Langton Capital – 2018-09-28 – Richoux, consumer confidence, Shaftesbury & other:
Richoux, consumer confidence, Shaftesbury & other:
A DAY IN THE LIFE:
I wouldn’t say that I was the most socially astute of people.
I mean, when people are sulking with me, they should tell me. Otherwise I won’t notice and, as only perhaps one in ten sulkers will ever actually put into words what’s bothering them, I reckon I must have put a lot of noses out of joint in my time.
Nothing particularly in mind there so don’t feel compelled to give me an earful on a sunny Friday. On to the news:
QUESTIONS, QUESTIONS (15): Where does value accrue? Is it in the brand or is it in the physical contact with the customer?
• Question: If you allow Deliveroo (or Uber or Amazon Restaurants) direct access to your customers, are you letting the fox in the henhouse? Put another way, is a 50-strong me-too restaurant chain likely to set up a massive delivery operation? Or is a massive delivery operation likely to organise its own dark kitchens, ultimately brand itself and leave you out in the cold? Answer: Nothing’s certain in life but Langton’s money is on the latter. Delivery-only restaurants will be less-expensively located. And the fact that they don’t brand at the moment is no guarantee that they never will.
QUESTIONS, QUESTIONS (16): Is signing a 25yr lease in this environment either a) naively foolish or b) foolishly naïve?
• Current situation: Viewed favourably, it’s intense optimism. The lease is meant to last longer than the average marriage. Occasionally, both work well but, if a new entrant is head to head with a lawyered-up property company, there will usually only be one winner. I mean what’s your rent going to be in 6yrs, let alone twenty-one? And you don’t want a crash course in dilapidations when the roof falls in. Likely changes: Properties may take longer to shift, men-of-straw PGs are not worth a lot and, ultimately, the price of properties, even in London with its many hotspots, may have to reflect the tougher trading environment.
PUBS & RESTAURANTS:
• Tough trading for some smaller operators. 18-strong Richoux Group has reported interim results for the period to 1 July 2018 saying revenues were down 10.3% at £5.0m with EBITDA losses cut to £0.75m from £0.9m. The group had cash of £1.1m.
• Richoux reports a net loss for the period of £0.98m against a loss of £1.1m last year. The group disposed of one site during the period and has rebranded a further two.
• Richoux says ‘as indicated in our trading update on 29 August 2018, in line with a number of other companies in the sector, the Group has seen continued pressure on trading during the period, with further impact from temporary restaurant closures due to conversion or refurbishment.’ The company says ‘in view of these continued headwinds, the Group has remained focused on cost reduction and, where necessary, refinement of both its brand and property portfolio. We do not expect to see any material improvement in trading over the balance of the current financial year.’
• Richoux has been in negotiations to sell one of its leases in central London but has decided not to go ahead.
• Central London property owner Shaftesbury has updated on trading to 27 September saying that it has seen ‘robust trading and footfall across our portfolio over the summer.’ CEO Brian Bickell comments ‘despite well-publicised uncertainties affecting business confidence nationally, London’s West End economy continues to be resilient.’ Mr Bickell continues ‘trading across our restaurants, cafés, bars and shops has been robust over the summer months. In particular, our food and beverage occupiers have benefited from good footfall in our locations and the attraction of a wide variety of carefully-curated, innovative casual dining choices.’
• Prezzo has seen click-and-collect orders pick up by 70% in one month of a new partnership with online ordering platform, Orderswift. Darrell Wade, chief commercial officer at Prezzo, said: ‘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’.
• The vegan restaurant, CookDaily, has closed both of its BoxPark sites as it sets out to launch a brick-and-mortar restaurant.
• Alan Yau, the founder of Wagamama and Hakkasan, has stated that he expects food delivery to become as big and as sophisticated as the restaurant sector, commenting: ‘With the rise of home delivery I think that technology has truly disrupted the food sector in the way it has the entertainment sector. It has shifted to much more aspirational dining meaning you make a choice to stay at home – and with this I believe the market segmentation for the whole dining market will increase in a way that will be as comprehensive as the eating out market’.
• Noir Espresso, which operates three Attendant coffee bars in Fitzrovia, Shoreditch and Clerkenwell, has reported results to end-December 2017 to Companies House. Whilst revenue numbers are not given in the abbreviated accounts, the group lost around £350k on the year and now has accumulated losses during its startup phase of some £669k. Shareholders’ Funds remain positive (at £438k) on the back of a fund raising during 2017.
• The English drinks producer, Chapel Down, has announced that it will open a bar, restaurant and ‘gin works’ in King’s Cross. The group also reported that year-on-year sales have increased 15% to £5.75m in the six months to 30 June 2018.
