Restaurant Group, delivery, Dry Jan, pub visits, FUL etc.:

A DAY IN THE LIFE:

There are a lot of people these days who walk around whilst reading their mobile phones.

And, as a large proportion of them are looking at Google Maps, they’re wont to slam on the brakes when you’re walking behind them and turn 180 degrees as they twig that they’re going in the wrong direction and this unfortunately often leaves you with the ‘head-butt’ or ‘kiss’ decision.

And, as both actions could be seriously misinterpreted, it’s best if you can to avoid either and stop dead in the road yourself which leads, too often, to someone walking into the back of you or swerving into the road and being clipped by a beercycle full of revellers singing Merry Christmas Everybody (and hopefully by nothing worse).

So, here’s a thought, why not try to multitask and behave reasonably when walking in public? I mean very few people forget to breath or to keep their eyes open while reading so why not go a small step further and consider other people around you too? I mean we’re pack animals, we’re very good at that sort of thing. On to the news:

PUBS & RESTAURANTS:

• The Restaurant Group has announced the takeup for its Rights Issue at 92%. This is a good result and suggests that many of the nil paid shares must have changed hands and ended up with holders that wished to take up their Rights. The 8% that have been left with underwriters may be either held by them medium term or they could be placed in the market by JP Morgan.

• Restaurant Group’s new ordinary shares will commence trading later this morning. RTN expects its purchase of Wagamama to complete next Friday.

• Foodservice delivery is expected to have grown 13.4% in 2018 to a value of £8.1bn, the MCA has reported.

• Alcohol Change UK has commented that another 1.1m people are planning to participate in dry January taking the total to 4.2m.

• Research from the NPD Group’s Pub Tracker has found that pub visits declined in the year ending September 2018 by 0.3%, however, this was a better performance than other businesses in the foodservice sector which fell 0.4%. NPD Group insights director Dominic Allport said: ‘Pub visits continued to decline in the year ending September 2018 with recent ONS fata showing continued pub closures, however, in the most recent quarter we have seen visit growth, with pubs performing slightly better than the wider foodservice market’.

• UK sit-down restaurants’ meal calorie content has been found to be ‘excessive’ according to research from BMJ. Sit-down restaurants had higher calorie (average 1,033) levels than fast-food outlets (average 751).

•  There are 7,000 craft breweries currently open in the US in 2018, research from the Brewers Association has indicated. Julia Herz, craft beer program director at the Brewers Association commented:’Brewers are finding ways to differentiate themselves in a competitive market, become pillars of communities, and embrace new experiences and occasions to connect with beer lovers’.

• The NPD has found that US restaurants faced flat-to-declining footfall, as e-commerce continued to draw people back into their homes.

• Luckin raises $200m in Series B funding, driving its valuation to $2.2bn as it vows to take top spot from Starbucks in China. Luckin soft-launched in January, secured $200m from investors in July and now totals 1,700 shops.

• Lärabar plans to bring healthier snack bars to the UK. The company, owned by General Mills, has annual sales of c$177.7m.

• The Department of Health and Social Care has decided that there will be no changes to the descriptors for low and no alcohol products. Chief Executive of the British Beer & Pub Association, Brigid Simmonds commented: ‘Confirmation of this decision is bitterly disappointing. The Department of Health has missed this opportunity to give consumers greater clarity when it comes to the labelling of low alcohol beers’.

• The first Tim Hortons franchise group in the UK, Pizza Cake, has announced it will open three new Drive-Thru Tim Horton restaurants in Scotland.

• Chairman of Stonegate Pub Company, Ian Payne, has received an MBE.

• Chinese retail sales have increased at their slowest pace in 15 years in November, with factory output at its weakest in nearly three years.

FULHAM SHORE H1 RESULTS:

The Fulham Shore has reported H1 numbers for the six months to 23 Sept 2018. Thereafter the group hosted a meeting for analysts and our comments are set out below:

Headline Numbers:

• The Fulham Shore reports revenues up 20% at £33.0m with headline EBITDA of £4.6m versus £4.5m last year.

• There were some credits last year relating to property that have not been repeated and costs have increased. This has depressed margin

• Prices have only been increased modestly. FUL remains considerably less pricey than its rivals

• Profit before tax is up 35% at £1.5m versus £1.1m last year

• Operating cash inflow was £4.9m (2017: £3.3m) leaving net debt of £8.9m (24 September 2017: £9.7m).

• Debt is down from £12.0m at the last year end

• The group has expanded rapidly over recent years and restaurant numbers have risen from 20 at March 2015, 29 March 2016, 45 in March 2017 and 59 currently

More on Trading:

• FUL has increased its estate only modestly in the last 12mths or so. It had grown from 10 to 34 units in London in the 2yrs to the middle of last year

• Re Brexit, FUL is stockpiling some product – though much is now sourced in the UK.

