlying LfL trading is c4% up. This is a little below recent levels, but it is still very good in the context of the wider market. Only around 1% of it is due to price increases.
• The World Cup is an unknown. Historically the impact has been around neutral and JDW is also less impacted by the weather than are some other operators.
• Overall, trading is in line and the group’s shares are little-changed this morning. As the group points out, Q4 should give a better feel as to underlying trading and, whilst the cost outlook is still challenging, JDW is in a good position relative to the industry as a whole.
PUB, RESTAURANT & DRINK PRODUCERS:
• Discounting still a feature. Prezzo offering 2-4-1 on mains. Pizza Express, Bella Italia and Café Rouge 25%, 30% and 40% off food respectively.
• Shares in Greggs fell 15% yesterday after reporting that the weather had impacted sales. The shares trade in the high teens in terms of PER and the statement has prompted a re-think as to whether that is justified.
• Greggs, which sells breakfasts for as little as £2, is maybe the JD Wetherspoon of the grab n go market. If it is seeing sales wobble, then there will be a number of other operators looking nervously at their till receipts. To be fair to Gregg’s, the group did say that trading in May (which is only a week old) had picked up a bit.
• JDW yesterday fell around half a percent against a strong market. The FT has pointed out that even low-price retailers are feeling a bit of a squeeze.
• JDW would be particularly at risk from supermarket competition should prices fall post ASDA/Sainsbury. It is the first unit to which supermarket drinkers may ‘trade up’ and its margins are low. The combined supermarket entity has said that it would like to cut some prices by around 10%.
• Tim Martin, founder of Wetherspoons, stated: ‘I have never used Wetherspoon app and have no intention to’, Propel has reported. The app has been downloaded 3m times since its launch in March last year. Tim also commented on openings saying: ‘When you have nearly 900 pubs and you’re in most of the obvious places, the number of openings is going to be less. It’s a painful thing to say but we are quite mature now’.
• The generally in-touch Mr Martin told journalists he thought his company’s app was ‘a silly idea.’ He says he ‘thought people wanted to go to the bar because it was a big part of the zeitgeist of pub life.’
• Funding Circle, the largest peer-to-peer lender in the UK, has named Cath Keers as a non-executive director as the group takes a step towards a £2bn London flotation.
• Barclaycard has reported that consumer spending rose 3.4% in the year to April. Non-essential spending was up 3.7%.
• Barclaycard says entertainment spending rose 7.1%, pub spend was up 7.6% and restaurant spend was 7.2% ahead year-on-year. Some of this may have been driven by the increased use of contactless cards.
• Barclaycard says ‘while spending has recovered slightly from the effects of the ‘Beast from the East’, it’s likely we’ve seen some missing expenditure from March carry over to April as the weather finally allowed shoppers to venture back outside.’ It says ‘consumers prioritised spending on the ‘nice-to-haves’ last month, but there’s no indication that they are looking to loosen the purse strings quite yet. Instead, the UK seems to be caught in a holding pattern, with people still budgeting carefully.’
• Barclaycard says ‘looking ahead, uncertainty around interest rates is weighing on the minds of many, with people prepared to cut back on non-essentials in order to cope with a rate rise.’ The Bank of England decides on interest rates at lunchtime today.
• Coca-Cola HBC has reported Q1 numbers saying it has seen a ‘solid performance to start the year, delivering 4.5% FX-neutral revenue growth through a balance of volume growth and price/mix improvements’
• Coca Cola HBC says ‘volumes increased by 2.3% in the quarter, with very strong growth in the Developing segment and another quarter of expansion in the Established segment. Innovation in Sparkling drinks helped drive 2.8% growth in the category.’
• Coca Cola HBC CEO Zoran Bogdanovic says ‘we are pleased to report a good start to the year in line with our expectations.’ Mr Bogdanovic continues ‘product innovation and our ongoing revenue growth management initiatives continue to deliver balanced growth through volume and price/mix improvements. With strong commercial plans in place and anticipated gradual economic recovery in Russia and Nigeria, we expect our revenue growth to accelerate as the year progresses.’
• Wm Morrison has updated on trading for the 13 weeks to 6 May 2018 saying sales excluding fuel were up 3.6%, comprising contributions from retail of 1.8% and wholesale of 1.8%. Group LFL including fuel was up 1.9%. Total sales* were up 3.8% excluding fuel (2.1% including fuel).
• Wm Morrison says ‘we continued to invest in the customer shopping trip, and again improved our competitiveness. Inflation was broadly flat and volume growth accelerated during the period.’ CEO David Potts reports ‘we are pleased to have made a strong start to the year, again becoming more competitive for customers while delivering growth on growth. We expect to continue to improve in the year ahead.’ He says ‘our expectations remain unchanged and we are confident of another strong year ahead.’
