Langton Capital – 2018-07-11 – JD Wetherspoon, World Cup, casual diners, Pepsi & other:
JD Wetherspoon, World Cup, casual diners, Pepsi & other:
A DAY IN THE LIFE:
Haven’t you often felt that preparing for a task & cleaning up after yourself can take longer than the job itself?
And, whilst the obvious answer may be not to prepare and not to clean up (witness the various shelves around the house that I have attempted to put up over the years), this can often end in tears.
Furthermore, having hammered my fair share of nails into water pipes behind the plaster (in the kitchen, 2006, 2012 etc.), it’s a good idea to consider the consequences.
As we did when voting on Brexit, of course. Because if we hadn’t prepared for it, considered the consequences and tidied up the process, we’d have been in a real mess now, wouldn’t we?
Anyway, big evening tonight and LC is busy with meetings to add into the mix. On to the news:
JD WETHERSPOON – FULL YEAR TRADING UPDATE:
JD Wetherspoon has this morning updated on trading for the full year to 29 July and our comments thereon are set out below:
• JDW reports that for the 10wks to 8 July, like-for-like sales increased by 5.2% and total sales by 5.6%.
• The group says ‘in the year to date (49 weeks to 8 July 2018) like-for-like sales increased by 5.2% and total sales by 4.2%.’
• Both LfL numbers are in line with those to week 39
More on Trading, new openings etc.:
• JDW says it has ‘opened 6 new pubs since the start of the financial year and has completed the sale of 23 pubs.’
• It says no further openings are expected in the current year.
• There will be around £9m of exceptional, non-cash losses this year ‘mainly a result of pub disposals which were below the value in our balance sheet.’
• JDW has also spent £15.6m on buying the freehold “reversions” of pubs that it previously rented
• JDW says ‘the Company remains in a sound financial position. Net debt at the end of this financial year is expected to be about £740m.’
• It spent £51.6m buying back shares in Q1
Outlook & current trading:
• Regarding the outlook, JDW says ‘as in the current year, we anticipate considerable cost increases next year, in areas including business rates, the sugar tax, utility taxes and wages.’
• JDW says ‘in addition, as a result of an increase in our “swaps”, our interest rates will rise by around £7m.’
• Populist JDW chairman Tim Martin has appeared recently on TV saying that believes the UK should leave the EU Customs Union
• He uses the company’s RNS to say that the UK should adopt the approach of Singapore, Hong Kong etc.
• Unfortunately, this is not the position that we are in but rather a hope. It will not happen if the UK effectively remains in the EU customs’ zone.
• JDW says ‘we continue to anticipate a trading outcome for this financial year in line with our previous expectations.’
• JD Wetherspoon has reported that trading remains in line with expectations.
• The group does not mention the impact of the World Cup or the weather but it does refer to rising costs.
• The group’s shares have recovered recently. Whilst not cheap, the co is a proven operator and current like for like sales figures are industry leading – at least across groups with a wet-food mix as some wet-led operators will currently be performing better still.
• The group does not operate in a vacuum and, if competitors continue to cut prices and offer deals, it could be impacted.
PUB, RESTAURANT & DRINK PRODUCERS:
• The BBPA is predicting that home fans will buy ten million extra pints during the semi-final World Cup against Croatia and provide a £30m boost to the economy. The trade body noted: ‘the taxman will be cheering the loudest when England play Croatia. Counting receipts from beer sales, the Chancellor could get an additional windfall as high as £4.5m from beer drinkers and pub-goers watching the match.’
• Brexit challenges for the UK workforce are ‘most acute for hospitality and tourism’, according to the minister for hospitality Michael Ellis. Addressing the UKHospitality Shaping the Future conference in London, Ellis said the uncertainty surrounding the final deal was not helping employers in the sector, but said that government actions such as publishing the draft withdrawal agreement in March were helping to combat this.
• Crussh Fit Food & Juice Bars is extending its partnership with Everyone Active Leisure Centre Group and praised ‘the natural synergy between both brands’.
• The latest Barclaycard spending data shows that consumer spending grew +5.1% year-on-year in June 2018, above both the 3-month average (+4.5%) and the 12-month average (+3.5%). The data measures spending on card and as such is arguably boosted by the continuing shift to contactless payment.
• London brewer Fourpure has been sold to Australia-based Lion, which plans to increase Fourpure’s supermarket reach and employee count.
• Luke Johnson warned that ‘nineteen out of 20 investors have lost all interest in the sector,’ at the recent UKHospitality conference, Shaping the Future. The Risk Capital founder added: ‘Virtually all private equity has completely washed its hands of the sector, so I think that means there are probably opportunities out there,’ but warned that reducing overcapacity in the restaurant sector will be a slow process as vacated sites are often filled by more restaurants.
• Given the weather, the World Cup, declining retail footfall and the general consumer malaise, a number of casual diners may be currently performing below expectations. The level of discounting appears to have picked up in recent days.
• PepsiCo shares rose in premarket trading as a result of higher-than-expected Q2 revenue. Shrinking sales at its North American beverages division (brought about by consumers turning away from sugary soda) were offset by a strong performance from its North America Frito-Lay snack division, as well as its businesses in Europe and Sub-Saharan Africa. PepsiCo net revenue grew 2.4% for the three months ended June 16 from a year ago, to some $16.09bn, while headline net income came in at $1.82bn, or $1.28 a diluted share — down about 14% from a year ago.
