Langton Capital – 2018-12-05 – CAKE, Stock Spirits, food prices, big ticket & other:
CAKE, Stock Spirits, food prices, big ticket & other:
A DAY IN THE LIFE:
We were at the cinema recently (Fantastic Beasts II) and saw bags of Haribo Tangfastics and Starmix’s for sale at £3.79 each (supermarkets £1 per bag). This went some way to assuage our feelings of guilt as we clanked and rattled to our seats carrying bags of fizzy drink, crisps and nuts.
Anyway, quite busy would you believe so just time to reveal a little-known fact: Berk (i.e. self-satisfied, middle-aged idiot) is a shortened version of ‘Berkshire Hunt’, which is itself rhyming slang for a much ruder word altogether. On to the news:
60 SECONDS – BIG TICKET VS SMALL TICKET:
• The ongoing Brexit saga makes the prediction of consumer behaviour trickier than ever.
• Visa suggests consumer spending fell 0.2% YoY (to Oct). Household expenditure has fallen in 6 out of 10 months in 2018.
• GfK’s November Consumer Confidence report revealed a drop of three points to -13. GfK comments ‘the measure that fell the most is our Major Purchase Index…[which] is unhappy news for retailers
• In contrast, spending on food & beverages has proven somewhat resilient. Consumers can maintain their lifestyle and may be forgoing big-ticket purchases to save money.
• The Coffer Peach Tracker has pub & restaurant LfLs +0.2% YoY in October 2018, with wet sales outperforming food.
• Sainsbury’s reported grocery sales up 1.2% YoY in the 28 weeks to 22 September.
• CGA & Prestige Purchasing points to further uncertainty ‘and an anxious few months lie ahead as buyers await clarity’
• We posit that this small-ticket resilience has come at the expense of big-ticket sales.
• As at October, SMMT reports new car registrations down 2.9% YoY with year-to-date registrations down 7.2%. November’s data is out 5 December.
• AO World has warned that the core white goods market in the UK had been challenging.
• On a brighter note, Nationwide reports house prices up 1.9% YoY in November. However, this is still some way below CPI
PUBS & RESTAURANTS:
• Patisserie Holdings, whose shares remain suspended after the discovery of accounting irregularities that necessitated a rescue fund-raise, has announced the appointment of Nick Perrin as Interim Chief Financial Officer.
• CAKE says ‘Nick is an experienced and successful Finance Director, most recently of AIM-quoted CVS plc, the leading integrated veterinary services provider.’ It says ‘Nick has been retained on an interim basis while the Board undertakes a process to appoint a permanent Chief Financial Officer. Mr Perrin is not a member of the Board.’
• CAKE CEO Steve Francis comments ‘I am pleased to welcome Nick to Patisserie Holdings. He brings with him the necessary experience to help strengthen the team as the Company works tirelessly to put the events of the past months behind it and look forward to the future.’
• The group remains under investigation in several areas. PwC are investigating its numbers, the police are investigating its former CFO and the accounting standards people are investigating its auditors.
• Stock Spirits has reported full year numbers to end-Sept saying that revenues rose by 8.7% to €282m with profit for the period of €33.2m vs €29.2m last year. The group has earned 16.72c per share.
• Stock Spirits CEO Mirek Stachowicz comments ‘this has been a year of good growth for Stock Spirits, and today’s results show that our strategy of focusing on premiumising our range and increasing the use of digital channels in order to engage with millennial consumers is working. We are pleased with the increasing strength and resilience of our core Polish business, and also with the way in which we have combatted the headwinds experienced earlier in the year in the Czech Republic. Given the positive momentum in our underlying business and our portfolio of strong brands that are responding well to our ongoing programme of investment, we remain confident of being able to achieve further growth in the future.’
• Foodservice Price Index from CGA & Prestige Purchasing shows that food prices are rising with a ‘significant effect of weather conditions on key categories.’ The index suggests that wholesale foodservice prices increased again in October 2018.
• Price index shows the ‘highest inflation numbers in October were in the Fish and Oils & Fats categories.’ Vegetables ‘saw a rapid rise in inflation in October as a result of the hot and dry summer weather.’
• Elsewhere ‘mild weather conditions this autumn have led to reports of improvements in grass growth, and milk production has surpassed expectations. October saw the largest drop in milk market prices since January.’ Prestige Purchasing says ‘the poor weather conditions we have experienced this year have continued to put upward pressure on pricing in a number of food categories, and this month has seen the highest level of inflation in foodservice for more than a year. This will be unwelcome news for operators as we head into the key Christmas trading period, and with the outcome of Brexit still very much undetermined it is critical that businesses take a proactive approach to managing the future risks of inflation.’
