Langton Capital – 2018-07-31 – Gregg’s, Just Eat, Thomas Cook, beer volumes & other:
Gregg’s, Just Eat, Thomas Cook, beer volumes & other:
A DAY IN THE LIFE:
The drenching that the grass has got over the last few days has meant 1) it will grow like fury while we’re away on our travels and, thankfully 2) it’s too wet to cut at the moment so I haven’t got to agonise over whether to get the mower out, charge the battery, blow up the tyres, get some petrol, top up the oil and do all of the other dozen or so jobs that need to be done before the thing will function as it should.
Of course, the garden will be an impenetrable jungle when we get back but hey, it’s the summer, and if there’s any time of year when we can afford to let the future take care of itself, it must be now. I will be thinking differently end of week two in August, clearly. On to the news:
PUBS & RESTAURANTS:
• Just Eat has reported H1 numbers saying orders rose 30% to 104.4m with revenue +45% at £358.4m.
• JE reports EBITDA +12% to £82.7m with PBT down 3% at £48.1m on the ‘costs associated with the acquisition of Hungryhouse’
• JE reports adj. EPS of 8.6p (+10). CEO Peter Plumb reports ‘Just Eat Group served 24 million customers with 104 million takeaways through the Group’s platforms around the world.’ He reports ‘I’m pleased with the strong start to the year and excited by our opportunity to help many more people enjoy more of their takeaway moments through our platforms.’
• JE reports re the outlook ‘the Board is confident in the current performance and strategy of the Group and is raising investment for long term growth from £50 million to £55 – £60 million. Therefore, revenue guidance is raised for 2018 to between £740 – £770 million, up from £660 – £700 million. Underlying EBITDA guidance for the Full Year remains unchanged between £165 – £185 million.’
• Greggs has reported sales up 5.6% to £476m with operating profit excluding exceptionals down to £25.7m (H1 2017: £27.6m) in its H1 2018 figures. The group’s CEO, Roger Whiteside said: ‘Greggs has delivered a resilient performance despite challenging market conditions and we have continued to make good progress with our strategic investment programme to transform the business into the customers’ favourite for food-on-the-go’.
• Commenting on current trading Roger Whiteside stated: ‘While we remain cautious in respect of the outlook for sales in the balance of the year given the consumer backdrop, we are confident in the medium and long-term growth potential for the business… Over the year as a whole we continue to believe that underlying profits (before exceptional costs) are likely to be at a similar level to 2017’.
• CGA Prestige Foodservice Price Index has indicated that prices for fruit have increased 5.2% month-on-month following high demand and adverse weather. Sugar products have suffered an 8.4% drop in prices however, over the same time period.
• The BBPA’s Q2 Beer Barometer has shown that beer sales rose in the quarter but it says that a ‘cut in beer tax is still needed to help pubs’
• BBPA reports ‘beer sales in the second quarter of 2018 were up 3.6% on the same period in 2017’. It says ‘the increase in sales of beer in Q2 2018 was driven by the off-trade (e.g. supermarkets), which saw beer sales go up by 7.7% on the same period in 2017.’
• BBPA reports that pub sales did not rise, it says on-trade sales of beer fell by 1.0% year-on-year. The body reports ‘despite this, the fall in on-trade sales in Q2 2018 was a significant improvement on Q2 beer sales from the last ten years, where the average fall in on-trade beer sales has been 3.7%. The improvement is due to the boost to pubs from good weather during Q2 2018, as well as the beginning of the FIFA World Cup and the continued positive effects of the beer duty freeze implemented by the Chancellor in November 2017.’
• BBPA says ‘although the FIFA World Cup is a welcome boost to pubs, it only comes around once every four years and so measures taken by the Chancellor to cut or freeze beer duty year-round are far more influential for the long-term sales of beer in pubs and pub viability.’
• BBPA boss Brigid Simmonds says ‘it’s certainly good to see that beer sales are doing better overall. There is a very real threat however that the Chancellor will increase beer tax again in the Budget later this year, which would be a huge backward step after so much progress has been made since he froze beer duty last year. We need further cuts in beer tax to help pubs and the great British brewing manufacturing industry.’
• Texas Roadhouse has reported Q2 sales saying ‘comparable restaurant sales increased 5.7% at company restaurants and 3.9% at domestic franchise restaurants’. The American group says that ‘restaurant margin dollars increased 6.5% to $113.4 million from $106.5 million in the prior year, and restaurant margin, as a percentage of restaurant and other sales, decreased 77 basis points to 18.2% primarily due to higher labor costs’.
• Texas Roadhouse boss Kent Taylor says ‘our top-line results for the second quarter were strong with double-digit revenue growth, including 5.7% comparable restaurant sales growth. We are pleased with the consistency of our traffic gains this year and the continued strength headed into the third quarter.’ Mr Taylor says ‘on the development front, with 14 company restaurants opened in the first half of 2018, we are on track to open 27 or 28 restaurants for the year.’ Texas Roadhouse reports that comp unit sales are +4.7% in the first 4wks of Q3.
