Langton Capital – 2018-11-19 – Richoux, Soho House, ASK, quiz, High St trends & other:
Richoux, Soho House, ASK, quiz, High St trends & other:
A DAY IN THE LIFE:
Within reason (and the bounds of the law) I’m all in favour of new experiences.
But, whilst ‘new experiences’ for me would include bungy jumping above a pit full of crocodiles or learning how to juggle hand-grenades, for the Millennials amongst us it includes previously mundane tasks such as finding and using a phone box or buying a stamp.
I mean ‘what’s a stamp?’ isn’t a question that you heard much a couple of decades ago and, though finding a phone box that worked was much more challenging than simply finding a box that said it had a phone in it, the task was something that we were all familiar with.
Meaning just that times change and, whilst we may not be forever comfortable with that, we can’t do much to stop it. On to the news:
OCTOBER PUB & RESTAURANT TRACKER:
• The Coffer Peach Tracker for October suggests that LfL sales rose by 0.2% in October. Against CPI of around 2.2% and hospitality cost inflation of more than that, 0.2% will be insufficient to hold margins.
• Pubs outperformed restaurants & London outperformed the rest of the country.
• The Tracker says ‘Britain’s managed pub and restaurant groups saw collective like-for-like sales grow just 0.2% in October…with pubs and bars doing better than casual dining chains.’ CGA says ‘people are still going out to eat and drink, but there is little or no growth in the market.’
• London sales were +2.5% with a drop of 0.5% outside the M25.
• Managed pubs & bars saw sales +0.6% nationally (+3.6% in London and down 0.4% outside).
• Restaurants were down 0.3% across the country as a whole (+0.9% in London and dow 0.7% outside). This despite the removal from the market of some sites closed following CVAs. Restaurant covers were reported to be down 1.4% for the month. CGA describes this as ‘worrying’.
• Total sales across the 49 companies supplying data to the Tracker was +2.6% showing that capacity growth, whilst still present, is abating. Many restaurants closing following CVAs are reopening – as restaurants.
• LfL growth cumulatively for the last 12mths has been 0.7%. CGA says ‘the eating and drinking out market remains at best flat.’ Davis Coffer Lyons says ‘these figures show the challenges faced by the industry. But just because some weaker brands have closed some branches outside London is not leading to a reduction in capacity – these units are re-opening with better operators and concepts paying sustainable rents.’ Coffer says ‘the pub market remains more resilient because it does not have the same over-capacity issue.’
• Accountants RSM looks on the bright side and says ‘against a backdrop of reduced spending on the high street, these figures show that consumers continue to favour the eating and drinking out sector when allocating household budgets. Wet sales have fuelled the growth for pubs, while casual dining operators continue to feel the pressure. Despite concerns that younger generations are avoiding alcohol in favour of wellness, drinks sales were up 1.4% against a fall of 0.5% for food sales, driving this month’s better performance.’
PUBS & RESTAURANTS:
• Restaurant chain Richoux Group has ‘entered into a conditional agreement to sell the lease to its Richoux Picadilly restaurant for a gross cash consideration of £500,000.’
• The group says that in the year to end-Dec, the unit made a marginal loss on sales of around £1.1m. The sale is dependent upon obtaining the landlord’s licence to assign. Richoux says ‘the proceeds of the sale will be used for the ongoing working capital for the Group.’ CEO Jonathan Kaye says ‘following the strategic review of our estate, we have entered into agreements, subject to satisfaction of certain conditions, to sell the leases to our Piccadilly, Braintree and Gloucester Road restaurants which, if successful, will enable us to focus on the remaining portfolio.’
• Quentin Restaurant Holdco No1, which owns the Soho House chain of restaurants, has reported accounts for the year to end-December to Companies’ House saying that turnover rose to £26.5m (2016: £25.2m) and lost £0.5m at the EBITDA line (2016: profit £0.7m).
• Quentin reported a loss before tax of £4.9m (2016: loss £3.5m).
• The Azzurri Group, which operates the ASK and Zizzi chains of pizza restaurants, has reported full year numbers (52wks) to 1 July to Companies’ House saying that the group increased sales by 8.5% to £279.8m but operating profit fell by 9.6% to £8.5m suggesting an operating margin of 3.0%.
• Azzurri’s financing and other costs took the group to a pre-tax loss for the year of £23.4m (2017: loss £13.0m). The group has now lost £55.1m since incorporation and has a negative net worth of £55.0m.