HOLIDAYS & LEISURE TRAVEL:
• UKHospitality estimates the worth of the UK’s hospitality sector at £130m, employing 3.2m people, adding £72bn to the UK economy and generating £38bn in taxation. Kate Nicholls, chief executive of UKHospitality, said ‘we (the sector) are crucial to health of the UK economy, providing much-needed growth, investment and jobs in every single region of the UK… Hospitality is the third largest private sector employer in the UK, double the size of financial services and bigger than automotive, pharmaceuticals and aerospace combined.’
• STR reports London hotel occupancy up 2.2% to 86.1%, ADR down 0.6% to £160.84 and RevPAR up 1.6% to £138.46 for June 2018. Supply was up 1.9% with demand up 4.1%.
• A HVS survey shows the European serviced apartments market experienced impressive growth in 2017 RevPAR. According to the survey, over half of respondents are planning to open new properties in markets such as France and The Netherlands, with the US and Eastern Europe starting to appear on the list. The top three brands in terms of expansion are Adagio, Staycity and SACO.
• STR reports the US lodging industry saw occupancy growth of 0-2%, ADR growth of 2-4% and RevPAR growth of 3-5% in June 2018.
• The owner of London’s Savoy Hotel saw losses widen to £83m last year. The Savoy Hotel Limited, which is ultimately owned by Saudi Arabia’s Prince Alwaleed bin Talal and the Qatar Investment Authority and operates under a heavy debt burden, attributed the performance to the effects of terrorist attacks in the capital. By the end of 2017, it was £558m in debt to a related company, Dunwilco (1784) Limited, according to company accounts.
• Facebook will have to pay the maximum £500,000 fine over data protection breaches related to the Cambridge Analytica scandal. The figure will not hurt the social media giant, which was last year valued at around $590bn (£445bn), as the scandal took place before new EU data protection laws were implemented that allow much larger fines.
FINANCE & MARKETS:
• The UK economy grew by 0.2% in the 3mths to May per the ONS. Growth m-o-m in May itself was a more-healthy 0.3%. The figures were in line with estimates.
• The ONS says ‘the first of our new rolling estimates of GDP shows a mixed picture of the UK economy with modest growth driven by the services sector, partly offset by falling construction and industrial output.’
• The US has listed another $200bn of goods from China on which it intends to impose tariffs.
• Sterling up a little at $1.3255 and €1.1305
• Oil down at $78.22
• UK 10yr gilt yield up 3bps at 1.30%.
• World markets: UK, Europe & US up yesterday but Far East down in Wednesday trade. UK forecast to open down c40pts.
• Brexit, politics etc.:
o Business investment under review as uncertainty continues. Capex projects (see earlier Langton comments) could be shelved until there is more clarity next year. Or whenever.
o Dust settling. Sun says ministers are drawing up plans to stockpile food in case there are problems post Brexit. FT says Boris is weighing up how to challenge Mrs May.
o Guardian says EU negotiators will be glad to see the back of Messrs Davis & Johnson saying they ‘despised Johnson, viewing him as a self-obsessed showman whose dishonesty had helped to deliver Brexit.’
o Brexit fans still pushing for a dream. The golden scenario is not on offer and nor, seasoned negotiators who are paid to consider such things believe, is it possible.
o Some questioning what the plan is now.
START THE DAY WITH A SONG:
Yesterday’s song was Beautiful Ones by Suede. Today who sang:
Lost in a Roman wilderness of pain,
And all the children are insane, all the children are insane
Waiting for the summer rain, yeah
RETAIL NEWS WITH NICK BUBB:
John Lewis Watch: After a tough couple of weeks, trade held up a bit better as the heatwave continued last week…Yesterday’s weekly sales overview from JLP flagged that w/e July 7th saw gross sales only fall by 0.3% up (nearly 2% down on a LFL basis, on our calculations). Home sales were down by 8.4% gross, but Fashion sales were up 4.6% gross and Electricals were up by 3.3% gross (with TV sales still good and fan sales going through the roof…). Over the last 23 weeks, John Lewis is now running up cumulatively by only 0.7% gross (c1% down LFL), which is disappointing, given the pounding that gross margins have been taking (through price-matching the discounting by House of Fraser and Debenhams)…
Burberry: Today’s Q1 heralds a “solid performance in Retail in a period of transition, with comparable sales +3%” and Marco Gobbetti, the new CEO, says: “We are pleased with our progress in the quarter. The team has embraced Riccardo’s creative vision and is working well together as we prepare for his debut collection in September, the next step in our journey”.
Sainsbury: Ahead of the AGM (which is being held today at 11am at the QE11 Conference Centre in sunny Westminster), Sainsbury has been announced that the former Deloitte partner Martin Scicluna (who is also Chairman of RSA and Great Portland) is to be the new non-exec Chairman, taking over from David Tyler after 9 years. The new man gushes in the statement that “I’m delighted to join Sainsbury’s, a company I have long admired for its clear customer focus and its strong values”.
Cup Watch: As a reminder, England play in the World Cup semi-final against Croatia tonight at 7pm…for the chance to be beaten in the World Cup Final on Sunday afternoon by mighty France!
News Flow This Week: Tomorrow brings the Dunelm Q4, the ASOS Q3, the Burberry AGM and the Pets at Home AGM.