• The Inception Group has announced that it will open a gin distillery in the City of London inspired by Phileas Fogg’s Indian wife, Aouda, in the adventure novel Around the World in 80 Days.
• The Jamie Oliver Group has reported a £29.2m loss in the year to 31 December 2017, the MCA has stated. The group announced that revenue fell 10.8% to £100.6m, with total EBITDA declining 78.4% to £2.1m.
CONSUMER CONFIDENCE, GFK IN SEPTEMBER:
• Optimism bias still in play as consumers see themselves as OK but the economy as a whole as negative. When the macro and the micro are at odds, one, or both, of the numbers must be wrong.
• GfK has updated on UK Consumer Confidence saying that it slipped two points in September to minus 9 from minus 7 in August.
• GfK says ‘there are fewer than 200 days until Brexit arrangements in some shape or fashion take effect. The clock is ticking down and in September the consumer mood dropped a couple of notches.’
• GfK says ‘when respondents talk about their personal finances, the scores are still positive. But for the general economy, they can only reflect on the obvious uncertainty surrounding Brexit. That poor view of the wider economy is keeping the headline score negative.’
• GfK points out that the ‘last positive headline was the +4 in January 2016.’ It says ‘the danger is that consumers might capitulate on how they feel about their personal finances. If that happens, we’ll see very sharp drops indeed in the Overall Index Score in the months up to March 2019.’
• As regards the General Economic Situation over the coming 12mths, GfK reports a score of minus 27 (down 3pts on the August score). Outside of wartime, that’s quite an achievement.
• The Competition and Markets Authority finds that the £15bn Sainsbury’s-Asda merger could reduce competition. The body found 463 locations that raise potential concern, leading to speculation that the companies will have to offload hundreds of stores for the deal to go ahead.
HOLIDAYS & LEISURE TRAVEL:
• Carnival reports Q3 revenue up to $5.8bn compared to $5.5bn last year, with adjusted net income of $34m. Based on the third quarter results and booking strength for the fourth quarter of 2018, the company now expects full year 2018 net revenue yields in constant currency to be up approximately 3.5 percent compared to the prior year. CEO Arnold Donald said ‘Strong execution delivered the highest quarterly performance in our company’s history, overcoming fuel and currency headwinds. At the same time, our strong cash flow and balance sheet enabled us to accelerate our opportunistic share repurchase program, investing almost $750 million in Carnival stock since the beginning of the third quarter’.
• Edinburgh City Council will hold a consultation on imposing a tourist tax of £2 per room, per night, potentially raising an extra £11m in tax pa. The Scottish government has said it would not consider it unless the long-term interests of the industry were fully recognised.
• Ryanair submits a complaint over recent strike action, stating it is being instigated by rival airlines. The European Commission has been called to investigate, with the airline saying ‘This is an unlawful attempt to distort competition and customer choice, for the benefit of legacy airlines.’
• The Public Investment Fund of Saudi Arabia announces the launch of Amaala, a uber-luxury destination on the north-western coast of Saudi Arabia. As the project progresses, attractive partnership and investment packages will be available for the private sector.
• The World Tourism & Travel Council has ranked the UK as the fifth most powerful country for travel and tourism, behind China, the US, India and Mexico. The ‘power’ ranking looks at countries whose travel and tourism has grown most in absolute terms over the seven years.
• Uber will pay $148m regarding a cyber attack that stole the data of around 57m passengers and drivers. Two employees tried to hide the data breach from the regulator by paying the hackers responsible $100,000, they have since been fired.
• STR reports US hotel occupancy down 2.3% to 69.9%, ADR flat at $128.33 and RevPAR down 2.3% to $89.67 for the week ending 22 September.
• Ryanair cancels 250 flights today following strike action from Pilots in Netherlands, Belgium and Germany, leading to disruption for tens of thousands of passengers. Unions want staff to be given contracts in the countries where they live, rather than under Irish law.
• Ex-Chairman of Games Workshop, Tim Kirby, sells 556,301 shares (1.7% of the company) at £36.50. Kirby will continue to hold approximately 4.8% of the company and has agreed a customary 180-day lock-up.
• 888 reports H1 revenue up 1% to $273.2m with adjusted Profit before tax increasing by 13% to US$42.5m in the six months to 30 June 2018. Casino revenue increased by 10% to $161.0m, sport revenue increased by 11% to $37.5m and Bingo revenue decreased by 11% to $17.6m. Itai Frieberger, CEO of 888, commented ‘We have maintained strong momentum in Casino and Sport particularly in continental European markets. In the UK, we are pleased to report that since the period end we have started to see positive trends in revenue.’