• Delivery options are available at all the Real Greek units and around 20 Franco Mancas. Click and Collect is also a popular option

• Rents ‘are falling’. Some second-hand units (with existing F&E including toilets, kitchens, extraction etc.) are now available.

• Landlords ‘are in disarray’.

• LfLs (not given) ‘have been positive for 9mths’.

• Margin pressure will persist into next year via increases in the NLW, NMW & mandatory pensions.

• Labour is available but things could change after 29 March. All tips go to staff.

• Some capacity is coming out of the market (at last).

• IFRS16 will be implemented in FY20. The group will update on the impact at its H1 numbers this time next year.

Balance sheet & debt:

• Operating cash flow was £4.9m (ahead of EBITDA) on the back of fewer openings & reducer capex.

• Net debt is £8.9m, down from a peak of £12.0m and compares with facilities of £15.0m.

• FUL can open c8-10 units per annum from cashflow. Unless one-off opportunities to expand present themselves, we do not expect debt to rise further

• The group retains the flexibility to either increase or decrease its opening programme depending on the business outlook post Brexit next year

• FUL will open next year in a number of cities outside London likely to include Edinburgh, Glasgow, Manchester, Leeds & Cardiff (all depending upon lease negotiations)

• Landlords are currently much more user-friendly with reverse premia, capital contributions and lower rents sometimes available

Outlook:

• FUL believes that it can expand both its Franco Manca and Real Greek chains to 2-3x their current size over time

• Those hoping for a sale of Fulham Shore to a larger operator may have found the ‘exit window’ has been distorted by Brexit.

• A dividend is possible but not likely in the near term. In the meantime, FUL should be able to grow its unit numbers, revenues & profits whilst keeping debt stable.

Langton View:

• Fulham Shore has, as mentioned above, delivered higher store numbers, revenues and profits, with a lower debt number in what has been a very tough period for the casual dining sector.

• The company is a winner in its field & now has the option of either expanding at a pace that keeps its debt stable, or of expanding more slowly and continuing to pay debt down.

• We expect the group to adopt the former strategy – though it retains the flexibility to cut back opening numbers if the market becomes more uncertain.

• Over the longer term, we expect FUL to prosper. It is selling an attractive product at an attractive price. The company’s suggestion that both chains could triple in size seems reasonable.

HOLIDAYS & LEISURE TRAVEL:

• IATA reports airline industry leaders are ‘cautiously optimistic’ about 2019 with the global airline industry set to reach net profits of $35.5bn in the year.

• London Luton Airport officially opens its £160m upgrade, a move which the airport says will increase capacity by 50% allowing it to welcome 18m passengers by 2020.   

• STR has reported that US hotel occupancy fell by 0.8% in the week to 8 Dec. Rate was up 1.3% and REVPAR was some 0.5% higher.

• Some UK airports are barely offering one US dollar to the pound following a month of Brexit uncertainty. The pound has fallen 11.77% against the dollar since the 16th of April.

• Travellers at some UK airports are barely being offered one US dollar for each of their pounds, following a month of Brexit uncertainty.

OTHER LEISURE:

• Gfinity, the UK based esports group, has announced that it will host four events as part of its FIFA 19 Global series. Over 20m people across 60 countries participated in the FIFA 18 Global Series. Garry Cook, Executive Chairman at Gfinity, said: ‘We are proud to extend our partnership with EA SPORTS for this season. With these four events, alongside the Gfinity Elite Series and the upcoming ePremier League, we continue to be at the forefront of FIFA competitive gaming tournaments. We are now established as one of the world-leaders in this sector’.

• Goals Soccer opens its 50th football centre in Covina, LA, in a JV between Goals and City Football Group. Andy Anson, CEO, said ‘This new site was commissioned to meet the growing demand for venues to play small-sided soccer in the US.’

• The voluntary ban on betting adverts during sport programmes will go ahead next summer with culture secretary Jeremy Wright saying gambling firms were ‘stepping up and responding to public concerns’. 

• Tencent Music raises close to $1.1bn from its IPO, valuing the company at $21.3bn and pricing shares at $13.

FINANCE & ECONOMICS:

• The ECB has confirmed that it is ending its asset-purchase programme. It had been buying some €30bn of bonds per month. Eurozone interest rates will be held at 0%.

• Sterling up a fraction at $1.263 and €1.1117

• Oil up at $60.97

• UK 10yr gilt yield up 1bp at 1.29%.

• World markets down yesterday with US slightly higher. Far East up in Friday trade.