• CGA comments ‘the foodservice sector has been challenged by relatively high levels of inflation throughout 2018, and as the year draws to a close the upward trend shows no sign of abating. Weather patterns have worked against the supply chain, and micro factors like the soft drinks industry level and trade tariffs have made conditions even tougher. Businesses will be hoping for a more stable 2019, but the ongoing effects of the weather on production coupled with the shadow of Brexit means further uncertainty is more likely.’
• Giggling Squid has reported results for the year to end-March to Companies’ House saying that ‘the group has enjoyed another year of strong growth’.
• Giggling Squid sales rose by 28.8% to £23.7m with restaurant level EBITDA up by 32.9% to £5.5m.
• Giggling Squid has reported an overall loss before tax of £193k (2017: loss £468k) and has lost some £1.3m since incorporation.
• Fleurets reports ‘2018 will live long in the memory and be referred to over the years and decades ahead during weather forecasts and climate change documentaries.’ It continues ‘the performance of JD Wetherspoon, Stonegate and the vast majority of traditional tied pub tenants across the country should not go unrecognised.’
• Fleurets adds ‘whilst the executives of the wet-focussed pub operators have been collectively patting themselves on the back, their counterparts over in the casual dining sector will have been fervently playing with their worry beads and asking whether 2018 can get any worse. The last thing that the likes of Prezzo and Carluccio’s would have wanted is a record breaking summer.’
• Looking forward, Fleurets comments ‘the months and year ahead is likely to be both challenging and exciting for leisure property owners and operators alike.’
• Simon Cope has stepped down from his role as Chief Executive of the burger chain Byron.
• The Mexican restaurant chain Chilango is to extend its Burrito Bond 2TM into the new year, after the initiative raised over £2.3m for the company. CEO of the group, Eric Partaker commented: ‘The response to the Burrito Bond has been overwhelming. Extending the Burrito Bond will give us the opportunity to welcome more people into the Chilango family and spread our message further afield’.
• The newly formed, Fazan Tahir led, FT Foods Limited has acquired seven KFC restaurants in London in a multi-million-pound deal.
• The restaurant group, D&D London is set to open its second New York unit in March 2019. Chief executive, Des Gunewardena, said: ‘We are incredibly excited to be opening our second restaurant in New York, and becoming part of such a significant new neighbourhood in the city’.
• Retail floor space in England and Wales has reduced by over quarter following the 2008 financial crisis. Retail space in England and Wales has fallen to 114m square metres in 2015 from 157m square metres in 2008.
• Amazon has stated that Prime members worldwide ordered over 2bn products in 2018.
• Brewhouse & Kitchen acquires Beechwood Hall in Worthing from Fleurets, bringing the chain up to 23 sites after completing a comprehensive refurbishment.
• Barclaycard reports expenditure on essentials rose by 4% in November, with spending at pubs up 11.3% and restaurants by 8.3%. However, confidence in household finances was at its lowest levels since the survey began in 2015 at 52%.
• Network Rail is receiving training from Drinkaware about how to spot vulnerable passengers who have been drinking alcohol. This is in response to a 17% increase in the number of alcohol related incidents reported on the railway in December 2017.
• Co-op will now stock The Lakes Gin by The Lakes Distillery. In the year ending 31 March 2018, UK gin sales overall rose by 33% in value to reach £1.5 billion, according to the WTSA.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook has announced that chairman Frank Maysman has purchased 373k shares in the company at 21.6p
• Thomas Cook’s bond yields have been hitting new highs as worries persist surrounding the group’s financing.
• HNN reports Germany is experiencing a construction boom in branded hotels with cities such as Hamburg, Berlin and Frankfurt leading the way.
• Global Travel Group boss Andy Stark says the turn-of-year booking period ‘has never been more important’ with trading in the first two months of the new year deemed to be ‘absolutely critical’.
• Phoenix Equity-backed Bridge Leisure Parks acquires Bowland Fell holiday park.
• The European Regions Airlines Association warns a no-deal Brexit could have ‘disastrous consequences’ grounding many flights across the EU and UK.
• Club Med aims to open three new mountain resorts a year by 2020, with the latest being Les Arcs Panorama in the French Alps. Winter sales grew by more than 9.4% in 2017-18 with this winter forecast to grow by more.
• Tencent Music Entertainment’s IPO is back on the cards and plans to raise up to $1.23bn. Tencent Music has around 800m months active users, making it one of the world’s biggest music platforms.
FINANCE & ECONOMICS:
• The BRC suggests that Black Friday wasn’t enough to raise high street sales as like-for-like retail sales fell 0.5% in November.
• UK construction PMI for November rose to 53.4 from 53.2 in October. HIS / Markit says ‘November data pointed to a solid expansion of UK construction output.’ HIS Markit comments ‘November data indicates that the UK construction sector remains in expansion mode, with resilient business activity trends seen for housing, commercial and civil engineering activity. The latest overall rise in construction output was the fastest since July, helped by a stronger contribution to growth from house building activity.’
• Some confusion as to whether the Sino-US trade war is really winding down or not.
