JD Wetherspoon, Sportech, Fulham Shore, consumers etc.:

A DAY IN THE LIFE:

Bit busy this morning. On to the news:

JD WETHERSPOON Q1 TRADING UPDATE – ESTIMATE REDUCTIONS ETC.:

JD Wetherspoon has this morning updated on trading for 13wk period to 28 October in which it advises that profits could be below those of last year. Our comments thereon are set out below:

Headline Numbers:

• JDW reports LfL sales in the period rose 5.5% with total sales +6.2%.

• LfL sales growth is in line with that at week six.

• There is no comment on margins or profitability.

Balance sheet, debt etc.:

• JDW reports it has ‘opened two new pubs since the start of the financial year and has closed or sold three.’

• The group says ‘we intend to open between 5 and 10 pubs in the current financial year.’

• The rate of openings is running at multi year lows. Net of closures, the group has fewer units now than it did at its finals.

• JDW reports ‘the Company remains in a sound financial position.’

Conclusion, current trading etc.:

• JDW reports that chairman Tim Martin is recovering from an operation and intends to work part time from home for several weeks.

• JDW says it has strength in depth and ‘the Company’s General Meeting on 15 November 2018 will be chaired by Liz McMeikan, the Company’s Senior Independent Director.’

• The group says ‘sales continue to grow strongly, although ‘comparatives’ are now tougher.’

• It adds that wage pressure has increased and says that prices may not be put up in order to recoup higher costs.

• This has certain implications for profitability.

• The group says ‘we now expect a trading outcome slightly below that achieved in the previous financial year.’ It adds ‘we will provide further updates on our trading as we progress through the year.’

Langton View:

• JD Wetherspoon has reported that trading remains in line with that seen at week six.

• This is a short statement of 1,400 words with less than a couple of hundred relating to the group’s trading, balance sheet, margins, trading position, outlook etc.

• The remainder deal with the Chairman’s views on Brexit.

• If this ratio reflects the split of effort that is being put into the running of the company, then shareholders may have something to think about.

• The implied cuts to estimates for profits for the full year will need to be digested.

• This is a Q1 update but it is worth noting that there are no comments on margin, outlook, profitability or the balance sheet.

• JDW remains a good company but it is not currently cheap. It looks as though forecasts are going to come down.

CHRISTMAS IN PERSPECTIVE:

• The best month of the year is December. Twas ever thus. And, perhaps not surprisingly, December is wedged in between two of the worst months of the year, January and November.

• January is poor (hangovers, financial and other) and November is a saving-up-for-the-splurge month. February is bad but has Valentine’s Day and memories of overspending etc. are usually fading by then.

• So, discounting isn’t a surprise in November but it currently seems a bit extreme. Pizza Express is offering 25% off mains. Cafe Rouge is offering 40% off and Harvester (M&B) is offering 50% off.

• Elsewhere, Bella Italia is offering a second main meal for a quid (perhaps 45% off), Whitbread brand Beefeater is 33% off and Prezzo is offering 40% off main meals.

• Langton’s forecast remains that Christmas will happen.

• It remains to be seen how nervous operators become if Christmas comes late – as it probably will.

PUBS & RESTAURANTS:

• Fulham Shore has announced its interim results for the six months ended 23 September 2018, stating that it is trading ahead of the same period last year. The group said they had opened two Franco Manca sites in Cambridge and Bath, with another opening in Aldwych soon, taking the brand’s restaurant count to 43.

• Prezzo reports continued challenging trading conditions even after it closed more than 100 sites through a CVA, according to the FT. Owner TPG acquired the now 186-strong Italian chain for £304m but wrote off £198m in 2017. Prezzo’s operating profit fell by 70 per cent to just £6.6m in 2017, with sales down 3%.

• Starbucks delivery is now available in 1,100 stores in China through partnership with Alibaba-owned Ele.Me. CEO Kevin Johnson said ‘If I look at some of things we are innovating and doing here in China, we are going to leverage those learnings and apply them to other parts of the world including the U.S.’.

• Barclaycard reports consumer spending rose 4.4% in October on the same month last year ‘maintaining a modest level of growth’

• Barclaycard said ticket sales were +22.1% as Glastonbury tickets went on sale but ‘the retail sector continued to struggle.’ Barclaycards says department store sales were down 5.9% and clothing spend down 2.4%.

