Langton Capital – 2018-07-04 – Food prices, Carluccio, High Street, SA Brain & other:
Food prices, Carluccio, High Street, SA Brain & other:
A DAY IN THE LIFE:
I increasingly think that anyone who asks: ‘did you enjoy the football?’ doesn’t really understand football.
Because it’s not about enjoyment but rather about minimising disappointment.
Of holding to a reasonable level the amount of time you spend with your head in your hands, hiding behind the settee, standing in the pub with your back to the screen or deliberately leaving the room to make a cup of tea during crucial moments of the game.
Because, if you can get through a match, say the Panama match, without shaking your head sadly and wondering where it all went wrong, then it’s as good as it gets and, with that in mind, I’ll take last night’s result, chewed lips & nails, ulcers and all and let’s move on to Sweden.
We now have two days without a game. What will we do? On to the news:
PUB, RESTAURANT & DRINK PRODUCERS:
• Some higher food prices on the cards.
• CGA & Prestige have reported that food & drink inflation ‘continues to rise in the sector reaching its highest level in 2018’
• Prestige reports that soft drink prices rose by 11.1% in the year to May. It says here ‘inflation has been triggered by the introduction of the government’s sugar tax and a shortage of food-standard carbon dioxide, a key component of carbonated drinks.’
• Prestige reports fish prices are at record highs (up 23.8% in the year) with some ‘concerns over future inflation in meat, in the wake of rising tariffs in key territories and significant supply problems in Brazil, the world’s largest poultry exporter.’
• Prestige says ‘the upward movement in inflation to its highest level so far this year will not be welcome news for operators. The industry has experienced a continuous stream of supply issues this year which is contributing to the rise in inflation within the foodservice sector and the recent shortage of CO2 is only likely to add further pressure over the coming months. With more turbulent times expected as we head towards Brexit, it will be more important than ever that businesses take a proactive approach to managing the risks of inflation.’
• Leon Restaurants has reported results for the year to end-December 2017 to Companies’ House saying that ‘2017 was a challenging year for the hospitality industry, during which the sector saw subdued customer spending together with increased costs’.
• Leon reports revenues for the year up by 35% at £76.3m with adjusted EBITDA up from £3.5m to £3.6m. The loss before taxation was £1.8m versus a marginal profit in 2016.
• Discounts showing no signs of abating. Versus the World Cup & the Weather, that’s probably not a surprise. Prezzo 40% off, Bella Italia 30% off, Pizza Express 25% and, more surprisingly for a delivery company, Domino’s 25% off for orders over £20.
• The Sun has claimed that some Stonegate pubs are charging up to 50p more per pint during England football matches. It quotes Stonegate as saying that the higher prices pay for plastic cups and door staff alongside additional cleaning.
• Carluccio has announced a ‘substantial investment programme’ saying that ‘the revitalisation will see over 60 Carluccio’s restaurants receive significant investment, underpinned by £10m of new funding into the business from majority shareholder Landmark Group.’
• Carluccio CEO Mark Jones reports ‘this is an important milestone for the Carluccio’s business and our team, allowing us to now look ahead positively to the future, with a clear plan to re-assert, and build on, our credentials as the UK’s leading Italian restaurant and food company, built on fresh, flavourful dishes.
• Carluccio reports adjusted EBITDA before write downs, restructuring costs and goodwill impairment for the year to 24 September of £6.5m, down from £13.2m in the year before. Current CEO Mark Jones only joined the company in January of this year. Carluccio reports ‘over the period [to Sept last year] and as previously announced, the company encountered some significant industry-wide challenges due to a combination of well-publicised structural cost increases across property, goods and employment, as well as intense competition in the market.
• Mark Jones comments ‘while these numbers are somewhat historical now, the decrease in underlying profit last year did graphically illustrate the requirement for us to create a more focused group; to divest from lossmaking sites; and to invest significantly in our core business, and I am pleased to be able to report this progress in the intervening period.’
• Compass Group has announced that CFO Johnny Thomson is to leave the company at the end of the year.
• The Grimsey Review into the future of the High Street reports that city centres need to be re-fashioned if they are to remain relevant.
• S.A. Brain has appointed Alistair Darby as its new Chief Executive, who will join on 31st July.
• Synergy Grill has been chosen as the grill of choice for the World Steak Challenge competition. The competition takes place in London tonight at the Magic Roundabout, Old Street.
• The Financial Reporting Council has opened an investigation into KPMG regarding its audits of failed drinks retailer Conviviality. The accountancy firm also faces investigations into its work on the accounts of Carillion and Rolls-Royce.
