Langton Capital – 2018-08-02 – M&B, Merlin, Campari, holiday price cuts & other:
M&B, Merlin, Campari, holiday price cuts & other:
A DAY IN THE LIFE:
Thanks for the comments from those trying to help us identify the birds that have been fluttering in and out of our ‘patio’.
We’ve had several comment suggesting that most of the wildlife in the area is of the two-legged variety and with that we cannot disagree.
Because, though foxes and rats have four legs, they are probably outnumbered by two-legged foragers or at least that’s how it sounds at night when they are calling to one-another in their ongoing attempts to get through the day.
Anyway, there’s more going on this morning than we had anticipated so, for the moment, let’s move on to the news:
MITCHELLS & BUTLERS Q3 TRADING UPDATE:
Mitchells & Butlers has this morning updated on Q3 trading and our comments are set out below:
• M&B reports LfL sales +0.9% in the 9wks to 28 July. LfL sales in the 43wks to date are +1.3%
• Food sales are down 1.8% in the last 11wks but up by 0.3% in the year to date
• Wet sales are +3.9% in the last 11wks and +2.5% in the year to date
• The group says ‘very strong performances in our wet-led estate [were] offset against more challenging conditions in food-led businesses, reflecting the impact of the World Cup and sustained sunny weather.’
• MAB says ‘the overall performance therefore reflects the relative positioning of our estate across these two main offers.’
• Total sales are +0.4% in the year-to-date.
More on current trading:
• M&B reports ‘cost headwinds remain largely unchanged and, as previously advised, are expected to lead to margins being lower than last year.’
• The group says it has opened 5 new sites and completed 228 conversions and remodels in the financial year to date.
Balance Sheet, Debt etc.:
• No comments at this stage
• M&B CEO Phil Urban comments ‘sales performance since the half year was impacted by England’s prolonged success in the World Cup and the sustained hot weather.’
• Mr Urban continues ‘trading was polarised across the Company, with the wet-led part of the business delivering very strong growth, but some of the more food-led formats, particularly the carvery businesses, were negatively impacted.’
• The company reports ‘however, we have been encouraged to see sales recover now that the World Cup has finished and as we continue on our longer-term journey.’
• The group concludes ‘we remain confident of delivering a full year performance in line with the Board’s expectations. The second wave of transformation activity is beginning to bear fruit and momentum behind this programme of work continues to grow.’
• M&B’s statement has confirmed that, whilst its food-led businesses have been negatively impacted by the recent hot weather and the World Cup, its drink sales have benefited.
• This is in line with expectations and the group reports that recent trading has shown more of a return to what it sees as normal trading.
• Capex has been going on in material amounts and some might suggest that the returns thereon have not been sufficient to raise today’s numbers a little higher.
• However, the market is competitive and M&B is getting stuck in both in terms of discounting and in evolving its offer in line with changing consumer tastes.
• The group has a large estate and all changes will take time to come through. Competitors will not stand still. Smaller operators will be more nimble but other, larger players, are facing much the same challenges as M&B.
• Margins are lower and this will weigh on profits at the full year.
• M&B has an extremely attractive estate but it still has much to do. Today’s announcement suggests that, whilst food sales have been sluggish, recent trading shows growth back on track and results should be in line with expectations.
• Trading is tough. Discounting is getting worse and costs are rising. M&B may have turned the corner but it may be doing so just as the market becomes somewhat more challenging. There is no real guidance as to the dividend. Or lack of it.
• However, the group can only play the ball that it is bowled and, with this in mind, it is doing all that it can.
PUBS & RESTAURANTS:
• Campari yesterday reports H1 numbers saying sales rose 5% driven by a strong performance in the US & Australia
• Campari reports H1 sales in the US up 6% and in the UK +17%
• Molson Coors aims to ‘aggressively’ address its falling volumes in the North American Market following its Q2 figures. The group reported worldwide volumes declined 2.4% in the three months ending June 30. Mark Hunter, the company’s chief executive and president, said: ‘Our full year underlying cost savings and free cash flow guidance has not changed, despite ongoing industry demand challenges in the US and Canada and inflationary pressures. While we are aggressively addressing our volume performance in North America, performance in our Europe and International businesses was strong in the quarter’.
