Langton Capital – 2018-09-26 – All the Ss: SSP, Shepherd Neame, St Austell, Stride etc.
All the Ss: SSP, Shepherd Neame, St Austell, Stride etc.
A DAY IN THE LIFE:
The freeholder of our property has uprooted all of the paving stones around our flat and carefully replaced them, at great cost, with the same paving stones.
They’ve slapped us with a humungous bill, of course, but the only benefit I can see is that the camber on the slabs has changed such that a monstrous puddle gathers just outside our door meaning that, from about now until April, we may not be able to get in or out of the building.
They also slapped up some scaffolding, left it there for a few months, and then recruited a few builders to clean out the gutters and generally throw tab ends into the mud that we call a garden.
All in a day’s work. On to the news:
60 SECONDS ON CHASING THE DISCOUNT DRAGON:
How did we get here?
• Demand down & supply up: not pretty
• This has led to a declining UK eating out spend – at least in LfL terms
• Real wage stagnation has squeezed discretionary spending & made customers more cost conscious
• Choice (a.k.a. overcapacity) in F&B increases the need to stand out from the crowd
• Offering discounts is a quick (and ugly) fix
• It’s infectious & others have to offer discounts to keep up
Where are we now?
• The weak pound after Brexit means higher input costs
• Inflation, NLW, rents and rates pressures are drastically increasing restaurant costs
• These costs can’t be passed on due to, overcapacity, and declining customer spend
• Discounting has materially increased in the last year.
• Recent offers include Frankie & Benny’s offering 40% off mains, Pizza Express 2-4-1 (50% off by our reckoning), Bella Italia 40% off and Prezzo 30% off
What does it mean?
• Restaurants on death row will offer last gasp discounts damaging the rest of the sector
• Discounts can be embarrassing to use, and infuriating if you see other customers using them and you are paying full price
• It’s a handy lose-lose-lose solution & is a short-term solution to a long-term term issue
• In many cases, units could be over-rented, or their offering isn’t good enough
• Discounts for the ‘me too’ casual dining operators (PizzaExpress) only makes them as cheap as smaller nimbler operators (FM, Pizza Union)
PUBS & RESTAURANTS:
• SSP has updated on trading to its year end saying ‘trading in the fourth quarter has been in line with our expectations, with like-for-like sales growth continuing at a similar level to that seen in the third quarter.’
• SSP says ‘our expectations for like-for-like sales growth in the full year remain unchanged at between 2% and 3%. Like-for-like sales growth has been driven largely by increased passenger numbers in the air sector. Trading in the rail sector has remained soft during the year.’
• SSP concludes ‘looking forward, whilst a degree of uncertainty always exists around passenger numbers in the short term, we are well placed to continue to benefit from the structural growth opportunities in our markets and to create further shareholder value.’
• Shepherd Neame has reported full year numbers to 30 June (53-weeks) saying that turnover rose 0.2% to £156.6m and underlying EBITDA rose by 5.5% to £24.6m.
• Shep’s underlying PBT is up by 5.4% to £11.8m. Underlying EPS is up by 6.6% at 63p and the dividend will pay a dividend of 29.2p for the year, up some 3%.
• Shepherd Neame CEO Jonathan Neame says the group has made a ‘strong start to the new financial year benefiting from the sustained period of warm weather in July and August.’ For the 11 weeks to 15 September 2018, LFL managed sales were up +5.1% (2017: +1.4%). In the 9 weeks to 1 September 2018 LFL tenanted EBITDAR was up +6.2% (2017: +0.6%) and own brand beer and cider volume was up +6.4% (2017: -6.5%).
• Shepherd Neame comments ‘we have made further good progress against our strategic objectives and some great individual investments in our pubs. We have also successfully re-positioned our beer business away from contracts to focus on our own beer and cider brands.’ The company says ‘we have started the new year well.’
• Sheps cautions ‘the coming year has more political and economic uncertainty than most of us can remember. But, whatever the short-term impact, we believe that we are well positioned to take advantage of opportunities that arise in our local region and in the wider industry.’
• The Telegraph reports that Amazon has made two preliminary approaches for Deliveroo. One of the approaches is said to have been in the last year.
• St Austell Brewery has reported 52-week numbers to 30 December to Companies House. It says turnover rose to £169.3m (+10.3%) whilst operating profit fell 1.1% to £13.3m and EPS fell by 3.3% to £5.86. The group is paying a dividend of £1.62, up some 1.9% on last year.
• St Austell says ‘the performance of the underlying business has been strong but the results have been impacted by the lower than expected performance of the former Bath Ales beer brands and recently acquired managed pubs not yet trading at their expected levels.’
