Langton Capital – 2018-11-08 – More on JDW, Restaurant Group, Coke bottling co & other:
More on JDW, Restaurant Group, Coke bottling co & other:
A DAY IN THE LIFE:
So, what’s the difference between a charismatic leader and a bully? Answer, there isn’t one if I tell you there isn’t.
And, really, there isn’t but, and here’s the rub, being a blinkered bully (a.k.a. a single-minded leader) only works under some circumstances because being surrounded by people who are paid to agree with you (or are frightened to disagree with you) is perhaps not the best environment in which to foster debate.
Of course, Langton has never had a wall of money to hide behind and that could be snowflake twaddle, but certain leadership styles haven’t worked out too well recently with share suspensions, profit warnings and the like.
Anyway, just saying, and, though we are personally named from time to time by critics, regarding the above we believe, as Warren Buffett said, that you should praise by name and criticise by category.
A couple more unhelpfully contradictory quotes on Brexit:
Winston Churchill – ‘democracy is the worst form of Government except for all those other forms that have been tried from time to time.’
Warren Buffett – ‘a public opinion poll is no substitute for thought.’
On to the news:
JD WETHERSPOON Q1 & PROFIT WARNING – ANALYSTS CONFERENCE CALL:
Following its update on Q1 trading this morning, JD Wetherspoon hosted a conference call for analysts and our comments thereon are set out below:
Labour costs & profit forecast:
• Says Q1 was ‘a bit above our own expectations…’ but reiterates that profits will probably be ‘slightly below’ last year. This is less than £107m. Early estimates have fallen to around £102m.
• Group puts this in context, saying that it has had three years or so of LfL growth at 1-2% ahead of inflation.
• How much will staff costs be going up by? Annualised £27m for hourly paid staff. Wages have gone up this week so will be around £20m in this year. Not all of this will fail to be recouped.
• How big a drop is ‘a little lower’? No real figure given. Brokers cutting numbers by £5m or so.
• Wage increases have been planned for some time so why the caution on profits now? Group had thought 3% to 5% would be enough to hold profits static. With growth at 5.5%, the group is now cautious. Either costs are rising more rapidly or the group expects LfL sales to moderate.
• What about wages going forward? Will you now need 6% plus LfLs to maintain profits? Company says ‘it’s hard to say’. This year may be a little more extreme than others.
• Recruitment is ‘challenging’ but retention stats are quite good (on the back of 3yrs or wage rises).
Other trading issues & questions:
• Food & drink costs are more benign. Still in line with inflation. Energy is ‘a little ahead of inflation’.
• Labour is clearly the main issue.
• Are the various CVAs out there having any impact? Perhaps a little less supply here but supermarkets still offer tough competition.
• Competition on pricing? JDW price discount has widened but supermarkets are still stiff competition.
Balance sheet, debt, management etc.:
• Why are you not buying shares back at these levels? Prefer to buy in freeholds given the share price vs property prices at these levels.
• Not expecting many more pub closures. Programme nearly complete.
• Tim has been in hospital. Needs to recoup. Still on the phone. No longer term changes being flagged up at this stage.
• Any property gains? May be some but relatively minor.
• JD Wetherspoon has said, in no uncertain terms, that labour costs are weighing on profits. Estimates are being cut by around £5m.
• CEO John Hutson advises that Tim is still on the phone to the company on a regular basis. The group was not questioned on whether it was being distracted by its Brexit campaigning.
• JDW’s shares look to be down 6% or so. They may fall further as a 6% drop simply keeps the PER unchanged on a reduced EPS.
• If investors believe there are more fundamental issues in play, then there could be a modest re-rating downwards.
PUBS & RESTAURANTS:
• JDW shares closed 13% lower yesterday as the group cautioned that profits would fall this year. The group also announced that its Chairman, Tim Martin, was to work part time for a while as he recovers from a burst appendix.
• The group says that low unemployment is putting upward pressure on wages & the company has decided to put these up in line with its medium term plans and in the wake of a number of isolated strikes at its pubs.
• Cutting labour cost is tough in a service industry. JDW is a leader in forward ordering via app. In the kitchen, various innovations across the industry mean that grills etc. are now available without fat trays (less cleaning) meaning that labour costs can be saved back of house too. Please contact us if you would like more details.