• Competitiveness of food and drink manufacturers is hampered by rising input costs. The Food and Drink Federation survey found that 62% of respondents had seen ingredient costs rise, 61% had experienced packaging cost hikes and 51% noted higher energy cost.
• The German Farmers’ Association has reduced its forecasts for wheat production for the year to a 15 year low, following droughts.
• The Cheesecake Factory is set to open its first Social Monk Asian Kitchen, a pan-Asian concept, in the US.
• The MCA has reported that 31.5% of visits to casual dining restaurants in the last year have been prompted by promotions. Across the eating out market as a whole, the percentage of visits prompted by promotions rose from 13% to 13.6% year-on-year.
• Flight Club, the social darts concept, is set to open another two sites, in Manchester and Victoria London, the MCA has reported.
• Arc Inspirations, the Leeds-based bar operator, has organised a new senior debt deal with Santander. The group currently has 18 bars and is set to expand further.
• McDonald’s is celebrating the 50th anniversary of the Big Mac by distributing the MacCoin, a limited-edition global currency backed by the popular menu item.
• BrewDog has completed its Equity for Punks V, raising £20m.
• Pinduoduo, the Chinese tech start-up that raised more than $1.6bn in an IPO last week, is being investigated by China’s state market regulator following reports that the company’s e-commerce platform is populated by counterfeit and copycat products ranging from electric shavers to imported wines.
• House of Fraser’s status as a going concern is once more in peril after the retailer’s would be new owner, C.Banner, pulled out of a deal that would see it provide the department store chain with £70m of cash. HoF has already agreed to ditch 31 of its 59 stores as part of a controversial restructuring deal that is being legally challenged by the retailer’s landlords. Some 6,000 of the group’s 17,500-strong workforce would lose their jobs.
• Sports Direct is reportedly in talks with ailing House of Fraser’s advisor Rothschild over a potential £50m investment. Mike Ashley’s retail company recently saw its profits hit by the fall in value of its investment in Debenhams.
HOTELS & LEISURE TRAVEL:
• Some operators are cutting August prices by more than 50% to revive the lates market hit by the UK heatwave. Deals include Tui cutting a £576 self-catering week in Heraklion, Greece, to £204, and Thomas Cook offering £100 discounts on all August and September holidays.
• Accorhotels agrees to acquire 85% of 21c Museum Hotels, a US hospitality management company, for $51m. 21c combines a multi-venue art museum with hotels and restaurants, with 11 sites open and in development in the US.
• Wyndham Hotels & Resorts reports a significant transformation for the company in Q2, with executives describing it as ‘groundbreaking’. During the period Wyndham completed its acquisition of La Quinta Holdings’ hotel management and franchising business and the divestiture of its Knights Inn brand, removing 350 hotels and 21,000 rooms from its portfolio.
• Hyatt Hotels Corporation reports Q2 net income down to $77m compared to $103m last year but adjusted net income was $84m compared to $65m the year before. President and CEO Mark Hoplamazian said there was ‘upward momentum in our management and franchising business, underpinned by 4.0% comparable system-wide RevPAR growth and 7.4% net rooms growth.’
• UK holiday park operator Coppergreen has bought Clumber Park in Nottinghamshire and Kenwick Park Golf Hotel and Spa and Lodge Park in Lincolnshire. The acquisition has in part been funded by the BGF and HSBC.
• Merlin Entertainment has reported organic revenue growth of 4.5% for the 26 weeks ended 30 June 2018. The group declared a £10m drop in operating profit due to adverse foreign exchange movements and a higher depreciation charge due to New Business Development. Nick Varney, Chief Executive Officer, said: ‘Organic revenue growth of 4.5% has been largely driven by our New Business Development with the early transition of LEGOLAND Japan into a resort through the addition of a SEA LIFE Centre and a 252 room hotel together with the expansion of on-site accommodation at our LEGOLAND resorts in California and Germany’.
• Commenting on current trading Nick Varney continued with: ‘Having so far traded in line with expectations we are now entering our peak season where we generate the majority of our annual profit. With many exciting new initiatives and launches to come in the future, we remain confident in our long term prospects’.