• The ASA has banned online and social media adverts for Cadbury eggs, Chewits and Squashies under rules to protect children from products high in fat, salt or sugar. Advertisers must use targeting tools to to direct ads away from users whose interests suggest they are younger than they claim.
• The freeze on alcohol duty may be scrapped in order to free up £200m for further spending plans, according to the Guardian. BBPA chief executive, Brigid Simmonds, told MCA ‘[we] pay 40% of the total beer tax in Europe and only consume 12% of the product’.
• Pernod Ricard will launch Ceder’s in the UK, the drink is described as a ’non-alcoholic alt-gin made with classic gin and South African botanicals’.
• Walmart unveils its 3D Virtual Shopping Tour technology, where customers can buy items presented in a virtual apartment.
• In the US, NPD Group reports the dinner daypart was the only time segment to grow this year. In the first quarter of 2018, dinner visits rose nearly 1 percent, followed by a 0.5-percent increase in the second quarter.
• Oakman Inns & Restaurants has reported LfLs up 5.1% for the 13 weeks ending 1 July. The group reported total sales of £8.8m. Oakman Inns’ CEO, Peter Borg-Neal, said: “We are delighted with our performance in the first quarter. Our core estate continues to respond to the huge efforts we are putting into evolving our offer and engaging our people’.
• Allegra has estimated that iced beverage sales in the UK have reached £370m in 2017. Allegra have estimated that sales should reach £421m in 2018, led by the warm weather and Millennial and Generation Z consumer behaviour changes.
• The UK Street Food market is expected to grow 9.1% to a total value of £1.2bn in 2018, according to MCA analysis.
HOLIDAYS & LEISURE TRAVEL:
• Fraser Hospitality UK Holdings, which runs 34 hotels, reports a loss of £187,000 as sales remained flat at £145m. CEO Guus Bakker said the sector is going through a ‘sustained period of difficult trading conditions with pressure on sales from increased competition and dwindling consumer confidence resulting in lower overall spend’. In the 16 months prior the company reported a pre-tax profit of £7.3m.
• Minoan Group is expected to sell Stewart Travel Group in the next few weeks after the company said it was in ‘constructive discussions’ to extend a debt facility due to expire on June 30.
• Duke Street acquires Great Rail Journeys from ECI in a deal worth c£100m. Based in York, GRJ offers nearly 400 rail holiday itineraries to more than 50 countries.
• Lyft acquires Motivate, signalling the ride-hailing app’s move into the bike market. Motivate is behind Citi Bikes and Ford GoBikes.
• MoviePass is considering a $1.2bn sale of equity and debt to shore up cash flow for growth.
• F Playtech shares fell sharply on Monday on the back of a second profit warning this year. The group blamed an ‘increasingly competitive backdrop’ for the reduction in expectations.
• Revenues at Telegraph Media Group fell by around 6% to £285.7m last year with profit halved to £13.7m. Circulation fell by 9% to around 376k per day. In the early 1980s it was almost 1.5m.
• The BBC’s Panorama programme has claimed that some social media products are deliberately addictive
FINANCE & MARKETS:
• B of England shows unsecured lending up 8.5% in the year to May.
• The number of mortgages approved in the UK rose to a 4mth high of 64.5k in May.
• PwC has been ordered to pay $625m in damages to the Federal Deposit Insurance Corp for failing to uncover fraud prior to 2009
• KPMG is being investigated for its role in the collapse of Conviviality in the UK
• Sterling up at $1.3198 and €1.1317
• Oil up at $78.17
• 10yr gilt yield down 2bps at 1.26%
• World markets: UK & Europe up yesterday with US down. Far East lower in Wednesday trade. UK FTSE100 set to open c10pts down.
• Brexit etc.:
o Chequers on Friday.
o Union Unite to meet with Labour leader Jeremy Corbyn. Bloomberg speculates that Labour could come out in favour of a second referendum.
o Labour pressure group Momentum said to be swinging behind a second vote.
o YouGov suggests 57% of the UK population would like a second vote.
o Labour’s Keir Starmer says UK should stay in a single market. This would involve, under current rules, allowing the free movement of people and capital and would mean paying into EU coffers. The UK would have no vote in Brussels.
o Brexit becoming a Tory Party issue.
o British business said to be running out of patience. BCC asks politicians to put their ‘squabbling’ to one side for the sake of the economy. Boris Johnson, currently on the other side of the world, recently said on the matter ‘f— business’.
o Philip Hammond says it is now ‘urgent’ that the Cabinet agree a Brexit strategy
START THE DAY WITH A SONG:
Yesterday’s song was Ready To Start by Arcade Fire. Today, who sang:
Do you know where the wild things go?