• Restaurant Group is on tour in the City and elsewhere trying to sell its Wagamama deal to somewhat sceptical shareholders.
• The group is attempting to persuade holders that the £4m per (leasehold) restaurant acquisition is an innovative move to provide the group with a ‘multi-pronged’ growth strategy rather than a move from a position of weakness.
• RTN has to price its rights issue and produce its document this week, probably tomorrow, if it is to stick to its timetable.
• Coca-Cola HBC has updated on Q3 trading saying it has seen ‘solid FX-neutral revenue growth, up 4.5%.’
• Coca Cola HBC says ‘volumes increased 4.2% in the quarter, with strong delivery in the Developing markets and the Emerging markets.’
• Coca Cola HBC says ‘established markets volumes were broadly stable, given the tough prior-year comparative of 2.2%.’ It adds ‘developing markets volumes increased by 11.3%. This very positive result was broad-based with strong volume growth across all the countries in the segment. Poland, which maintained its growth momentum, made a significant contribution.’
• Coca Cola HBC CEO Zoran Bogdanovic comments ‘we are pleased with how our actions are positioning the business to successfully capture growth opportunities in our markets. Our product portfolio is evolving to meet changing consumer preferences, and by partnering with customers we are strengthening our route to market.’ Mr Bogdanovic concludes ‘October trading has been strong, and we look to the full year confident that 2018 will be another year of good growth in both revenue and margins.’
• The number of restaurants closing in London has hit a 28-year high, with 117 units closing in the last 12 months, according to data from Harden’s. Co-founder Peter Harden has commented: ‘The level of competition within the London restaurant market is unprecedented and is creating business conditions even more challenging that elsewhere in the UK’.
• Harden’s London Restaurants guide says ‘there are just too many restaurants out there.’ Langton has suggested that, driven by cheap money, innate optimism and a perhaps somewhat lazy, ‘me-too’ approach to the industry, private equity and others have been putting on too much capacity for years.
• Harden’s has suggested that 2015-16 was ‘peak restaurant’ for the London market. Chutzpah and cheap money were never going to be a long term replacement for hard work and authenticity.
• Lion Capital is believed to be in talks to back Gordon ramsay’s restaurant group according to the MCA.
• Sinclair Breweries and Drygate have been declared the best independent craft brewers in Scotland in the SIBA Scotland Independent Beer Awards.
• More people are drinking beer during dinner occasions, with an increase of 2.3% to 31% during Q3 2018.
• Aperol sales have increased 43% in Q3 boosting group sales overall for parent Capari by 8.9%.
• PizzaExpress and Barburrito have joined up with Deliveroo on an exclusive basis, leaving their existing food delivery services.
• Mohammed Abdul Kuddus and Harun Rashid who ran Royal Spice takeaway in Lancashire have been jailed for manslaughter after a teenage girl died when the meal she ordered contained peanut protein. The pair have been jailed for two years and three years respectively.
• The Craft Beer Rising Festival will be held at Truman Brewery on February 21-23, featuring 155 breweries and expecting an estimated 12,000 visitors.
HOLIDAYS & LEISURE TRAVEL:
• French rail travel firm Voyages-sncf will close its UK office alongside five other European sites by the end of the year. All B2B operations will be conducted from its Paris base.
• Euromonitor International reports China will become the number one tourist destination by 2030, surpassing France. Euromonitor predicts a total of 1.4 billion trips to be made in 2018, a 5% year-over-year increase with international arrivals expected to rise by another billion by 2030, translating to $2.6 trillion in receipts.
• Eurostar reports Q3 total passengers up 12% to 3m with revenues up 17% to £247m. The introduction of services between the UK and the Netherlands saw an additional 130,000 passengers use the line to Amsterdam and Rotterdam with Eurostar set to add a third daily service from London in June 2019.
• Cineworld will bring its Superscreen offering to Newcastle laster this month, featuring a state-of-the-art projection and sound system to enhance the cinema-going experience.
FINANCE & ECONOMICS:
• EY Item Club has said that house prices could fall next if the government fails to reach a Brexit deal. Of course it’s fair to say that house prices ‘could’ fall at any time.