• St Austell says ‘it has been a year of consolidation’ and Chairman Will Michelmore adds ‘I am cautiously optimistic about the year ahead’.
• JW Lees has reported revenue up 4.5% to £70.8m with pre-tax profits down 23.2% to £3.9m in the 12 months to 31st March 2018. Managing director of the group, William Lees-Jones stated: ‘At the end of 2017 we were sitting on over £20m in cash which had been earmarked for new pub acquisitions but, with a shortage of quality sites available, we decided to accelerate our investment programme in our existing estate: we invested in a total of 89 schemes in the year which means that 2/3rds of the JW Lees pub estate benefitted from improvement schemes of some form’.
• Big Hospitality has reported that D&D restaurants group could shift its focus from the UK to overseas growth in the future, if problems with Brexit negatively affect the UK restaurant industry. The group’s CEO, Des Gunewardena, commented: ‘If Brexit is managed badly and we are successful in America we would definitely look to shifting our growth overseas from the UK’.
• Coca-Cola has acquired the French fruit drink brand Tropico from Alize.
• Time Out has announced that if the group secures planning consent for its target London site, it could open by H2 2020.
• Italian and Latin American cuisines have seen their share of the UK restaurant market decrease from 39.2% to 37.1% and 6% to 5.2% respectively, according to research from the MCA.
• Per MA, MP Jacob Rees-Mogg met with Tim Martin, founder of JD Wetherspoon, at the new £2.8m JDW in Midsomer Norton to discuss the new venue, Brexit plans and tax equality. Rees-Mogg said ‘Tim is committed to securing a post-Brexit lower tax regime for the great British pub and I support him.’
• A Starbucks memo written by CEO Kevin Johnson states the company will be cutting jobs and restructuring head office positions starting this week to bring shareholder value. The memo stated ‘Put directly, starting next week and into mid-November there will be leadership shifts and non-retail partner impacts’.
• Crussh Fit Food & Juice bars launches its new Autumn menu including hot super grain salads, protein overnight oats and chicken tikka curry.
• Inspire Brands, owner of Arby’s, will acquire Sonic Corp for $1.57bn in cash in a deal that will add more than 3,600 drive in restaurants to its portfolio. Including debt, the deal is valued at about $2.3 billion, and values sonic at $43.50 per share, a 19 percent premium.
• Dunkin’ Donuts will rebrand to “Dunkin’” to focus on its beverages and breakfast meals, according to CEO Dave Hoffman, with the new branding taking effect in January.
• Haidilao Hotpot, a Chinese restaurant company, saw its stocks jump 10.3% on its trading debut in hong Kong, to HK$17.80 per share. Haidilao owns 332 restaurants in China and has outlets in Singapore, South Korea, Japan and the US, and claims to be the fastest-growing major Chinese cuisine brand globally.
HOLIDAYS & LEISURE TRAVEL:
• CWT Meetings & Events forecasts London to retain its position as top destination for events in the EMEA region in 2019, despite the uncertainty of Brexit. Moscow takes second place, climbing four places since 2018’s predictions. Paris on the other hand falls from second place to ninth. Across EMEA, cost per attendee is predicted to increase by 6 per cent in 2019 to an average of US$255.
• Club Med will open a 486-room resort in Marbella, Spain on 3 August 2019 following a 20-year absence from the country. The company will put its summer 2019 programme on sale on 2 October, with a 15% early booking discount on the first two days.
• NYC hotels ‘are enjoying their highest occupancy rates since 2000 for the first eight months of the year’, according to data from STR. The market is experiencing the fastest pace in growth of revenue per available room since 2013 and occupancy rates are robust. ‘New York is one of these rare markets that ‘if you build it, they will come,’ it’s actually true,’ commented Jan Freitag, SVP of lodging insights at STR.
• High demand from foreign tourists indicates that 2018 will be a year to remember for French hoteliers. Hotels in Paris are anticipating average revenue growth of 10% to 20% year over year, according to KPMG, while hotels like The Ritz and Plaza Athénée in Paris could see occupancy rates increase to 60% to 65% this year compared to 55.8% in 2017.
• Ryanair has cancelled 190 of its 2,400 scheduled flights this Friday in anticipation of strike action being taken by unions in Spain, Belgium, Holland, Portugal, Italy and Germany.
• Bravo, Whiskey Golf, a Scottish golf adventure business, will use chartered flights for customers to explore some of the most remote golf courses in Scotland.
