Langton Capital – 2018-12-21 – Carnival, outlook for 2019, Diageo, discounts & other:
Carnival, outlook for 2019, Diageo, discounts & other:
A DAY IN THE LIFE:
So, are Christmas cards going the way of the steam engine?
Well, probably and, as someone who doesn’t particularly like paying for a bit of creased cardboard and a stamp that will move from the envelope to landfill in pretty short order, that’s perhaps no bad thing.
Langton used to canvas for Xmas cards a few years ago and we raked in perhaps 60-80 of them. This month, I think the firm received one and, as that could be labelled marketing material, the real number was perhaps zero meaning that, if you’re giving advice to your kids as to what industry they should seek to dominate as they rise to corporate stardom, bent, glittery cardboard manufacturing perhaps shouldn’t be one of them.
Anyway, today will be the last day in the office for many so it only remains for us to wish our readers a merry Christmas and a healthy and prosperous New Year. We’ll be back at some point in 2019 so let’s move on to the news:
PUBS & RESTAURANTS:
• Head of leisure and hospitality for RSM, Paul Newman has stated that an expensive London market, social conscience prominence and a fight for lunchtime spending are set to become major factors for 2019.
• Continuing, RSM commented that the London market is in danger of pricing out new concepts due to market saturation, expensive rents and high wages.
• RSM further commented that 2019 will see consumers using their personal DNA data to help in their dietary habits, resulting in hyper-personalised products.
• Diageo has announced that it has completed the sale of a portfolio of brands to Sazerac. The sale was announced on 12 November 2018.
• Patisserie has announced it will launch an app to better understand its customers behaviour. The app will be developed by the Yoyo platform and will roll out across all 155 Patisserie Valerie stores.
• The craft gin producer Poetic License Distillery has stated its plans to increase its production capacity from 100,000 bottles to 1.5m a year.
• Caffè Nero has avoided paying corporation tax on annual sales of £334m last year as large interest payments wiped out the group’s profits, the Telegraph has reported.
• The ONS has reported that retail sales have risen 1.4% in November from October, after economists’ expected a growth of 0.3%.
• Retailer Sir John Timpson has stated that UK high streets have twice as many shops as they need. Sir John Timpson called on local councils to be given more money in order to help redevelop high streets: ‘It’s not just about shopping. It’s about communities and creating a hub for entertainment, medical facilities, housing. We probably have about twice as many shops as we need. But we are short of housing’.
• Unilever has announced that it has acquired the meat-substitute company The Vegetarian Butcher as the group looks to benefit from consumers turning their backs on meat.
• Foodservice consultant Peter Backman has commented on 2018 saying it ‘has been yet another year of challenges and changes.’
• Backman highlights a number of themes including weaker real incomes, the weather, the World Cup, inflationary cost increases and the growth of delivery as amongst the main themes of the last 12 months.
• Mr Backman says delivery ‘continues to motor ahead’ but it is a negative for margins. Many operators cannot ignore it as to do so would be to surrender turnover to competitors. Backman says ‘the air of uncertainty has been very much kept alive by Brexit and that will continue into the year ahead.’
• Highland distillery Tomatin has announced the release of its highly anticipated single malt, the Tomatin 50 Year Old, distilled on 24 November 1967.
• The FT comments on the booming Indian food delivery market saying that the newly-funded Swiggy, operator Zomato and global player Uber Eats continue to battle it out in Mumbai amongst other markets. The FT says ‘while still in its infancy in India, food delivery is one of the fastest-growing segments of a national ecommerce market that has attracted billions of dollars from foreign investors in recent years.’
• The US restaurant chain, Olive Garden has seen LfL sales increase 3.5% in Q4, driven by higher average spend as the group scaled back on value offerings. CEO and president of the group, Gene Lee said: ‘As industry sales continue to improve, we made the strategic choice to further reduce our incents during the quarter, recognizing it would likely put pressure on our same-restaurant sales and traffic’.
REAL REVENUES VERSUS MANUFACTURED REVENUES:
• Most trackers, market stats etc. tend to be sales-based and do not comment on margin.
• Sales can be manufactured by cutting prices. You can always sell a tenner for nine quid but, when you put the price back up to a tenner, you may find that the demand wasn’t really there at all.
• Hence discounting into the week before Xmas has at least two implications. First, we don’t know what, if any, profit the operators are making on these cheap sales and second, we don’t know what demand really is.