• Hush Brasseries has delivered its accounts for the year to end-December 2017 to Companies House saying ‘2017 was a strong and exciting year for the Company’. The group undertook a refurbishment of its Mayfair site and closed its last remaining Hush Brasserie, in Holborn, after the year end in January 2018.
• Hush revenues, inclusive of the Hache acquisition, rose to £8.2m from £4.5m in the prior year. The group made a loss before tax of £993k (2016: £279k). The group has lost an accumulated £3.9m since incorporation and has positive shareholders’ funds of £2.2m.
• The pub group, Liberation Group has announced the appointment of Jonathan Lawson as its new chief executive, replacing outgoing Mark Crowther after 11 years at the helm.
• The visits to out-of-home bakery occasions has increased by 1% to 1.393bn during Q3 2018, the MCA has reported.
• Fuller’s, the London based brewer and pub company, has appointed Deborah Stevenson as its interim Finance Director.
• Fuller’s has stated that it is targeting £100m a year from food sales, following an investment of £20m into its kitchens over the past five years. Head of food, Paul Dickinson commented: ‘The food GP grew because we were buying the right product at the right volume, working with suppliers to get things through. And the other key factor has been skilled chefs. When I joined Fuller’s you were either kitchen manager or chef – we now have seven grades of chef. I have got 1,259 chefs and 150 vacancies. We now have a classical kitchen set-up, which is what we needed by the time we got to investing in the kitchens’.
• The alcohol education charity, Drinkaware is focusing on the link between alcohol and heart problems, ahead of Alcohol Awareness Week.
• A study by the University of Pittsburgh has confirmed that people in colder, darker climates drink more alcohol. Dr. Ramon Bataller, one of the authors of the study stated: ‘Everybody assumed this, but nobody has demonstrated it. The findings show us that in order to prevent alcohol abuse, resources should be focused more in cold places. People with a genetic predisposition to alcoholism should maybe avoid living in a very cold place as they will probably drink more’.
• Ten breweries from the North East and Yorkshire have visited the US this month as part of an international beer exchange.
• Innis & Gunn will build a multimillion-pound brewery, visitor centre and operations facility in Edinburgh.
• The Sunday Telegraph reports Sainsbury’s is now stocking edible insects in the form of Eat Grub’s Smoky BBQ Crunchy Roasted Crickets.
• Asda has recorded a sixth straight quarter of sales growth, with LfL sales up 2% in Q3.
• Deltic Group will open a Bar & Beyond in Kingston, taking the brand to six sites. The opening will be part of a £2m investment in Deltic’s Pryzm nightclub in Kingston.
• CEO of the Food and Drink Federation, Ian Wright, said Gove’s decision to remain in his post was ‘A rare piece of very good news in a chaotic week….We are pleased to continue to work with him to steer the food and drink industry through such choppy waters.’
• Amazon has launched its Black Friday deals, with Currys PC World and Argos also joining in. Zoe Mills, retail analyst at GlobalData, said Britons were expected to spend £10.4bn during the Black Friday sales, which is 3.1% more than in 2017.
BIT OF A QUIZ FOR YOU:
Store numbers are almost always out of date before the ink dries but here are a few questions:
1. Put these chains (UK stores only) in size order: Pret, Pizza Express, Nandos.
2. Around how many stores (UK) do the above three chains have together?
3. Put these three (UK only) in size order – Gregg’s, Subway, Costa.
4. In which year did JD Wetherspoon open a record number of pubs?
5. How many did it open in the 7yrs up to and including the year of the Athens Olympics?
6. How much goodwill did it pay over the period during which it effectively built a number of units equivalent to 4 Wagamama chains?
7. In terms of UK numbers, is Franco Manca plus Nandos plus Casual Dining Group (all the latter’s brands) larger or smaller than a half of Gregg’s?
8. Have Subway plus Costa combined got more or fewer outlets (UK only) than Gregg’s, Starbucks, McDonald’s, Pizza Express, Pret and Nando’s combined?
9. Which is the better university, Cambridge or Oxfdoh. Hint: business people, scientists, Nobel prize winners & stockbrokers all-round good eggs come from one & politicians come from the other.
10. Name the best Leisure Sector advisory firm in the City of London.
If you get all the above right (store numbers within 10%) then we’ll buy you a pint. You will deserve it…Answers at the foot of the email.
THE HIGH STREET, EXPERIENTIAL TRENDS & OTHER:
• Commenting on changes on the High Street, the Local Data Company has said that there is some movement towards more residential & office use.
• LDC points out that 52.8% of BHS stores closed 2yrs ago are still empty. Primark has taken seven. Shopping centres are struggling but retail parks are a little more robust., The situation there is getting a little worse.
