Langton Capital – 2018-09-27 – M&B FY update, TUI ditto, CVAs, discounting, Saga…
M&B FY update, TUI ditto, CVAs, discounting, Saga…
A DAY IN THE LIFE:
Bit busy with results today. On to the news:
MITCHELLS & BUTLERS FULL YEAR UPDATE:
Mitchells & Butlers has this morning updated on full year trading and our comments are set out below:
• M&B reports ‘sales have strengthened since our last update, on 2nd August.’
• The group last updated to 28 July. It now says that ‘in the 8 weeks to 22 September like-for-like sales growth was 2.2%.’ Growth in the 11wks to 28 July had been 0.9%.
• M&B says ‘the period has also seen a more normalised split between drink and food sales following a period of very strong drink growth over the summer.
• M&B adds that, due to the shift caused by the 53rd week last year, that ‘on a reporting basis like-for-like sales growth was 0.8% in the past 8 weeks, and 1.2% in the year to date.’
• Total sales have increased by 0.5% in the year to date ‘impacted by the disposals in the prior year.’
More on current trading:
• M&B reports that ‘cost headwinds remain largely unchanged and, as previously advised, are expected to lead to margins being lower than last year.’
Balance Sheet, Debt etc.:
• No comments on debt at this stage
• Re new-build, disposals and structural changes, M&B says ‘we continue to make good progress on building a more balanced estate, in particular premiumising our offers where possible and reducing the remodel lifecycle.’
• M&B says ‘we have opened 7 new sites and completed 232 conversions and remodels in the financial year to date.’
• M&B CEO Phil Urban comments ‘we are pleased to have seen like-for-like sales growth improve to 2.2% following the period of sustained hot weather and the World Cup over the summer.’
• The CEO continues ‘we are building momentum as a result of our focus on our strategic priorities and are seeing encouraging results from the second wave of transformation activity.’
• M&B concludes ‘work continues to mitigate the cost headwinds impacting the industry and we remain confident of delivering full year results in line with the Board’s expectations.’
• M&B has not given detail but it has implied that, though its food-led businesses had been negatively impacted by the July hot weather and the World Cup, sales have now ‘normalised’.
• Trading is in line with expectations.
• This is reassuring but, as the group reports, cost headwinds remain a problem and margins will be lower this year than they were last.
• In recent years, M&B has expended a great deal on capital spending. The returns here will have shored up the overall numbers which, in the absence of capex, would have been worse.
• 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.
• 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 indeed whether there will be a dividend this year at all.
• However, the group is optically cheap and, though operating is not easy, it is pulling what levers it can.
60 SECONDS ON CVAs – A REWARD FOR FAILURE?
How did we get here?
• CVAs have become the preferred method of restructuring
• They are typically more visible than pre-packs, which were done behind closed doors
• A company avoids entering administration but is still often shorn of its least attractive assets
• Creditors may demand an equity wipe-out & director job losses but some creditors suffer
• Examples of recent CVAs include; Gaucho, Homebase, Tofs, Mothercare, Carluccio’s & Prezzo
Is this fair?
• Jobs may be ‘saved’ but the economic situation can be radically altered
• Not all parties – staff, suppliers, landlords, shareholders, competitors – are treated equally
• The troubled, collapsed or insolvent company may be rewarded for its failure
• Cost bases are reduced, some parties lose money & competitors are disadvantaged
• A company that has gone through a CVA could have better sites, lower rents, less debt, etc.
• This is hardly ‘fair’ to its competitors as they have struggled to remain solvent
• CVAs may save jobs, but they reward failure
• They may incentivise risk and favour action with reduced levels of responsibility
• They may prolong the lives of zombie stocks, me-too operators & general flotsam
• They can delay hard decisions & many have a follow-on administration in due course
PUBS & RESTAURANTS:
• Auriga Holdings, on of the longest-serving KFC franchisees in the UK has secured expansion funding of £13.95m from Metro Bank, the MCA has reported.