• Joseph Rowntree Foundation says that more than half a million British workers slipped into working poverty over the past five years.
• Sterling hit 20 month lows yesterday on concerns that Brexit was not progressing as smoothly as might have been hoped.
• Sterling lower at $1.2687 and €1.1202
• Oil down at $61.07
• UK 10yr gilt yield down 4bps at 1.28%
• World markets all lower yesterday with the Far East down in Wednesday trade.
o HMG suffers three defeats in House of Commons. Suggestion that Mrs May is absorbing humiliation and relabelling it success.
o Government in contempt of Parliament. MPs now have final say over Brexit if Mrs May’s semi-Brexit fails on Tuesday.
o EU law official says UK can stop Brexit on its own. Looking to many like the most sensible solution as divisions remain in Cabinet, Tory Party, House of Commons & country as to what Brexit actually means.
o Barclays Corporate Banking suggests that the UK will face a skills shortage post Brexit.
o Mervyn King has called on Mrs May to drop her vision of a half-Brexit. He says that the British political class has let down the rest of the country.
o Governor Mark Carney has warned that food prices may rise by as much as 10% in the case of a no-deal Brexit. Tim Martin at JDW has said that they would go down.
o Toyota has warned that a no-deal Brexit would be ‘disastrous’. There is a difference between a scare story and a scary story.
PRIOR DAY LATER TWEETS:
• Later tweets: Chunky discounts still available out there as we run into December. Prezzo is 40%, Restaurant Group’s Frankie & Benny’s 30% off
• Patty & Bun Holdings loss b/tax £770k (2016: loss £352k) on revenues up 43% at £8.8m. Operating loss 8.4% of sales vs 5.7% last year
• Mike Ashley reportedly says Phillip Hammond’s help for the high street announced in the budget was the ‘work of a child’.
• UK will be ‘indefinitely committed’ to EU customs rules if Brexit talks break down says chief law officer Geoffrey Cox.
• BRC says LfL sales down 0.5% in Nov. Suggests will be a ‘nerve-wracking run-up to Christmas’.
• Mike Ashley tells Sky that, if he had his time again, he would only need 50 stores. Doesn’t bode well for retail property values
START THE DAY WITH A SONG:
Yesterday’s song was Making Plans for Nigel by XTC. Today, who sang:
Trying to make some sense of it all,
But I can see that it makes no sense at all,
Is it cool to go to sleep on the floor,
Cause I don’t think that I can take anymore
RETAIL NEWS WITH NICK BUBB:
• Joules: Ahead of today’s scheduled first half pre-close update, the Joules share price has been in free-fall (down to a 207p from a peak of 393p back in June), as if it had all gone wrong for the lifestyle brand. But the shorts may be surprised to see the headline: “Strength of the Joules brand and flexible ‘total retail’ model deliver first half profits slightly ahead of initial expectations”. There are no references to margins or costs, but total sales in the 26 weeks to Nov 25th were up by 17.6%, helped by strong Online and International growth, Despite challenging UK Retail trading conditions, the Spring/Summer 2019 wholesale order-book is good and that gives the Board “confidence in the group achieving full year 2019 PBT in line with its expectations”.
• John Lewis Trading Watch: After a strong revival in Black Friday week, trading at John Lewis slumped again last week, despite continued discounting by Debenhams and House of Fraser, according to yesterday’s weekly sales overview from JLP. As we noted a week ago, the graph of overall JLP sales now includes Waitrose as well, so it is no longer possible to see the “pure” John Lewis sales graph, but we estimate that John Lewis fell back from a massive £230m (inc VAT) of the total £380m of gross JLP sales in w/e Nov 24th, to £167m of the total £297m in w/e Dec 1st, down 5.9% (as much as c8% down on a LFL basis, excluding new stores). In terms of sales mix, Electricals were down by 7.7% in gross terms last week, Fashion/Beauty sales were down by 1.8% gross (not helped by the “mild weather”)and Home sales were down by 8.8% gross. Despite the success of Black Friday, the last 18 weeks are now
• Waitrose Watch: Over at Waitrose, things weren’t that good either last week, with gross sales down by 1.8%, ex-petrol, in w/e Dec 1st (c2% down LFL, as there is hardly any net new space). The last 18 weeks are cumulatively running down by c0.5% gross (despite the strong start to August for Waitrose), with the “Home and General Merchandise” category running 4.3% down. For Waitrose, however, it is worth noting that the big Christmas sales peak is still to come, whereas at John Lewis the Christmas week now, alas, pales into insignificance compared to Black Friday week…
• News Flow This Week: The SMMT New Car sales figures for November are published later this morning and the FTSE Quarterly index review will be announced this evening (although no significant Retail changes are expected). Tomorrow brings the much-awaited Ted Baker Q3 trading update and the Signet Q3 results out in the US, whilst the ABF (Primark) AGM is on Friday.