• Barclaycard says ‘28 per cent of consumers say they have confidence in the UK economy – the joint lowest level since Barclaycard started monitoring consumer confidence in 2014.’

• The card company says non-essential spending rose 4.1% with spend in pubs +11.7% (on a pick up in contactless spend) and spending in restaurants +8.6%. This is not what the operators are feeling on the ground.

• Barclaycard concludes ‘while the retail sector has continued to face challenges, the experience economy provided a welcome boost to overall spending in October with consumers going for meals out, and purchasing tickets to events and shows.’ It says ‘ongoing economic and political uncertainty has led to a decline in confidence, with consumers remaining cautious with their spend in the run-up to Christmas.’

• Living ventures has entered into a CVA for its five strong steakhouse concept, Blackhouse, the MCA has reported. The agreement will see two of its stores close.

• The Royal Society for Public Health (RSPH) has described pubs as centres for social interaction and therefore a health benefit, as the group ranked Britain’s unhealthiest high streets. The Morning Advertiser reported that RSPH analysed 70 of the UK’s major towns and cities to determine which had the unhealthiest high street.

• PepsiCo has stated its intentions to acquire the crisps brand Pipers for an undisclosed sum.

• The warm summer this year has led to strong apple harvests with record breaking high sugar levels. Andreas Sundgren Graniti of Brännland Cider commented: ‘In some varieties we’re seeing increases of 30-40% in terms of sugar compared to 2017. The 2018 is looking very promising for us’.

• New Look has announced that it intends to close more than 80 stores in the UK as the group looks to cut costs. The group had stated in March that it would close 60 units, however this has now increased to 85.

HOLIDAYS & LEISURE TRAVEL:

• BBC asks how Brexit will impact holiday market. There is current uncertainty about insurance, phone roaming charges, driving licences, airport landing procedures and the potential for queues at airports, ferry terminals and the Tunnel.

• Euromonitor International reports a ‘no-deal’ Brexit would mean five million fewer outbound trips globally by 2022, with Spain set to lose the most tourism revenue. UK travellers account for around 21% of inbound revenues in Spain this year. 

• UK visitor numbers to Tunisia are set to beat annual targets of 85,000 by some way, as 100,000 Brits had visited the destination by September. Total figures are expected to reach 120,000 by year-end.

• Following the deaths of two British holidaymakers in Egypt this August, Thomas Cook announces it will carry out independent hygiene assessments at any property where customers fell sick last summer.

• Ryanair have sacked six cabin crew members who were pictured sleeping on the floor of Malaga airport in a staged photo.

• Qatar will acquire Grosvenor House in London for an undisclosed sum from US real estate firm Ashkenazy Acquisition Corp.

• Four fake sickness fraudsters are spared jail after a Jet2 probe found they had been enjoying lagers, vodka, gin, amaretto and other drinks during their period of ‘sickness’.

• Tink Labs, a Hong Kong start-up that develops smartphones that hotels provide to their guests for free, is raising $300m, giving it a post-money valuation of at least $1.5bn.

• Winley Hill, a family farm in North Yorkshire, has built a cluster of luxury holiday homes with financing from HSBC. The farm plans to eventually have 54 eco-friendly lodges on site.

OTHER LEISURE:

• Sportech has updated on trading saying that it ‘now anticipates that certain expected sales contracts are unlikely to be secured in 2018 and therefore forecast Adjusted EBITDA, excluding Sports Betting investments, for 2018 will likely be 5% to 10% lower than the current market expectation of £8.5 million.’

• Sportech says ‘whilst we are disappointed not to have secured some international sales contracts by the year end, we continue to focus on signing these contracts.’ It says ‘we expect that sports betting revenues will commence in the second half of 2019.’

FINANCE & ECONOMICS:

• Chancellor Phillip Hammond has denied that he has abandoned his target to eliminate the budget deficit by the middle of the next decade.

• Sterling up at $1.3126 and €1.146

• Oil down at $71.95

• UK 10yr gilt yield up 4bps at 1.54%.