• The first point means that, whilst sales for some operators may be holding up, profits may not be. This means there is a chance of surprises when proper preliminary results are announced.
• The second means that discounting is hard to give up (particularly if your competitors do not) as operators may lose sales when they do so.
• Hence the trick is not to be a very busy, loss-making fool. And that’s easier said than done.
HOLIDAYS & LEISURE TRAVEL:
• Carnival Corportation has released full year numbers saying that GAAP income for the year rose to $3.2bn from $2.6bn last year with income per share of 444c up from 359c last year.
• CCL reports revenues for FY18 were $18.9bn, up $1.4bn on the $17.5bn generated last year. CEO Arnold Donald says ‘we delivered strong fourth quarter earnings and record adjusted fourth quarter earnings to top off a record breaking year. In 2018, we grew net cruise revenue (constant currency) over five percent, achieving the highest revenue yields (constant currency) in our company’s history, and producing double-digit adjusted earnings growth despite a significant drag from fuel and currency.’
• Mr Donald says ‘more importantly, we achieved double-digit return on invested capital in line with the target we established five years ago. I thank our 120,000 team members around the globe who encountered multiple headwinds and still delivered for our shareholders a more than doubling of return on invested capital in just five years, as well as our valued travel agent partners whose strong support enabled these record results.’
• Regarding FY19, CCL says ‘cumulative advance bookings for full year 2019 are considerably ahead of the prior year at prices that are in line with the prior year. Pricing on bookings taken since September has been running in line on a comparable basis to the prior year while booking volumes are significantly higher compared to the prior year. As a result, even with higher capacity, there is less inventory remaining for sale than at the same time last year.’
• CCL says ‘based on continued strength in underlying fundamentals, we are poised to deliver another year of strong revenue and earnings growth, with booking volumes running significantly ahead of our higher capacity growth and net revenue yields expected to exceed last year’s record levels (constant currency). We remain committed to driving demand in excess of measured capacity growth to continue the momentum into 2019 and beyond.’
• London’s Gatwick airport should allow a limited number of flights today after its drone-related closure(s) yesterday.
Over 13m people planning an overnight trip to the UK during the Christmas and new year break up from 10.3m last year, data from VisitEngland has indicated.
• Forward flight bookings to the UK have increased 9% between December 23rd and January 5th on the same period last year. Bookings from China, the Middle East and the United States have shown particularly strong numbers with a rise of 44%.
• During the week of 9-15 December US hotels have seen occupancy increase 1.3% to 57.3%, ADR up 3.2% to $119.10 and RevPAR climbing 4.6% to $68.25.
• 888, the global online gaming entertainment group, has announced it has won a 5-year licence to provide Casino, Sport and Poker services in Sweden. Itai Frieberger, Chief Executive Officer of 888, said: ‘Continued expansion in regulated markets is central to 888’s growth strategy, so we are delighted to have been granted a licence in Sweden, ahead of the market’s regulation coming into force in January 2019’.
• A European consortium on Tuesday has launched a 9.19 billion Swedish kronor takeover bid for the Swedish online gaming company Cherry AB.
FINANCE & ECONOMICS:
• The Bank of England yesterday voted unanimously to hold interest rates in the UK at 0.75% and to maintain its stock of Sterling bonds purchased at £435bn.
• The Bank has cautioned on growth next year sayingthat uncertainty re Brexit had ‘intensified considerably’ over the last month.
• The Bank is looking for growth of 0.2% in Q4, down from earlier estimates of 0.3%.
• Car production in the UK fell by 20% last month versus November last year per the SMMT. Exports fell 23%.
• Sterling down at $1.265 and €1.1049
• Oil down at $52.60
• UK 10yr gilt yield down 2bps at 1.27%
• World markets upset by US interest rate rise. A ‘Santa rout’ said to be possible. All markets down yesterday & Far East down in Friday trade.
o MPs to take two weeks holiday. Brexit uncertainty persists.
o The Goldilocks approach. MPs, and I hope they’ll forgive me for saying so, seem to either know too much history (and think they’re the reincarnation of Churchill or Aneurin Bevan or whatever), or they know too little and think that rebuilding the British Empire is possible and/or desirable in the twentyfirst century. Arguably, the UK’s withdrawal from Empire was one of the great, relatively bloodless, ‘successes’ of the last century.