• Moody’s has reported that Starbucks’ alliance with Nestle will hurt earnings and is a credit negative. It says ;Starbucks said it will use the after-tax proceeds from Nestle’s upfront payment to accelerate share buybacks: it intends to return about $20 billion in share buybacks and dividends, up from a previous target of $15 billion, through fiscal 2020, which ends September 2020.’ It says this means Starbucks’ leverage will increase to 2.3x-2.4x from 1.9x as of December 2017.
• Atom Beers, which brews in Hull, is to take over the operation of The Corn Exchange pub in the City centre. The Corn Exchange, which has been operating for more than three centuries, sits next to Hull Minster and will soon be transformed into a “chilled, upbeat bar” by Atom. Atom says ‘we’ll have 16 keg lines and four cask, joined by up to 100 cans and bottles from around the world, plus an exciting spirit and cocktail range. By only stocking brands that share the Atom ethos of quality, we’re committed to elevating Hull’s drinking experience.’ Atom will be hosting events and ‘working hard to promote the city as a safe and inviting destination for high quality food and drink.’
• AB InBev’s backing during C&C’s takeover of Matthew Clark Bibendum has ‘helped stabilise and assure the drinks industry’, the Northern Europe president of the group Jason Warner stated.
• The Institute of Competitive Socialising, the creators of crazy golf concept Swingers has appointed advisors to consider funding options, the MCA has reported. This comes after the announced next year’s launch in New York.
• Over 20% of British diners tip even if service is subpar, with a third too embarrassed to ask for service to be removed from a bill, a survey conducted by OnBuy.com has indicated.
• Caskade Caterers, the Taco Bell and KFC franchise business, has raised £29.4m in funing from HSBC for its expansion plans. The group plan to roll out Taco Bell across London and the South West of England.
• Tim Hortons is the fastest expanding coffee shop operator in the UK and Joe & The Juice is the fastest growing in terms of revenue, according to MCA’s Branded Coffee Shops report. Tim Hortons’ UK venture is forecast to grow the number of its outlets by 61.5% to 21 coffee shops by December 2018. The report suggests that the overall UK branded coffee market will grow by 5.6% to a total of 5,017 sites by the end of 2018.
• The drought-afflicted 2018 vintage in South Africa is 15% smaller than the year before, according to industry body South African Wine Industry Information and Systems (SAWIS). This is not as bad as many had feared, considering the area suffered its worst drought in 100 years.
• Alibaba has acquired South Asian ecommerce platform Daraz, which was established in 2012 by Rocket Internet and operates in Pakistan, Nepal, Myanmar, Bangladesh and Sri Lanka.
• Walmart will pay about $16bn for a 77% stake of Flipkart, valuing India’s biggest retailer at more than $20bn — in a deal that ramps up the competition with Amazon. Amazon had been considering making its own offer for the Indian firm, which has more than 100 million users.
HOLIDAYS & LEISURE TRAVEL:
• On the Beach Group, the OTA, has reported interim results for the six months ended 31 March 2018, showing revenue up 19% to £45.3m and group adjusted PBT climbing 15% to £14m. Net Debt increased to £11.6m from £2.3m last year following the group’s acquisition of Sunshine. Simon Cooper, Chief Executive of On the Beach Group plc said: ‘On the Beach has delivered a solid performance in H1, with strong booking and share growth supported by some modest and tactical discounting. Booking growth strengthened towards the end of the period and has continued into H2’.
• UKHospitality has reported that mobility and retention are the two major concerns of the hospitality industry. At the Hospitality Workforce 2030 Commission session, speakers and politicians discussed issues such as stigma, the Apprenticeship Levy and the need for a balanced evidence-based immigration system.
• The Advertising Standards Agency (ASA) has criticised Thomas Cook for failing to ensure a holiday discount to Cuba was genuine. The all-inclusive package was banned with the ASA telling Thomas Cook ‘to ensure savings claims represented genuine, meaningful savings against prices that had actually been charged for the holidays in question’.
• Barclaycard reports travel spend up 10.3% in April, the highest rate since June 2015, with consumer spending as a whole up 3.4% yoy. Spending on airlines increased 9.9%.
• La Quinta Q1 results show system wide RevPAR up 4.3% and 8 new franchise locations totalling over 650 rooms. CEO Keith A Cline said ‘We delivered gains in RevPAR despite the ongoing hurricane disruption in our owned hotel business…We have completed the significant renovation of 39 owned hotels in our repositioning program’.
• Goals Soccer has updated on trading ahead of its AGM saying its recent ‘investment strategy remains focused around delivering better performance with a clear recent positive trend established in football sales.’
• Goals says ‘this momentum has continued with underlying like-for like sales, excluding the impact of snow, for the first 18 weeks of this year, increasing by 2.3%. However, Goals was impacted by the challenging UK weather conditions in March, which reduced sales by £0.5 million, resulting in overall like for like sales of – 1.9% for the period.’
