Langton Capital – 2018-09-17 – August Tracker, JDW, Restaurant Group, Just Eat etc.:
August Tracker, JDW, Restaurant Group, Just Eat etc.:
A DAY IN THE LIFE:
Although there’s a natural attrition in our garden brought about by various foxes, stoats and eagle-looking birds of one sort or another, we remain under pressure to get more pets.
And here I’ve said that I’m happy to ‘own’ as many wasps, bees, ants and frogs as you like, but I’m drawing the line at any animals that either weigh more or eat more than I do myself.
Admittedly I can’t really keep the deer out of the garden. And they weigh quite a bit but the domesticated animal battleground has moved on to geese (I’ve said ‘no’ though calling them Berry and Pimple did have a certain appeal) and I’ve lost the battle on rabbits.
Here, despite having more rabbits in the garden than you can wave a gun at, we’ve just got a domesticated one called Bobbin. And it’s rather cute but, as I was under pressure to buy some twigs (yes, willow twigs) at £2 a small bag from Sainsbury’s for the thing to chew on, I’ll have to draw the line somewhere. On to the news:
AUGUST PUB & RESTAURANT TRACKER:
• CGA Peach’s latest tracker shows that LfL sales across the UK’s bars & restaurants increased by 0.6% in August versus inflation of 2.3%. JDW said on Friday that it needed LfL sales of around 4% in order to stand still in terms of profits. Most other operators focus on a number between 1.5% and 2.5% before margins come under significant downward pressure.
• The tracker nonetheless suggests that the UK holiday season delivered a boost to the GB eating out market.
• Restaurants were +1.4% with pubs up just 0.2%, albeit after a good July boosted by the hot weather and the World Cup. Cooler weather helped restaurants.
• London outperformed the UK as a whole with LfL sales +1.5%. The provinces were +0.4%. CGA comments ‘these latest figures will come as a huge relief for restaurant operators, who have been under the cosh of late, not least because of the early summer heatwave which was great news for Britain’s pubs as the public headed outdoors, but little help for the country’s restaurant chains.’
• David Coffer says ‘the summer tourist season and the continuing good weather appears to have given an uplift to trading levels for restaurants in London, especially those with external seating.’ Mr Coffer goes on to say ‘this may well be a deceptive improvement as the impact of possible political upheaval begins to gain momentum over the coming months. The reaction of the UK restaurant public could swing either way in terms of seeking solace in food and beverage venues.’
• Re the property market, Mr Coffer says ‘generally, we are seeing a continuing demand for restaurants in good trading locations but a drop-in demand otherwise. Premiums for leases are certainly at a five year low.’
• Cumulative 12mth LfL growth is running at 0.5%.
• Accountants RSM comment ‘fierce competition, escalating input costs and flat like-for-like sales have contributed to the recently reported 2.5% year on year fall in the number of licensed premises in the UK.’ It adds ‘post inflation wage growth is helping to underpin consumer demand for eating and drinking out. With fewer sites now vying for this increase in discretionary spend, operators will be looking to capitalise. Whilst it is still a tough marketplace, these figures show there is still a lot of opportunity.’
• New openings may still be dampening LfL sales as the Tracker says that ‘total sales growth across the pub and restaurant cohort, which includes the effect of new openings, was 3.2% in August, reflecting a slowdown but not a halt in brand roll-outs, and was running at 3.7% for the 12 months to the end of the month.’
• Langton Comment: These remain tough markets and, with LfL sales growth of only 0.6%, margins will be under downward pressure.
• New openings are part of the cause here as, with 3% or so new capacity going on every year, demand is failing to keep up and LfL sales are negative in real terms.
• Costs are certainly not in negative growth meaning that, though JDW’s stated need for growth of 4% in order to stand still is a little higher than that needed by most operators, it will not be very far wide of the mark.
JD WETHERSPOON – FULL YEAR ANALYSTS’ MEETING:
Following the announcement of its FY numbers on Friday morning, JD Wetherspoon hosted a meeting for analysts and our comments thereon are set out below:
• JDW has confirmed that margins rose slightly in H2 and averaged 7.8% for the year as a whole. Head office costs are lower on reduced bonuses but wages rose 7.5% and depreciation was 9% higher
• JDW will pay over-18s the same as it pays over-25s going forward
• The group declined to give a split between volume and price for the 5% LfL recorded in FY18 nor for the minimum 4% needed in the FY19.