• Shares in 888 dropped around 8% on its numbers
FINANCE & ECONOMICS:
• Sterling down vs dollar at $1.3084 but down up vs Euro at €1.1233
• Oil down a shade at $81.73
• UK 10yr gilt yield down 4bps at 1.59%
• The WTO has cut its estimates for the growth in global trade on the back of protectionist fears. It says global trade should grow by 3.9% this year, down from the 4.4% that it had been forecasting.
• Sky suggests ‘for most of her first two years in office, Theresa May gave the impression of not liking business very much.’
• Brexit etc.:
o FT quotes BCC as saying nearly two thirds of UK companies have not prepared for Brexit. It says many firms will cut investment and recruitment. It is calling for a longer transition period.
o Boris Johnson is calling for Mrs May to drop her Chequers’ plan and go for a Canada plus deal. Mr Johnson says ‘there has been a collective failure of government, and a collapse of will by the British establishment, to deliver on the mandate of the people.’
o Foreign Secretary Jeremy Hunt, said to also be lobbying over the weekend for the Chequers’ plan to be dropped, has told Sky News that the Chequers proposals are still relevant
o Jeremy Corbyn met Michel Barnier yesterday. He says he is ‘continuing to listen to all views on Brexit and to explain EU positions’.
o FT quotes ‘constitutional scholars’ as saying a two stage people’s vote would now make sense. Vote one, do you still want to leave? Vote two, do you want to leave like this? Determining just what ‘this’ is could be tricky at this point with both major political parties unsure as to what they think the people think that they should think.
o Fewer banking jobs lost so far than feared. Only 630 or so gone so far per Reuters survey.
PRIOR DAY LATER TWEETS:
• Later tweets: M&B says trading ‘normalising’. Current (8wk) LfLs +2.2%. Better than recent numbers but below inflation. Margins ‘will be lower’
• M&B steadier. Shareholders reassured but no news on food / wet split. Or on full year dividend (or lack of one)
• See email on CVAs. Do they ‘save jobs’ or are they a reward for failure? They could, of course, be both.
• UK Finance says credit card spending up 8% over summer. Consumers could pull their horns in this autumn. Probably still spend at Xmas
• Barclays report says food prices could rise £9.3bn due to tariffs if we no-deal Brexit. Presumably funds would go into government coffers via tariffs?
• Labour MP calls for general strike. Mr Corbyn says he’s ready & fit to govern. No view on Brexit, sticks to air-punches & s-eating grin
• Barclays says food prices rise if no-deal Brexit. F&B would need to pass this on. Low margin businesses might find this challenging
START THE DAY WITH A SONG:
Yesterday’s song was Jailhouse Rock by Elvis Presley. Today, who sang:
I know that she knows that I’m not fond of asking,
True or false, it may be
She’s still out to get me
RETAIL NEWS WITH NICK BUBB:
Consumer Confidence Watch: The widely followed GFK Consumer Confidence index for September came out overnight and it weakened, given the heightened uncertainty surrounding Brexit. The overall index dropped to -9 in September from -7 in August (the expected score was -8). Four sub-components of the index deteriorated in September and one stayed unchanged. The index measuring changes in past personal finances decreased three points to +1. Likewise, the forecast for personal finances over the coming 12 months dropped to +5 from +8 a month ago. The measure for the general economic situation during the last 12 months fell two points to -28. Expectations for the general economic situation over the next 12 months edged down one point to -27. Meanwhile, the major purchase index stayed the same this month at +6. “The danger is that consumers might capitulate on how they feel about their personal
Retail Sales Watch: Given the “Indian Summer” that London has been enjoying recently, all the focus in the sector now is on how well September (the 5 weeks to Sept 29th) turns out on the High Street , but we haven’t seen the final word yet on how good the outcome was for August (given the end of the heatwave mid-month)…The Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported that non-seasonally adjusted total Retail Sales by value were up by 4.9% last month (ex-petrol), thanks to surprisingly good Small Retailers growth. But the BRC-KPMG measure of gross sales (which focuses on Large Retailers) was only up by 1.3% (up by 0.2% LFL). So, who was right? The ONS or the BRC? Well, the consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey) has just come out with its
BDO High Street Sales Tracker: We flagged on Wednesday that Fashion sales at John Lewis were hit last week by the warm weather, against tough comps, and today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday Sept 23rd, is also weak, given the strong comps. The BDO figures are, it should be noted, unweighted…but at least they are now providing a combined Store and Online sales figure and, for what it’s worth, BDO Fashion Store LFL sales were 5.8% down last week and, including Online Fashion sales growth of c9%, Total Fashion sales were down by 2.2% (versus +8.5% last year).
News Flow Next Week: There is again plenty going on next week, kicking off on Tuesday with the ScS finals and an AO.com Capital Markets Day. Wednesday brings the Tesco interims and the Topps Tiles finals and then on Thursday we get the DFS finals and the Ted Baker interims.