• Sterling up at $1.3133 and €1.1486
• Oil up a touch at $72.10
• UK 10yr gilt yield unchanged at 1.54%
• World markets up yesterday with Far East up in Thursday trade.
• Brexit etc.:
o Bungled agreement of sorts being teed up for an announcement next week and a deal by month-end. A multi-year, semi-permanent standstill (a.k.a. limbo) agreement is the most likely outcome.
o Labour’s Sir Keir Starmer has said that Labour will vote against a deal if there is insufficient detail. Its ‘six tests’ look unachievable under pretty much any circumstances.
o Brexit voters and remainers likely to be left unhappy as the choice was never between a ‘dream’ Brexit and remain but rather between an ‘achievable’ Brexit and remain. The latter could disappoint both sides.
PRIOR DAY LATER TWEETS:
• Later tweet: JDW warns profits will be lower due to higher wage costs. LfLs running +5.5%. May moderate & co won’t put prices up (much)
• JDW’s 1400-word statement expends 1000 of them on Brexit. Plus 6 appendices. Perhaps more focus on the day job would be a good thing?
• Christmas looming up and discounting hitting new highs. Cafe Rouge offering 40% off & Harvester (M&B) is 50%. More in daily email
• Fulham Shore says it is trading ahead of the same period last year. Openings in line with estimations, more next year
• Prezzo dire numbers. Negligible operating profit percentage & £200m asset write down. This certainly wasn’t Plan A…
• Barclaycard insists pub spending up 11.7%. We wish. Perhaps more use of contactless is skewing numbers??
• Posh nosh pushers Waitrose & M&S Food defo off the boil. Halo slipped an all that, food down 2.7% Q2 M&S, some 5pts behind inflation
• Q. What’s the difference between a charismatic leader and a bully? A. There isn’t one. Unless they order you to believe that there is…
START THE DAY WITH A SONG:
Yesterday’s song was Red Right Hand by Nick Cave & The Bad Seeds. Today, who sang:
Time you straighten right out (ah-ah-ah),
Creating problems in town (ah-ah-ah)
RETAIL NEWS WITH NICK BUBB:
Super Thursday Watch: Today is “Super Thursday”, with no less than eight separate company updates: the Sainsbury interims, the Burberry interims, the Halfords interims, the Game Digital interims, the Inchcape Q3 update, the Howden trading update, the Superdry pre-close update and The Works pre-close update! Pity the poor analyst who has to try and fit all that in…In terms of the results meetings, Halfords kick off at 9am, whilst Sainsbury, Burberry and Game Digital are all at 9.30am…In terms of conference calls, Inchcape have one at 7.45am and Superdry have one at 8.30am.
Sainsbury: According to the Sunday press, Sainsbury was expected to report a 12% increase in PBT in its interim results today (with a 0.8% increase in Q2 LFL sales) and they have beaten those forecasts, with PBT up 20% to £302m (thanks to earlier realisation of Argos synergies) and Q2 LFL growth of 1.0%. After all the recent bad PR about poor store service and availability standards, all that CEO Mike Coupe can say on the subject is that “We have fundamentally changed how our 135,000 Sainsbury’s store managers and colleagues work”. And shareholders may not be over enjoyed to hear from the company that “The grocery, general merchandise and clothing markets continue to be highly competitive and very promotional. However, we remain on track to deliver the current market consensus for 2018/19 underlying PBT of £634m”.
Marks & Spencer: At the start of yesterday’s analysts meeting, Archie Norman got a laugh with an apparently unrehearsed quip that if CEO Steve Rowe was Donald Trump he would be claiming the weak interim results as a great personal victory…But the rest of the presentation was pretty sober, with Steve Rowe making his clear his enormous unhappiness with the efficiency of the distribution/warehouse system. He also played down the short-term outlook for Food sales growth (noting that the business is seeing c1% price deflation because of its recent price-cutting moves) and, in the context of store closure plans and the push for more Food/Non-Food profit accountability, emphasised that most of the UK profits come from the top 70 big combined stores. And the new FD Humphrey Singer came across well, despite some scepticism about his forecast that full-year UK operating costs would still be