• Leisure is ‘particularly challenged’. Openings continue but closures are sharply higher. Mostly multiples. The ‘sheer pace & scale is worthy of comment’ says LDC. Trends, good, bad & benign include the movement towards cashless spending, use of AI, various Millennial trends and delivery. Further changes will be demanded by customers.
• Morar suggests that confidence is down. Private Equity bought businesses (and geared them up|) in more confident times. Some 37% of the top 100 restaurant chains are making losses. Trends include Vegan, flexitarian, less alcoholic drink & delivery. Jon Lake at Chopstix tells the conference, he has ‘never felt more uneasy’.
• Features of the industry. Low barriers encourage entrants whilst customers are staying at home. Internet TV, Amazon, Netflix. When Millennials go out, they go out for special occasions. E.g. wall climbing and other experiential. The larger operators are not innovative. E.g. none are pushing experiential. They may look to buy smaller, more innovative companies in due course.
• LDC cautions that failing operators do irrational things. Their actions may feature discounting, disruption, lower standards, corner cutting and lower margins.
• LDC poses the question ‘will food delivery & Netflix empty town centres?’ and it has to conclude Yes. The new services certainly won’t help to fill them. Perhaps councils need to step up, take a longer view and spend more. Some assets are either wrong or in the wrong place. Assets may physically last last 100yrs but, if fashions change & demand disappears, they may have an effective life of only only a handful of years in reality.
• Chameleon outlets could prosper. If an operator can remain busy throughout day parts, offer F&B, experiences and perhaps some merchandise, they could perform more strongly.
HOLIDAYS & LEISURE TRAVEL:
• Abta urges members to continue with contingency plans over Brexit following political turmoil that saw two cabinet ministers resign. Writing in a blog, Abta chief executive Mark Tanzer said ‘Given the ongoing uncertainty it is advisable that members continue with contingency planning in order to make sure you are prepared, whatever the scenario.’
• Thomas Cook describes Tunisia as a trending destination for 2019, with bookings up five-fold since the packages’ re-introduction.
• The Times reports that a traveller with British airways is suing the airline due back injuries caused by being ‘wedged’ next to an obese passenger.
• A Yougov survey on behalf of Priority Pass has found people spend on average around £911 a year on business travel globally. Brits tend to spend the least at around £670, with US travellers spending the most with an average of £1,245.
• Hambleton District Council have greenlighted the £17m redevelopment of the former Northallerton prison into retail, residential, leisure and office space.
• Viacom announced a multi-picture deal with Netflix on Friday, building on its supply to big tech rivals instead of directly competing with them. The strength of ‘Mission: Impossible – Fallout’ at the boxoffice helped the company beat profit and revenue expectations.
FINANCE & ECONOMICS:
• Sterling bounces to $1.282 and €1.1249.
• Oil price unchanged at $67.25
• UK 10yr gilt yield up 5bps at 1.41%.
• World markets down Friday with US better & Far East up in Monday trade.
• President Trump has said he thinks he can strike a trade deal with China.
o No further resignations. PM May says coming week will be crucial. M Barnier proposes extending transition period to end-2022.
o City AM reports only 13% of respondents believed the PM’s deal to be the best outcome. Some 39% preferred no-deal and 48% want a People’s Vote.
o Sky poll asking a slightl different question says 14% prefer No10’s deal, 32% no-deal and 54% no Brexit at all.
o BBC reports small business as being ‘fed up’ with Brexit. Education, crime, NHS, environment all taking a back seat.
o Sky reports ‘Europeans cannot stop laughing at the ineptitude of Britain’s political class’
PRIOR DAY LATER TWEETS:
• Later tweets: Patisserie Holdings replaces CEO. No details yet as to exit package, issues re possible repayment of options windfall etc.
• Big reporting period coming up. Next week we have EI Group, Marston’s, M&B and Fullers with Greene King reporting the week after.
• Brexit. No new resignations, it’s getting boring. Michael Gove still slithering around, assessing the odds with his little machine brain
• Black Friday. Is it fizzling out or are we due another mad fortnight when shops suck in sales from before & after by offering discounts?
• BDO highlighs High Street problems. Total sales last week down 3.7%. Masks a plus 11.1% online & down 7.6% for in-store sales
• Song in today’s email Everybody Hurts (REM). Seemed somehow appropriate given our political leaders’ current travails…
• Brexit debacle. Tories take us in, argue for forty years & take us out. What part of ‘business needs certainty’ don’t they understand?