• Credit card spending has increased by almost 8% on last year, UK Finance has reported. Outstanding levels on card borrowing grew 5.8% last month compared to 2017, this data coincides with a surge in retail sales in July and August as customers spent during the hot summer weather.
• The founder of Pret A Manger and Itsu, Julian Metcalfe, has stated that the success of his companies has been brought about through instilling the correct culture. Metcalfe commented: ‘The way Pret does it, is we allow our staff, in fact we encourage our staff, in fact we almost beg them to give away whatever they want, to whoever they want, whenever they want so that’s their loyalty scheme. Now, in many big businesses that would be weird or mad but it works, it works for the staff, it works for the business and it has worked for 20 years so we’re not going to change it’.
• Adolescents in England have reduced their drinking to greater extent than any other European nation, according to research from the World Health Organisation. The survey found that 28% of English adolescents had started drinking alcohol at age 13 or younger in 2014, down from 46% in 2002.
• TGI Friday’s has switched several of its suppliers from overseas providers to UK ones as a result of Brexit, Supply Management magazine has reported. The group have also mitigated rising costs by reducing portion sizes and re-engineering some items such as substituting full fat sour cream and mayonnaise for low fat options.
• Prezzo’s partnership with Oderswift has seen the restaurant’s click-and-collect orders grow by 70% in one month. Darrell Wade, Chief Commercial Officer, at Prezzo commented ‘Our partnership with Orderswift has had an instant, positive impact on our online orders. Not only are many more of our customers ordering through Orderswift’s platform, but they are also ordering more each time.’
• Grubhub acquires Tapingo, a student-focused mobile ordering platform, for $150m. Tapingo operates in over 150 USA college campuses.
• Per MCA, Bar + Block, Whitbread’s steak restaurant chain, will open sites in Wimbledon and Reading in early 2019. The company has previously announced openings in Aldgate and Leamington Spa.
• Reports in the media claim Papa John’s International is putting itself in the window and reaching out potential buyers, sending its shares up 11%. The move comes as previous CEO and founder John Schnatter tries to regain control of Papa John’s, with the company saying it would adopt a ‘poison pill’ to prevent Schnatter from increasing his stake.
• Per Barclays, food prices could rocket in a no-deal Brexit, with suppliers and retailers facing a potential £9.3bn bill. Live poultry could receive a 180% tariff, worth £686m to Brussels. Other tariffs would include orange juice (180%), lamb carcasses (82%) and garlic (71%).
• Cask Marque’s ‘Cask Report 2018/19’ claims the industry should be doing more to engage pub goers with real ale, arresting last year’s 6.8% decline in sales. Cask Marque will be launching a ‘Making Cask Cool’ campaign to get licensees and bar-staff to become beer-temperature aware.
• Luckin Coffee becomes the first Chinese coffee chain valued at $1bn, with the company moving to challenge Starbuck’s 80% market share in China. Luckin, which was founded last year, has opened 1,000 stores since January and aims to have 2,000 outlets by the end of the year.
HOLIDAYS & LEISURE TRAVEL:
• TUI has updated on full year trading saying ‘the financial year is closing out as we expected, with the fourth consecutive year of double digit growth in underlying EBITA.’
• TUI says ‘whilst at an early stage, trading for future seasons is overall in line with our expectations.’
• The group says ‘our strong positioning as a leading holiday product provider with own distribution, as well as our balanced portfolio of destinations and markets, mean that we are well positioned to continue to deliver against our growth strategy.’
• The group says ‘we therefore reiterate our guidance of at least 10% underlying EBITA growth in FY18.’
• Saga has reported H1 numbers saying it is ‘pleased to report significant progress in the first half of the year.’ The group says ‘travel has delivered a solid performance and we are seeing encouraging demand.’ Saga says ‘the business continues to be highly cash generative allowing us to pay a dividend of 3.0p. We remain confident in the Group’s prospects.’