• Brexit etc.:

o BBC says ministers are signalling a deal by the middle of next week.

o BBC also reports Cabinet meeting yesterday did not completely agree over a deal. Mrs May has said she will not accept simply any deal.

o DUP’s Jeffrey Donaldson says it ‘looks like we’re heading for no deal.’

o Auto parts supplier Schaeffler is to close its plants in the UK and move them to the continent with the loss of 550 jobs.

PRIOR DAY LATER TWEETS:

• Later tweets: Shops fining you in their car parks. Not cool or conducive to building customer loyalty. So speaks a disgruntled would-be finee (see e/m)

• Greene King’s Rooney Anand to step down from position as CEO 30 April next year. Search for replacement underway

• GfK warns of holiday discounts in Jan as Brexit deal to supply only ‘slight increase’ in booking levels. Consumers in delay-mode

• IHS Markit composite PMI for October falls from 52.1 to 50.5. Is close to stagnation & makes hitting full year GDP targets pretty tough

• INTU bid at 31% below NAV suggests NAV may not be correct. High street hit by internet, high rates, labour costs etc. etc.

• Discounts in crazy town. Beefeater (WTM) 33% off mains, Harvester (MAB) 50% off & Casual Dining brands Bella Italia & Café Rouge 40% off

START THE DAY WITH A SONG:

Yesterday’s song was This Must Be the Place by Talking Heads. Today, who sang:

Past the square, past the bridge,

Past the mills, past the stacks,

On a gathering storm comes,

A tall handsome man

RETAIL NEWS WITH NICK BUBB:

• Marks & Spencer: We flagged yesterday that the much-awaited M&S interims today would make grim reading, as the seemingly inexorable decline of the business continues, but there is a fan-club in the City that still believes in the dividend support for the shares and the turnaround potential under the Chairmanship of the veteran Archie Norman. And there seems, at first glance, to be plenty in it for both the bears and the bulls. Having noted that there had been softening up on the results and that, if anything, M&S had talked up first half profits, the bulls will be pleased that underlying PBT in H1 was not down, as we had feared, but at £223.5m came in 2% up and well above the City range of £188m-£212m. However, this better than expected profit outcome reflected phasing benefits from cost-cutting and the bears will point to the gross margin weakness and the weak LFL sales
figures. We expected LFL sales to be down by at least 2% in both Food and Clothing/Home in H1, but Food was worse (down 3.1% in Q1 and down 2.7% in Q2) and Clothing/Home was only 0.6% down in Q1 and 1.6% down in Q2. And the message is that “Trading conditions remain challenging and the headwinds from the growth of online competition and the march of the discounters remain strong in all our markets. Therefore, as we embark on the difficult early stages of transformation we are expecting little improvement in sales trajectory”. The analyst’s meeting in the City starts at 9am.

• John Lewis Trading Watch: Despite the boost from the colder weather, John Lewis continued to struggle somewhat last week, according to yesterday’s weekly sales overview from JLP. The w/e Nov 3rd saw gross sales only 1.4% up (c1% down on a LFL basis, ex new stores). Fashion sales were up 7.6% gross (“noticeably benefiting from the colder weather which boosted sales of all Fashion categories”) and Home sales were up by 0.8% gross (“we saw particularly strong sales of beds as customers turned their attention to making their homes ready for winter”), but Electricals were down by 3.8% in gross terms, against strong comps. The previous 13 weeks of Q3 overall saw gross sales 0.2% down (c2.5% down LFL), pulled back by a 4.7% drop in Home sales.

• Waitrose Watch: Over at Waitrose, the management team at the launch of their Annual “Food & Drink” Report in the Kings Cross store on Thursday evening were talking up trading last week, on the back of the colder weather, but things were only a bit better in the end, with gross sales up 1.0%, ex-petrol, in w/e Nov 3rd (also 1% up LFL). The previous 13 weeks of Q3 overall were down by c0.5% gross, despite the strong start to August for Waitrose, with the “Home and General Merchandise” category running 3.6% down and that category remained weak last week (sales were 3.3% down).

• News Flow This Week: Tomorrow is “Super Thursday”, with no less than eight separate scheduled company updates: the Sainsbury interims, the Burberry interims, the Halfords interims, the Game Digital interims, the Inchcape Q3, the Howden trading update, the Superdry pre-close update and The Works pre-close update!