They go along to take your honey (la la la la),
Break down, now weep, build up breakfast
PRIOR DAY TWEETS:
• Later tweets: Met Office can see no end to the hot and dry weather. Good for pubs but remember wallet fatigue and, over time, trends return to ‘normal’
• Looking for a growth industry? Get into CVAs. Linklaters says CVAs +143% in 6mths. Run up debts, expand, dump debts, go back to Go.
• No queue of people waiting to shed a tear for the ‘more than 7,000 UK High Street estate agents in financial distress’. But it doesn’t help footfall
• Travelodge has launched a new format called Travelodge Plus. Facility creep in action
• Treasury says MPs should be “properly informed” on the financial implications before they vote on any Brexit deal. That might be a first
• Warring Tories meet at Chequers Friday. Run the country? Well, we are where we are but would you trust them to run a bath.
RETAIL NEWS WITH NICK BUBB:
• Sainsbury: The Q1 today covers the extended 16 weeks to June 30th and although there is no comment from Sainsbury on how the heatwave has boosted recent performance, we suspect that last week was good enough (on a line through the Waitrose figures) for the business to limp over the line, with LFL sales up by a modest 0.2% LFL (ex-fuel) for the period. The apparent loss of market share is dismissed as being the result of £150m of price cuts and Mike Coupe, the CEO, says: “I am pleased with our progress in the quarter. The headline numbers reflect the level of price reductions we have made in key areas like fresh meat, fruit and vegetables since March. Our price position has improved and customers have responded well, resulting in a continuation of the improved volume trend we saw in the second half of last financial year”. As usual, the Argos numbers are buried in the General
• Topps Tiles: The Q3 update today (for the 13 weeks to July 1st) is pretty subdued and all Topps Tiles can boast about is that they think the business is outperforming the overall tile market by being only 2.3% down LFL in the period. Matt Williams, the CEO, says: “The trading environment remained challenging during the third quarter but we are pleased with the resilience of our performance”. There is no comment on “the weather” or on the profit outlook, although Topps do say that they invested in “retail promotional activity”…
• Superdrug: The drugstore chain Superdrug (which is owned by the Hong Kong company AS Watson) announced its results for y/e Dec yesterday, reporting that revenue for the period of £1,242m was up by 2.3%, “driven by sales from LFL stores which increased by 2.5% and the benefit of 22 new UK store openings”. We were puzzled at first by the fact that LFL sales growth was higher than the total sales growth and assumed that there must have been a lot of store closures. But it turned out that there were only 7 closures (including our local store in Richmond), with the year-end store total increasing from 789 to 804. And the answer is…that there was a 53rd week in 2016, which distorted the comparisons! Nevertheless, LFL sales growth of 2.5% was good (on top of the 7.8% recorded in 2016) and much better than that achieved by Boots…Superdrug’s sponsorship of the cult TV show “Love Island” no
• John Lewis Watch: Trade wilted badly as the heatwave developed last week…Yesterday’s weekly sales overview from JLP flagged that w/e June 30th saw gross sales slump by 7.9% up (over 9.5% down on a LFL basis, on our calculations). Home sales were down by 13.5% gross, Fashion sales were down 3.5% gross and Electricals were down by 6.8% gross (although TV sales were still good). Over the last 22 weeks, John Lewis is now running up cumulatively by only 0.8% gross (nearly 1% down LFL), which is a bit disappointing, given the pounding that gross margins have been taking (through price-matching the near constant discounting by House of Fraser and Debenhams)…
• Waitrose Watch: Over at Waitrose, the mirror image of the slump in “indoor living” trade at John Lewis was a boom in “outdoor living” and sales of picnic and barbecue fare last week, on the back of the heatwave, as gross sales jumped by 7.8% in w/e June 30th (c7.7% up LFL). The cumulative sales picture for the last 22 weeks is +1.8% gross for Waitrose (1.7% up LFL), which is not bad and the business has done notably better than Sainsbury over the last month (according to Kantar).
• News Flow This Week: The “Christmas in July” Christmas range previews continue in sunny London: it’s mighty Amazon’s turn today, with a breakfast in Old Billingsgate. In terms of company news, tomorrow brings the Superdry finals and the ABF (Primark) update.
• Cup Watch: After England’s somewhat fortuitous defeat of Colombia last night, a quarter-final match with Sweden now awaits on Saturday at 3pm (not good timing for High Street trading…), before a potential semi-final against Russia or Croatia on Wed July 11th at 7pm…and then the Final on Sunday July 15th!