• JDW confirmed that this remains a competitive industry & that price rises have to be considered in that light
o Is changing out EU products in the interests of shareholders if you have to pay customs tariff on non-EU items that are otherwise customs’ free? Co maintains yes.
o Customer feedback has suggested that Erdinger (Weissbier) is missed, but French champagne isn’t
o Investment in pubs may be lower this year (FY19) as it was particularly high in the year just reported. Such investment, by its nature, may not be smooth y-o-y
o Concession sales have performed broadly in line with the wider estate. Though London outperformed (only 16 pubs), there has been no north-south divide. Nor is there a difference between the performances in large versus small towns
o The group has no specific target for what proportion of its estate it wishes to be freehold properties
o JDW is comfortable that its staff are relatively well-paid. It has a ‘buffer’ versus competition. That said, unemployment is low and the group ‘must remain competitive’
o Share buybacks remain opportunistic & should not be relied upon
o The group’s App is performing well (no detail) but delivery is not a priority
• JDW says interest costs will rise this year as the average rate paid increases. Some £33m to £34m should be paid
• JDW reiterated that it will need 4% LfL growth in order to hold PBT at the £107.2m level
• The group characterises its start to the year as ‘steady’
• The group has achieved 5.5% in the first 6wks but comps remain tough and the group is signalling broadly flat earnings
• No real guidance to margins but, if sales rise at 4% and profits stand still, then margins will have to be lower
• The discount at which JDW sells product relative to its competitors has widened recently
Balance sheet, debt etc.:
• JDW spent less in the year under review on freehold reversions but it spent £52m (average 1025p) on share buybacks versus £28m last year
• 59% of the group’s pubs are now freeholds
• Debt is up £30m but still comfortably within covenants
• JDW should open ‘five to ten’ pubs this year. Costs have risen a little. This is mostly down to these being larger units (rather than a rise in LfL build costs).
• Some pubs will be disposed of but this process is now mostly complete
• JD Wetherspoon has beaten estimates but guided to broadly flat profits in the current year. Given the group’s shares are rated at more than 16x earnings and yield only 1%, this has led to a modest sell off today.
• The group needs to increase sales by 4% this year in order to keep profits static. It is currently ahead of this curve (at 5.5%) but, as the year progresses, comps will become tougher.
• JDW’s shares have been strong for some time and a little profit-taking is perhaps to be expected.
• The decision to take branded European products from its bars could help margins though there has been some customer push-back in some areas.
• As mentioned previously, the group does not operate in a vacuum and, as competitors particularly in the food space continue to cut prices and offer deals, it may be impacted.
PUBS & RESTAURANTS:
• The MCA has reported that the Restaurant Group is in discussions with Peach Pub Company regarding a possible acquisition. Earlier in September TRG acquired the pub group Food & Fuel for c£15m.
• Stonegate Pub Company posted a jump in like-for-like sales of 19.2% over the World Cup tournament as fans rushed through the doors to watch their teams play. According to The Times, Stonegate reported incremental revenue of £11.9m, with beer sales up 550% for England games and 44% for other matches. Stonegate has been busy in recent times — it decided to put a planned £1bn flotation in 2016 on ice but has since more than doubled in size to 739 outlets. Last year, the group launched a £101.5m bid of Revolution Bars Group but was rejected by shareholders. In July it added 48 bars after swallowing the Be At One chain and 15 bars in London from Novus Leisure for a combined total of about £80m.
• The most recent Deltic Night Index that almost 20% (19.5%) of people go somewhere other than their local town when they go for a night out in order to have more choice of destinations and later opening hours. A further quarter of respondents (24.3%) split where they go out equally between their local town and other locations. Respondents are willing to travel for a good night out: 39 minutes to a good pub, 40 minutes to a cinema, 42 minutes to a good bar, 51 minutes to go to a good club, and 92 minutes to a live music event.
• Peter Marks, Chief Executive of The Deltic Group commented, ‘This quarter’s Deltic Night Index shows us that consumers are happy to spend both time and money on a fun, unique nights out. For me, a few stats stood out from this report: that almost 20% of people don’t go out in their local town; 18.9% of consumers go out in another town because the nightlife in their local town finishes too early; and 33.1% do not think their local town offers diverse nightlife. These three stats show us that there is still much to be done by operators and local Governments around investment, licensing and security to improve the offerings in our local towns, and together we can ensure that that the 20% enjoy a great night out closer to home.’
• British consumer spending grew over the three months to August at the fastest pace since January, adding to data that suggests the economy gained momentum in mid-2018, according to a survey from Visa. Inflation-adjusted consumer spending between June and August was 0.3% higher than in the three months before, up from growth of 0.2% in the May-July period, Visa said, based on its credit and debit card usage data. ‘The prolonged good weather has seen sustained performance for hotels, restaurants and bars, and ‘food and drink’ again topping the sector categories,’ Visa chief commercial officer Mark Antipof said.
Amazon is investigating claims that some of its staff sold confidential customer data to third party companies.
• Pret a Manger (Europe) has reported full year numbers to 28 December 2017 to Companies House saying that revenues rose to £636.9m (2016: £575.0m) and underlying EBITDA rose to £97.8m from £8.6m in 2016.
• Pret reports PBT of £64.9m (2016: £83.5m) with shareholders’ funds rising to £450.3m from £391.7m in the prior year.
• Pret comments ‘2017 has been another year of continued growth’. It says it opened a net 31 new stores in the year and says ‘we are well-positioned to continue our growth through disciplined opening of new company-owned stores, increasing sales at existing shops and opening franchised shops with like-minded capable partners’.