• New European ecommerce sites have been launched by Disney in the UK, France, Italy, Spain and Germany in a move to reach shoppers outside its classic customer base.
• Shares of US casino companies have fallen after gaming revenues in Macau rose less than expected. Gambling revenue in Macau increased 10.3% to $3.1bn in July, missing the 11.5% anticipated by analysts. Wynn shares fell 4.3 per cent to $159.63, shares in Las Vegas Sands declined 3.8 per cent to $69.15 and Melco Resorts & Entertainment shares were off 2.7 per cent to $25.16.
FINANCE & ECONOMICS:
• Bank of England expected to raise interest rates from 0.5% to 0.75% at lunchtime today. Such a move, which is deemed a c85% probability by observers, would take the bank rate to its highest level since 2009.
• UK manufacturing PMI slipped to 54.0 in July from 54.4 in June. Any number over 50.0 implies growth. Exports were strong. Sentiment, though positive, is at its lowest level in a couple of years.
• Nationwide reports house prices rose by 2.5% in the year to July, up from the 2.0% registered in the year to June.
• Sterling unchanged vs dollar at $1.3102 but up vs Euro at €1.1246
• Oil down a dollar and a half at $72.55
• UK 10yr gilt yield up 6bps at 1.39%
• World markets: All down yesterday with Far East down in Thursday trade.
• Brexit etc.:
• City of London mayor Charles Bowman has said that between 5k and 13k could be lost in the City before next March. Though more jobs could be lost thereafter, these numbers are lower than earlier predicted.
• The Food & Drink Federation has said that Brexit is ‘shaping up to be the stuff of nightmares.’ It says ‘it’s essential the government begins to explain a) to businesses and b) the public exactly what the implications of a no deal Brexit are.’
PRIOR DAY TWEETS:
• Later tweets: Deliveroo suggests other people give money to restaurants? Specifically HMG should cut Business Rates. Amounts to same thing?
• NIESR says Chequers’ plan will cost £500 per annum for each UK citizen. EU may fudge deal terms to help its passage in UK
• Next shares down 6% as it benefits from hot weather but says is stealing sales from August & aims for 1% sales growth full year
• MCA says 31.5% of restaurant visits driven by discounts. Up to 40% off with some 2-4-1s thrown in make paying full price not sensible
• Travel Weekly reports some tour operators cutting August prices ‘by more than 50% in a bid to revive the Late market hit by the UK heatwave’
START THE DAY WITH A SONG:
Yesterday’s song was Glass Animals with ‘Life itself’. Today who sang:
I see a ship in the harbour,
I can and shall obey
But if it wasn’t for your misfortune, I’d be a heavenly person today
RETAIL NEWS WITH NICK BUBB:
Debenhams: By their standards, the embattled Debenhams had a pretty volatile day yesterday, with the lowly share price rising at first on the back of the Guardian report that Debenhams is seeking up to £250m for the Danish department store chain Magasin du Nord, then falling on the back of the downgrade of its credit rating by Moody’s from B1 to B2 (despite a statement from the company that “…we have agreed increased headroom on our fixed charge covenant. Debenhams remains profitable and cash-generative, and our banks are supportive”), before rising again on the reports that its beleaguered rival House of Fraser appeared to be on the edge of bankruptcy…to finish the day 4% up at 12.5p.
Kingfisher Watch: We flagged yesterday that the Travis Perkins warning about tough trading in the DIY market for Wickes knocked Kingfisher on Tuesday, even though both Wickes and B&Q should have been able to benefit from the disarray at Homebase. We look forward to hearing what Kingfisher have to say about UK trading in the Q2 update on Aug 16th, as evidence is accumulating that the much vaunted growth of the Screwfix trade business is slowing, given tougher competition from the Travis Perkins rival operation, Toolstation. Travis Perkins flagged on Tuesday that LFL sales growth at Toolstation accelerated to 10.7% in the 6 months to end June, despite the impact of “the snow” in March/April, with overall sales growth of 17.6%, driven by the continued growth of the store network in the UK, with 22 new stores opened in the first half, taking the total network to 317. Travis Perkins said
News Flow This Week: The much-awaited MPC interest rate meeting decision is out at mid-day and then the Pets at Home Q1 is tomorrow morning.