• The Mosaic Pub & Dining Co is to open an 18th site, a virtual freehold new build in the New Quay development in Greenwich. The operator continues to maintain ‘our pubs are the perfect place to enjoy a broad and interesting range of fantastic cask-conditioned and craft beers. From local brews to international talent, we provide an array of exceptional products from breweries throughout the UK and America.’
• Starbucks Corp & China’s Alibaba Group are to partner up on coffee delivery in China per media reports. Starbucks’ sales in China fell 2% in Q2, down from growth of 7% in the same period a year earlier.
• Samuel Smith Old Brewery has been fined £30,000 after the group refused to hand over vital documents about its pension scheme. Chairman of the group, Humphrey Smith, 73, wrote a letter to The Pension Regulator in response to a request to see certain documents: ‘We are in receipt of your tiresome letter and we are not prepared to divulge the information to your organisation’.
• Chipotle has released a new braised tofu product that is hoped to offer an ‘exciting new taste’ to its vegan customers.
• Chief executive of the BBPA, Brigid Simmonds, has commented on the Home Affairs Committee report on migration stating: ‘The BBPA shares the concerns of the Home Affairs Committee however, regarding the lack of debate on policy options to date and that as soon as is practical after the Migration Advisory Committee reports, the Government must bring forward detailed immigration policy options for consultation. It is vital that businesses are able to access the skills and people required to support economic growth and that there is greater certainty for this. As part of this, the BBPA also supports an overhaul of the UK’s arrangements for non-EU nationals’.
• The chief executive of UKHospitality, Kate Nicholls has commented on the same topic saying: ‘The report has rightly identified the need for an open debate on immigration and the need to take into account a range of views, not least of all UK businesses. The country’s future immigration policy should not be determined by a narrow ideological viewpoint, it should support the needs of the country and benefit the UK economy. We are hopeful that the Migration Advisory Committee’s report will highlight role migrant workers play and their importance, particularly to hospitality’.
• Lord Wolfson, the chief executive of Next has called for the government to rethink business rates following the myriad of site closures on the high street. Lord Wolfson commented: ‘[In] the thriving towns and cities, we should be paying high rates, but the ones that are dying, actually that process of failure is being accelerated by rates that are stuck at levels that don’t reflect today’s ¬reality’.
• House of Fraser is believed to have been approached by Sports Direct founder Mike Ashley over a new investment deal. Sports Direct currently owns an 11.1% stake in the struggling department store group. According to Sky News, House of Fraser requires £50m to prevent it from going bust.
• Bedlam Brewery are celebrating the forthcoming Brighton & Hove Pride festival with the release of a new limited edition fruity flavoured Pale Ale.
• Oakman Inns has opened its latest pub, the Royal Forester pub in Ascot. Peter Borg-Neal, CEO of Oakman Inns, said: “The delays caused by the extremes in weather throughout the build have been very frustrating for everyone concerned and I would like to thank all our neighbours and friends who have had to put up with the building works over the last few months’.
HOTELS & LEISURE TRAVEL:
• Thomas Cook cautions saying ‘based on our current view, we now expect growth in full year underlying operating profit to be at the lower end of market expectations.’
• Thomas Cook updates on Q3. Revenue +10%, gross profit down 3% to £443m and underlying EBIT +8% at £14m. The group makes most of its money in Q4.
• Thomas Cook says summer 2018 bookings are up 11% on last year with 79% of programme sold. CEO Peter Fankhauser comments ‘we have grown revenue strongly in the third quarter as more customers chose Thomas Cook for their holidays. I’m pleased to see that the improvements we’ve made to our holidays are paying off through strong growth in both new and retained customers, at 12% and 5% respectively so far this year.’
• TCG says ‘bookings for the summer are up 11% overall, fuelled by strong growth in our Group Airline, in line with the planned increase in capacity, particularly in Germany.’ The group says ‘it’s clear that we remain in a competitive environment, particularly in the UK where the growth in popularity of higher-margin destinations like Turkey and Egypt has not fully offset the continued pressure on margins to Spanish holidays.’
• TCG reports ‘overall Group volumes remain significantly ahead of last year, supported by the good progress we are making in all areas of our strategy.’
• TCG cautions ‘the sustained period of hot weather in June and July has led to a delay in customer bookings in the Tour Operator, restricting our ability to drive margins in the ‘lates’ market. Based on our current view, we now expect growth in full year underlying operating profit to be at the lower end of market expectations.’
• The group says ‘there is no change to our outlook beyond 2018. While it is early in the booking cycle, we are encouraged by booking and pricing trends for the Winter 2018/19 and Summer 2019 seasons. We are also confident that the strategic actions we are taking to better position the business – including improving the quality of our holiday offering, investing in our online proposition, and targeting efficiencies – will lead to further profitable growth over the medium term.’
• The Sunday Times claims Thomas Cook is considering selling off a minority stake in its airline, freeing up cash to pay down debt. The paper reports any current plans are at an early stage but that the airline’s current £12m annual profit from £9bn turnover alongside £886m of debt is ‘widely seen as unsustainable’.