• Gove will not to quit £141k Cabinet position. Doesn’t want Brexit job as seems to accept what he campaigned for is undeliverable
• Principled Club for MPs closing for lack of members (Jo Johnson, Tracey Crouch)? Meanwhile Slippery Reptile Club (most others) prospers
START THE DAY WITH A SONG:
Friday’s song, which seemed appropriate given the bruhaha surrounding the proposed Brexit deal, was Everybody Hurts by R.E.M. Today, who sang:
It’s been twenty-two long hard years, I’m still strugglin’,
Survival got me buggin’, but I’m alive on arrival
I peep at the shape of the streets
RETAIL NEWS WITH NICK BUBB:
Saturday Press and News: The growing political crisis over Brexit was obviously the main focus in the Saturday papers and the FT, as usual, had some thoughtful articles about the subject (including one from Gordon Brown calling for the creation of regional People’s Councils to weigh up the key issues: “To calm the Brexit storm we must listen to the country’s voices again”). And the Times had an Economics feature with a detailed chart of the ups and downs of sterling since the 2016 Referendum, arguing that “Pound gives truest guide to impact of Brexit”. In other news, the FT had an interesting feature about the problems facing Debenhams (“Christmas season is crunch time for Debenhams”), noting that the shares were hit hard last week by the poor John Lewis sales figures and that if Christmas goes badly for Debenhams, Mike Ashley is poised to pounce. On a happier note, the Guardian
Sunday Press and News (1): The Economic implications of the political crisis over Brexit prompted several gloomy articles in the Sunday papers: the column by David Smith, the Economics correspondent of the Sunday Times, was headlined “Britain doesn’t need this new wave of Brexit uncertainty”, whilst the column in the Sunday Telegraph by the veteran Business commentator Jeremy Warner was headlined “I’m calling a UK recession if this Brexit bedlam isn’t sorted out soon”. Otherwise, there was lots of focus on Black Friday, with some surprisingly cheerful headlines: the Observer feature was headlined “Shops give thanks as Black Friday gets decidedly British”, whilst the Sunday Telegraph had a big splash about Black Friday arguing that “Blessing or curse: Black Friday is set to deliver the goods” (although it also had a separate article headlined “Clicks poised to outshine bricks”, in
Sunday Press and News (2): In terms of upcoming company news, Kingfisher was in the spotlight in the Sunday Times, with the “Inside the City” investment column arguing that the shares are best avoided and a separate article highlighting that Kingfisher is trying to raise £125m in a B&Q sale and leaseback deal ahead of its underwhelming Q3 results on Wednesday. The Sunday Times also flagged the impending collapse of a small shopping centre investment vehicle called New Frontier Properties, whilst the Mail on Sunday noted a potential shareholder revolt against the Chairman of Hotel Chocolat at the upcoming AGM and highlighted that the US fashion chain Urban Outfitters claims to be doing well in the UK. Finally, the Mail on Sunday had a feature interview with the high-profile boss of the struggling Online fashion business Missguided, Nitin Passi, boasting that he is the “King of fast
Today’s Press and News: There is more focus on Black Friday in today’s papers, with the Guardian highlighting the fear that further Online spending growth will eat into the hard-pressed High Street this week, as per the latest Springboard forecast of lower customer footfall. And the Telegraph has a photo of the interior of the John Lewis warehouse in Milton Keynes, all ready for the order rush. The Telegraph also has a useful “SWOT” analysis on Mothercare ahead of the upcoming interims. And the City editorial in the Daily Mail lashes out at Debenhams, thundering that it is still haunted by its private equity past.
News Flow This Week: The big shadow over this week is the “Black Friday” discounting promotional frenzy (which has, regrettably, already started), but before that we get the AO.com interims and the Bonmarche interims tomorrow, the Kingfisher Q3 update on Wednesday and the Majestic Wine interims on Thursday. We also expect the Mothercare interims on Thursday, although that is still not confirmed. The much revised “PUSU” deadline for the John Whittaker consortium over its bid for Intu Properties is on Thursday afternoon.
1. Largest to smallest, Pizza Express (c436), Pret (c360), Nando’s (c340).
2. Around 1,136
3. Largest to smallest, Subway, Costa, Gregg’s (roughly 3000 (incl. Eire), 2100, 1650)
5. A little over 500
7. Smaller: 43 + 340 + 300 < (0.5 x 1650)
8. More: 3000 + 2100 > 1650 + 840 + 1200 + 436 + 360 + 340
9. Cambridge. AKA Fenland Poly
10. Why Langton Capital, of course