• The Telegraph has reported that millennial focused fitness clothing company Gymshark turnover £40.5m for the first 12 months to July 2017, and is on course to reach £100m this year.
• Ofcom claims there has been a marked improvement in home broadband over the last year with average fixed download speeds up 28% to 46.2Mbps and upload speeds up 44% to 6.2Mbps.
FINANCE & MARKETS:
• The Bank of England’s Monetary Policy Committee will decide at lunchtime today whether or not to raise rates from 0.5%. Weak data recently means that betting has swung to nearer evens from the ‘dead cert’ that had been assumed a few weeks ago.
• Sterling up a shade v dollar at $1.3567 and higher v Euro at €1.1433.
• Oil up nearly $2 on Iran concerns at $77.74
• UK 10yr gilt yield up 3bps at 1.47%
• World markets: UK, Europe & US all higher yesterday. Far East up in Thursday trade.
• Brexit etc.:
o Irish PM Leo Varadkar says Theresa May’s proposal for a customs partnership was a ‘welcome suggestion.’
o Some speculation that Jeremy Corbyn will push for the UK to remain in some sort of European single market
o Airbus has said that it will have to move some manufacturing out of the UK.
o UK may have to build its own satellite network if we want our satnavs to work. BBC suggests this could cost around £5bn.
PRIOR DAY LATER TWEETS:
• Later tweets: JDW Q3. LfL +3.5% (slight slowdown) as group says Bank Hol shift into Q4 cost it around 50bps. Says trading currently hard to read
• Greggs says weak footfall (partly due to weather) responsible for slowdown to LfL +1.3% in first 18wks of year
• UK retail sales fallen ‘off a cliff’ in April per BRC. Says April down 4.2% (and March plus April to smooth Easter still down 1% LfL)
• Restaurant chain Cote to join CVA bandwagon and close a number of restaurants? Core Cotes said to be ok.
• Halifax says UK house prices down 3.1% in April. Biggest fall in c8yrs. Year on year still up by 2.2% however
• Flip flopping treaty abandoning Donald Trump said to be our greatest hope post Brexit. Give us strength.
START THE DAY WITH A SONG:
Yesterday’s song was Feel Good Inc. by the Gorillaz, today who sang:
I thought it was the U.K.,
Or just another country
Another council tenancy
RETAIL NEWS WITH NICK BUBB:
Next: We flagged yesterday that, after the poor BRC-KPMG Retail Sales figures for April, it would be interesting to hear how gloomy the estimable Next boss Simon Wolfson is about the sector/economic outlook, via today’s delayed Next Q1 update, but he wisely keeps his head down and lets the figures speak for themselves. Clothing was one of the few bright spots in the BRC-KPMG Retail Sales survey for last month, thanks to the hot weather and that has helped Next smash expectations! The comps were weak for Next in Q1 (Brand sales were 3% down a year ago, with Next Retail LFL sales c13% down) and the City was expecting a 3% sales bounce this year, but the outcome was double that at +6.0%, with Next Directory up 18%. The period runs for the 14 weeks to May 7th, bizarrely and we were suspicious at first that the extra week or so distorted the outcome, but the weekly sales graph shows that the
Morrisons: The Q1 sales update flags 3.6% growth overall , 1.8% from Retail and 1.8% from the booming Wholesale business.
Superdry: The Q4 update from Superdry with today’s pre-close covers the 16 weeks to April 28th and although overall sales were up by a healthy 23%, thanks to strong Wholesaling and Ecommerce growth, the figure that catches the eye is the 6% drop in Store sales (blamed on the snow etc). And we are not sure that the guidance that underlying full year profit before taxation will be in the range of £96.5m to £97.5m (“representing a further year of double-digit profit growth”) will keep everyone happy…
John Lewis Watch: John Lewis wasn’t helped much last week by the hot weather, but it was boosted by price matching the House of Fraser Sale and yesterday’s weekly sales overview from JLP flagged that w/e May 5th saw gross sales 1.0% up (flat on a LFL basis, on our calculations). Fashion sales were up by 4.3% gross, but Home sales were down by 0.6% gross and Electricals were down by 1.1% gross. Over the last 14 weeks, John Lewis was up cumulatively by 1.5% gross (c0.5% up LFL).
Waitrose Watch: Over at Waitrose, momentum picked up well last week, as the hot weather helped picnic and barbecue fare fly off the shelves. Gross sales were up by 5.9% in w/e May 5th and the cumulative outcome for the last 14 weeks is now +1.6% gross, which is nearly 1% up LFL.
News Flow This Week: Until a few weeks ago, today seemed certain to bring a rise in interest rates to 0.75% by the MPC, on the back of the Bank of England Inflation Report, but that prospect now looks dead in the water, given the weak Q1 GDP figures etc. However, it will be interesting to hear at mid-day how many MPC members still thought it was right to edge up rates…