• Thomas Cook launches a new city break and hotel-only booking platform in partnership with Expedia, granting customers access to more than 100,000 hotels. Cook said Expedia’s ‘superior technology’ would increase online bookings which have grown 37% in the year to date.
• Travelodge has opened its 395-room flagship Travelodge Plus in the City of London. The project represents an investment of £95m for third party investors and will contain a combination of ‘budget chic’ and ‘premium economy’ rooms.
• Accessible Travel and Leisure well cease trading after owner Andy Wright said it was ‘increasingly difficult’ to compete with large companies which had a ‘virtual monopoly’ on accessible accommodation.
• The share price of Helios & Matheson have fallen as fears that the unlimited-cinema ticketing service’s survive may be ‘Mission: Impossible’. Helios & Matheson was forced to take out an emergency $6.2m loan on Friday after becoming unable to pay the merchant processors that allow customers to buy tickets on its platform.
FINANCE & ECONOMICS:
• Bank of England reports the UK housing market is looking up. Foxton’s and others would appear to disagree. Mortgage lending numbers blipped up. The move has increased the likelihood that interest rates will rise on Thursday. British lenders approved 65,619 mortgages in June, a five-month high and up from 64,684 the month earlier.
• SMMT reports the number of cars made in the UK fell 5.5% last month due to a drop in demand and a “perfect storm of events”. There was a 47.2% drop in the number of cars made for the UK market.
• Sterling up vs dollar at $1.3129 but down against the Euro at €1.1203
• Oil up a little at $74.61
• UK 10yr gilt yield up 7bps at 1.35%
• World markets: All down yesterday with Far East down in Tuesday trade.
• Brexit etc.:
o FT reports ‘Remainer hopes of no Brexit are mirage’. Says some sort of deal will be done & that a parliamentary vote will just be a ‘take it or leave it’ affair.
o Telegraph reports ‘big banks are preparing to rally in support of businesses if Britain crashes out of the EU without a deal’. It says there will be a ‘Dunkirk spirit’ that will get us through the crisis.
o Sky reports 65% of voters think the government will get a ‘bad deal’ when it leaves the EU in March.
o Sky says only 13% of voters support Mrs May’s deal, 27% would prefer no deal at all and 48% would like to remain in the EU
o Reuters says that, as Labour is not advocating a second referendum ‘despite growing support and a vocal campaign for another vote, there is no obvious path for one to take place.’
o Clydesdale Yorkshire Bank says ‘the political situation in the UK remains highly uncertain and the potential impact on the UK economy remains unclear.’
PRIOR DAY TWEETS:
• Later tweets: Foxton’s says trading tough but Bank of England says mortgage lending picking up in move that may bolster chances of rate rise on Thursday
• Thomas Cook to sell airline story. Make sense? Depends which end of the telescope you look down. Outsourcing versus internalising profit.
• Discounts still rumbling on. Prezzo 30% off food, Pizza Express 25%, Beefeater 33% off & Domino’s 30% off orders over £25
• Regarding the outlook, Heineken reports ‘economic conditions are expected to remain volatile’. Shareholders underwhelmed
• Byron Hamburgers reports o/due numbers to 25 June 2017, loss of £55m. S Tel says co ‘admits it may need another lifeline.’
• Chinese investor C Banner International has delayed its cash injection into House of Fraser. Too many eggs in one basket?
START THE DAY WITH A SONG:
Yesterday’s song was Bring the Dancing Horses by Echo and the Bunnymen, but today who sang:
You pull back the curtain,
And the sun burns into your eyes
You watch a plane flying
Across a clear blue sky
RETAIL NEWS WITH NICK BUBB:
Consumer Confidence Watch: The widely-followed monthly GFK Consumer Confidence survey came out overnight and the overall index has slipped one point to -10, with Brexit uncertainty topping the World Cup feel-good factor…“Despite the World Cup, Wimbledon and warm weather playing front and centre in the nation’s psyche this July, the barometer again reveals a decline in consumer confidence…There’s more bad news for retailers too in the form of the Major Purchase Index, which has slipped below zero to reach -2 in July” according to Joe Staton, client strategy director at GfK.
Greggs: The share price of Greggs was hit hard by the warning in the AGM update on May 9th that, after poor trading in March/April because of “the snow”, it was cautious about the rest of the year and expected full-year profits to be only flat. And with High Street footfall unlikely to have been helped by the hot weather in May/June, expectations were quite low ahead of today’s interims…But the headline is “Resilient trading with good strategic progress”, as company LFL sales growth held at 1.5% over the 26 weeks, implying growth of around that level in the last 2 months. However, operating profit (excluding property gains and exceptional charges) slipped to £25.7m in the first half (from £27.6m a year ago) and the outlook is still only flat for the full-year.
News Flow This Week: The Apple Q3 is out in the US tonight. As August gets underway, tomorrow brings the Next Q2 trading update and the Dignity interims. Thursday brings the much-awaited MPC interest rate meeting and then the Pets at Home Q1 is on Friday.