o Colleagues Andrea Leadson (no-deal) and Amber Rudd (perhaps consider a second referendum) going out with opposing messages. Perhaps doesn’t give the impression that anybody is coordinating government strategy.
o Occam’s Razor. If it looks as though there’s nobody in charge, and Cabinet ministers are acting as though there’s nobody in charge, perhaps there really is nobody in charge.
o FT suggests an extension to Article 50 is perhaps the most likely outcome to the current impasse.
o Access to labour (unintended consequences). If we have to pay strawberry pickers £30k each then either 1) the production of UK strawberries will fall and we will import them or 2) the price per punnet will rise sharply. You can carve out seasonal workers from any agreement but, by the time you’ve finished carving out individual groups (health workers etc.), there probably won’t be much of a framework left at all.
PRIOR DAY LATER TWEETS:
• Later tweets: Sky reports CAKE to replace auditors Grant Thornton with RSM. Says a number of larger firms declined to pitch.
• Amber Rudd (presumably testing the water) says People’s Vote may be “plausible” way forward if there’s deadlock in Parliament
• Retail sales bounce in Nov per ONS with 1.4% growth vs est. 0.3%. mixed signal as Mike Ashley said Nov was ‘unbelievably bad’.
• Everything slowing down, may be a good time to hide bad news. But we’ll be watching…
START THE DAY WITH A SONG:
Yesterday’s song was Bombay Bicycle Club with Always Like This, today who sang:
Falling on my head like a memory,
Falling on my head like a new emotion
I want to walk in the open wind
RETAIL NEWS WITH NICK BUBB:
• Boots: In the US the drugstore giant Walgreen announced its Q1 results (to end Nov) yesterday, which put the spotlight on good old Boots the Chemist. And Walgreen highlighted weak UK market conditions, with UK Pharmacy sales down by 3.5% LFL and UK Retail sales down 2.6%. Interestingly, Walgreen claimed that improved Boots UK market share performance was more than offset by a very weak retail environment (with Online Beauty websites thought to be eating into the market). And weaker gross margins and higher costs took a heavy toll on operating profits, so the new CEO, the ex-Dixons Carphone boss Seb James, may have jumped out of the frying pan into the fire…
• Planet ONS Watch: We flagged yesterday that, in the real world, Retail Sales were subdued last month, despite the boost from Black Friday, as per the BRC-KPMG Retail Sales figures for November (the 4 weeks to Nov 24th). But “seasonally adjusted” life was much better on that strange parallel world, the Planet ONS (aka the Office of National Statistics), via yesterday’s official Retail Sales figures for November…City economists swallowed at face value the much better than expected 1.4% rise in month-on-month seasonally adjusted sales volume (pushing year-on-year volume growth to 3.6%), as the hapless ONS attributed it to strong Black Friday sales of Household Goods. We focused, as usual, on the year-on-year non-seasonally adjusted sales value figures and the split between Large and Small Businesses. Overall Retail Sales (ex-petrol) were up by a decent 4.4% (after 3.3% growth in October),
• CBI Watch: Regular readers will know that we hold the monthly CBI Distributive Trades survey in even lower regard than the ONS Retail Sales figures, but, for what little it’s worth, yesterday’s snapshot of “December” was headlined “Retail sales darken in December”, with 28% of the 45 retailers taking part (ie 13 retailers) saying that volumes were up and 41% (ie 18 retailers) saying that they were down…
• Consumer Confidence Watch: The widely followed monthly GFK Consumer Confidence index came out overnight and the overall index fell to -14 in December, from -13 in November, the lowest reading since July 2013, although it was in line with economists’ expectations in a Reuters poll. While consumers felt better about their personal finances over the past year and were more willing to make major purchases, their expectations for the economy over the next 12 months tumbled to its lowest since December 2011. Joe Staton, client strategy director at GfK, said: “In the face of ever-rising costs, and the threat of higher inflation combined with uncertainty around the outcome of the Brexit negotiations, it’s no surprise that consumers are in a chilly mood of despondency”.
• BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis improved to be broadly steady last week, thanks to increased promotional activity, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains for last week, w/e Sunday Dec 16th, is not that exciting, with BDO Fashion sales up by 3.0% LFL last week (including Online). Total BDO sales (including Homewares and Lifestyle sales) were up by 0.6% (-1.4% in terms of Store LFL sales and up by a listless 5.8% Online).