• Pret parent company PAM Group Ltd has also reported accounts for the year to 28 December. The parent includes operations in the US, France & Hong Kong as well as a number of additional companies in the UK (all in addition to Pret Europe, detailed above. Total group revenue rose to £878.5m from £776.1m. underlying EBITDA was £99.1m suggesting that the overseas businesses were barely profitable. Some 58 shops, including new units in the UK, were opened during the year.
• Pret parent says it has achieved 34 consecutive quarters of LfL sales growth.
• Writing in May this year, Pret parent says ‘we have made no secret that we believe Pret is ideally suited to being a quoted company at some point in its future’. This was overtaken by events as Pret was purchased by German coffee giant JAB Holdings for £1.5bn shortly after the company made the above comments.
• Starbucks is expanding its delivery options working alongside Uber Eats in Florida. Uber Eats commented: ‘Select items from the Starbucks menu will be available, featuring favorite items that have been tested for delivery’.
• Independents, managed and free-of-tie pubs are driving growth in the pub industry despite outlet numbers falling, the MCA has reported. MCA Insight client services director Josh Ford commented: ‘In 2018, there is a 1.6% growth in turnover, outlets are still declining slightly but the managed, independent and free-of-tie sector is pushing growth. Dining out is becoming a lot more informal, which plays into the hands of the pub sector. The same can be said for friendly service and good value being very important’.
• Coca Cola has completed its biggest UK sponsorship deal by becoming the Premier League’s seventh and final commercial partner.
• Just Eat has launched a ‘digital pop-ups’ scheme with Vessel as it enters the dark kitchens market, per MCA. The scheme is currently live in Manchester, Leeds and London. ‘The pop-ups are a fantastic way for us to give customers a taste of great new flavours which they wouldn’t have otherwise been able to enjoy and helping small innovative businesses expand to new areas – enabling them to test the water without the risk associated with setting up a bricks and mortar shop,’ a Just Eat spokesperson said.
• Deliveroo will have 400 virtual restaurants by the end of September, per MCA.
• A Spanish-speaking Taco Bell employee in the US has been fired after refusing to serve an English-speaking woman in Florida.
• The chief nutritionist at Public Health England has criticised coffee shops for pushing customers to buy snacks. The agency has been working with the food industry to reduce the sugar content of foods sold in shops and is now turning its focus on food consumed out of the home. ‘Coffee shops have got a long way to go,’ said Dr Tedstone, adding that a muffin added an extra 400 calories to an order.
• Kate Nicholls, CEO of UKHospitality, says the launch of calorie labelling on menus ‘will place considerable burdens on smaller businesses and those venues that change their menus regularly…At a time of economic and political uncertainty, and with costs continuing to rise for employers, the last thing businesses need is additional, unwieldy legislation.’
• The Consumer Credit Trade Association claims its members are being ‘carpet bombed’ with compensation demands from claims firms. But the claims companies insist lenders would not be under pressure if they had treated customers fairly in the past.
• Hi-Spirits launches Corazón Tequila, a premium single estate tequila. Nielsen data shows tequila sales grew by 3.9% in value in the UK in the year to June 2018, with premium brands performing even more strongly.
HOLIDAYS & LEISURE TRAVEL
• Eurostar staff will strike for 48 hours between 30 September and 1 October, citing working conditions at the train’s London terminal as the reason. RMT general secretary Mick Cash said: ‘The conditions at St Pancras have been simply appalling over the summer with dangerous levels of overcrowding on the concourse as services plunge into meltdown on the cusp of the busiest part of the year.’
FINANCE & ECONOMICS:
• The BCC has cut its UK growth forecast for 2018 from 1.3% to 1.1% and for 2019 from 1.4% to 1.3%. It says its cuts are driven by weaker trade and investment. The BCC’s Dr Adam Marshall comments ‘despite strong performances by some firms, the UK economy as a whole is set to grow at a snail’s pace.’
• Lib Dems call for a £100bn “citizens fund” (sovereign wealth) to be created in order to distribute wealth.
• Sterling down vs dollar at $1.3081 but up vs Euro at €1.1241
• Oil down at $77.95
• UK 10yr gilt yield up 3bps at 1.53%
• Brexit etc.:
o No deal warnings continue to pile up.
o Boris Johnson tells the Telegraph he does not want PM Theresa May to step down. Says it’s all about ‘chucking Chequers’ rather than furthering his career.
o Michael Gove says Chequers could be changed further down the road.
o Mark Carney tells Cabinet approval of the Chequers’ proposal could see a bounce in the economy.
PRIOR DAYS LATER TWEETS:
• Later tweets: JDW shares give ground as it says it will need 4% LfL sales growth this year to stand still in terms of profits
• JDW up 5.5% in first 6wks of this year. Comps will get tougher. Competitors, particularly in food, discounting etc.
• National Caravan Council & others report boom in caravan club membership etc. Sunny weather, weak pound etc.
START THE DAY WITH A SONG:
Last Friday’s song was Home by Edward Sharpe & The Magnetic Zeros. Today, who sang:
Lights are flashing, cars are crashing, getting frequent now,
I’ve got the spirit, lose the feeling, let it out somehow.
RETAIL NEWS WITH NICK BUBB:
• Nick is taking a well-earned break.