• Industry leaders are optimistic flights will continue in a no-deal Brexit scenario with the Department for Transport saying ‘A scenario in which the UK leaves the EU without agreement remains unlikely given the mutual interests of the UK and EU in securing a negotiated outcome.’ However, there are concerns over consumer confidence in such a situation.
• VisitEngland research shows half of domestic holiday accommodation providers saw bookings increase yoy over the peak summer period. Findings from the research showed that the increase in bookings during the school summer holiday period came from both domestic and overseas visitors. Sixty-seven per cent also reported good or very good advance booking levels until the end of next month.
• Per Reuters, JPMorgan Chase & Co is in talks to underwrite Lyft’s upcoming IPO.
• Moody’s opines that Disney bondholders ‘are better off after Fox loses Sky auction’
• The FA has agreed terms to sell Wembley Stadium for £600m to Shahid Khan, owner of the NFL Jacksonville Jaguars. However, there a doubts over whether the deal will survive an upcoming FA vote, with a minority representing the amateur game yet to indicate their support.
FINANCE & ECONOMICS:
• Sterling a shade lower at $1.3151 and €1.1193
• Oil up at $82.08
• UK 10yr gilt yield unchanged at 1.63%
• World markets: UK & Europe higher yesterday, US down and Far East lower in Thursday trade
• Brexit, politics etc.:
o Labour MP calls for general strike. Mr Corbyn says he is ready & fit to govern.
o Corporate leaders continue to express concern. HMG says, for example, that the EU is not forced to recognise the rights of UK lorry drivers to drive on the continent. Though it probably would.
PRIOR DAY LATER TWEETS:
• Later tweets: See email, 60 seconds on chasing the discount dragon. Almost inevitable consequence of increased capacity
• Shepherd Neame last 11wk LFL managed sales were up +5.1% (2017: +1.4%). Benefits of the sun. says outlook uncertain
• Cabinet said to be ‘fully behind’ the PM’s Chequers proposal. Doesn’t look like it. And proposal already rejected by Brussels
• Adult in the room Sir Keir Starmer says ‘nobody is ruling out Remain as an option.’ FT says he’s closer to Labour core than Corbyn is
START THE DAY WITH A SONG:
Yesterday’s song was Buck Rogers by Feeder. Today, who sang:
Spider Murphy played the tenor saxophone,
Little Joe was blowin’ on the slide trombone
The drummer boy from Illinois went crash, boom, bang
RETAIL NEWS WITH NICK BUBB:
Halfords: Ahead of its Capital Markets Day presentations today, Halfords has set out its much-awaited Strategy Review by the new CEO Graham Stapleton and the (not very punchy) mission headline is “to inspire and support a lifetime of motoring and cycling”, as the business aims to become “a truly differentiated, service-led super specialist, well placed to thrive within a rapidly changing retail environment”. Long suffering shareholders may be disappointed to hear, however, that, because of the cost of investing in the stores and staff service, Halfords anticipate that “FY20 Profit Before Tax will be broadly flat on FY19”, with only “mid-single-digit percentage annual growth thereafter” as the plans take effect…
Bonmarche: It was a surprise when Next said on Tuesday that they had been reasonably pleased with trading through August and September, because it hasn’t felt very good in general on the High Street and more evidence for that comes today in the form of a profit warning from the fashion chain Bonmarche, based on disappointing Store sales and footfall over the last quarter…
Debenhams: The impressive new Debenhams store in Watford opens officially today in the extension to the Intu centre. The latter’s opening is distinctly on the “soft” side, as there is literally nothing else open around Debenhams, although Jack Wills plan to open tomorrow and the likes of Superdry and H&M will be open next month.
News Flow This Week: The Joules AGM is being held today at 9.30am (in “The Old Grammar School” in Market Harborough, of all places). The GFK Consumer Confidence index for September is out first thing tomorrow.