• Manchester United’s revenues hit a record £590m for the year to the end of June, up 1.5% year-on-year, as the football group earned more money from TV rights. The performance comes despite a poor showing in Europe for the club. United is set for another year of record revenue in 18/19, with forecast sales of £630m. Executive vice chairman Ed Woodward said: ‘Our increased revenue expectation for the year demonstrates our continued strong long-term financial performance which underpins everything we do and allows us to compete for top talent in an increasingly competitive transfer market.’
• Stride Gaming has reported on trading to end-August saying ‘the Group is pleased to report that it has traded well and in line with the Board’s expectations during the second half of the financial year.’
FINANCE & ECONOMICS:
• Sterling up at $1.3169 and €1.1194
• Oil up at $81.82
• UK 10yr gilt yield up 1bp at 1.63%, highest since end-2015.
• World markets: UK, Europe & US up yesterday, Far East down in Wednesday trade.
• Brexit, politics etc.:
o Duplicity and incompetence to the fore.
o Cabinet said to be ‘fully behind’ the PM’s Chequers proposal, which has already been rejected by Europe. To outsiders, the Cabinet does not look particularly united as Jeremy Hunt and other Remainers burnish their new Brexit (and leadership) credentials as Canada-style leavers.
o Labour Party seems not to know what it thinks. It wants the votes of the young (and the young at heart) whilst pandering to the whims of the old.
o PM has said that no-deal would be better than the deal put on the table by the EU. Business horrified that an admittedly non-business oriented PM could even think such a thing. Unspoken is the fact that both the above solutions would be considerably worse in economic terms than remaining in the EU.
o Current PM Mrs May says ‘I’ve always said no deal is better than a bad deal.’
o Current leader of the opposition Jeremy Corbyn says very little at all.
o Sir Keir Starmer, one of the few adults in the room, tells conference ‘nobody is ruling out Remain as an option.’ He says ‘if the prime minister thinks we’ll wave through a vague deal asking us to jump blindfolded into the unknown she can think again.’
o FT suggests Starmer is ‘certainly seems a lot closer to the Labour faithful than his own leader.’
o Brexit supporter Lord Wolfson has said that a no-deal outcome would not pose a ‘material threat’ to Next. He adds that, if the ports seized up, that would be another matter.
START THE DAY WITH A SONG:
Yesterday’s song was Vienna by Ultravox. It was famously kept off the no1 spot by Shaddup ya Face. Do yourself a favour and don’t listen to that one. It will be in your head all day. Today, who sang:
We’ll start over again,
Grow ourselves new skin
Get a house in Devon
RETAIL NEWS WITH NICK BUBB:
Boohoo: The high-flying Boohoo share price took a bit of a knock over the summer, on worries about the big warehouse move of Pretty Little Thing (the fastest-growing subsidiary of the group), but it has begun to recover recently and it should get a further boost from today’s stronger than expected interims (for the 6 months to Aug 31st). Total revenue jumped by 50% to £395m (up 43% in the UK) and adjusted EBITDA was 43% just under £40m. On the back of that, management have raised their targeted revenue growth for y/e February 2019 to between 38% and 43%, up from the previous guidance of 35% to 40%. Mahmud Kamani and Carol Kane, the joint CEO’s, say that “the Sheffield relocation was carried out with a low level of disruption to the operations of PrettyLittleThing and is a credit to the project team”. Attention now turns to next year’s automated distribution centre extension in Burnley
John Lewis Trading Watch: Next said yesterday that their trading over the last 6 weeks has not been as bad as they’d feared, but John Lewis continue to struggle (albeit with a different sales mix), according to yesterday’s weekly sales overview from JLP. The warmer weather and tough comps from price-matching the Debenhams “Spectacular Sale” a year ago in w/e Sept 22nd saw gross sales growth limited to 0.5% (c1.5% down on a LFL basis). Electricals were up by 10.8% in gross terms, helped by the launch of the new iPhone, but Home sales were down by 3.4% gross and Fashion sales slumped by 6.8% gross. So, after a weak start to the second half of the financial year, gross sales are now running down by 0.2% gross over the last 8 weeks combined (over 2% down LFL).
Waitrose Watch: Over at Waitrose last week was also hit by the comp with heavy promotional activity a year ago and gross sales at Waitrose were 0.6% down, ex-petrol, in w/e Sept 22nd (slightly down LFL). The last 8 weeks overall have also been down by c0.6% gross, despite the strong start to August for Waitrose.
News Flow This Week: The CBI Distributive Trades survey for “September” is out at 11am this morning, for what it’s worth. Tomorrow brings the Halfords Capital Markets Day/Strategy Review and the Joules AGM. Then, with the end of the month coming up very quickly now, we get the GFK Consumer Confidence index for September first thing on Friday.