• Brexit etc.:

o Times suggests ‘Parliament is in a sort of intellectual deadlock’. It says a People’s Vote could be the only way forward

o Sky says EU leaders are to give no ground on the semi-Brexit negotiated by PM Mrs May. PM says: ‘I don’t expect an immediate breakthrough.’ Einstein said that one of the definitions of insanity was to do the exact same thing over and over again and expect a different outcome.

o Vote to come ‘before 21 Jan’ says PM (who also said there would be no snap election in 2017 and that the vote would originally happen this week)

o Irish PM Leo Varadkar has suggested that Sinn Fein take up its seats at Westminster in order to help Mrs May’s deal through parliament. Unionists fear that the deal will be a step on the way to a united Ireland

PRIOR DAY LATER TWEETS:

• Later tweets: Discounts still prevalent in the run up to Christmas. Beefeater & Brewer’s Fayre (Whitbread) 33% off, Prezzo (CVA) 40% off

• Restaurant Group rights issue closes today, result (and stock left with underwriters) announced tomorrow morning).

• BBC: ‘the PM who promised she would be strong & stable is instead at the top of a party that looks weak & chaotic.’

• Bonmarche down 39% as co warns ‘current trading conditions are unprecedented’ & ‘significantly worse…than during the recession of 2008/9”.

• Springboard: some retailers could collapse over Xmas. If you were the bank, you’d pull the plug post Xmas income, pre-rent payments

START THE DAY WITH A SONG:

Yesterday’s song was Whole Lotta Love by Led Zeppelin, today who sang:

Well let me tell you somethin’ all that glitters ain’t gold,

Hey hey

It’s been a long old trouble long old troublesome road

And I’m looking for somebody come and help me carry this load

RETAIL NEWS WITH NICK BUBB:

Debenhams: Despite “Mad” Mike Ashley’s outburst at the Sports Direct results meeting about November trading being “unbelievably bad” and that retailers would get “smashed to pieces” , the beleaguered Debenhams has not seen fit to issue a trading update this morning or comment on his bizarre offer of a £40m interest-free loan with strings attached. But down at 5.5p, the market cap of the company is now just £67m, so the share price is telling us that Debenhams is running out of options…

Trade Press (1): The final edition of Retail Week magazine this year hits a topical note with its front cover graphic of the jigsaw of Mike Ashley’s High Street interests, to flag up the main feature on “All the pieces in place?” (“Puzzling out Mike Ashley’s grand plan”). RW also have feature articles on “Deals, Drama and GDPR” (the ups and downs of retail’s rollercoaster 2018), the “Christmas Nailbiter” (the prospects for December’s trading peak) and “Missguided on a mission” (founder Nitin Passi on the road ahead after a tough year). And in his column the Editor looks at the news that Justin King is to become a non-exec at M&S, gushing that “Return of the King is good news for M&S”. 

Trade Press (2): The front cover of Drapers magazine (which is also the final edition of 2018) flags up their “Power 100” list of the most influential people in the fashion industry this year (see below). In her column, the Editor notes that “comparatively new players in the market, such as Gymshark and In The Style, are making their mark and creating excitement in the industry”, but she also thunders that “”Make or break” Christmas is endnote to tough 2018” and highlights that all eyes are on Debenhams. In terms of News stories, Drapers leads with the news that “High Street retailers are expecting Christmas trade to be worse than last year as a mood of “doom and gloom” and economic uncertainty prevails”. Drapers also flag that CEO Meg Lustman is leaving the Hobbs fashion group next month as part of a restructuring, industry sources have voiced concern over the future of Ted Baker as
founder Ray Kelvin takes a leave of absence and experts are unconvinced by Mike Ashley’s proposal for a 20% Online sales tax. Drapers also have a feature looking back at the twists and turns in the fashion retail industry over the past 12 months.

Drapers “Power 100” list: The Drapers “Power 100” list of the most influential people in the fashion industry this year is headed, controversially, by Mike Ashley of Sports Direct, with Pablo Isla of Inditex in second place and Nick Beighton of Asos in third place. Peter Cowgill of JD Sports is 7th and Mahmud Kamani and Carol Kane of Boohoo are 8th.

BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis slumped badly again last week, thanks to mild weather and reduced promotional activity, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains for last week, w/e Sunday Dec 9th, is not too bad, with BDO Fashion sales only 0.6% down LFL last week (including Online). Total BDO sales (including Homewares and Lifestyle sales) were down by 2.4% (-5.1% in terms of Store LFL sales and up by 10.3% Online).

News Flow Next Week: The big focus for retailers next week should be on counting the takings, as the late Christmas spending boom gets underway, so there is no company news scheduled, but, on the Economics front, we get the CBI Distributive Trades survey for “December” on Wednesday, the ONS Retail Sales figures for November on Thursday (better late than never?) and the widely followed monthly GFK Consumer Confidence survey first thing on Friday.