Langton Capital – 2019-01-03 – Recent trading, consumer spending, discounts & other:
Recent trading, consumer spending, discounts & other:A DAY IN THE LIFE: So, having lived in York since just after the Millennium, we finally got around to popping into Betty’s for an afternoon tea in the week before Christmas. And very nice it was too but, at £175 for five people (a few sandwiches, cakes & a couple of cups of tea), it isn’t something we’ll be doing too often as it would put a hole in the finances and exacerbate the lurch that’s already going on. Still, the 20s décor was impressive, the service excellent etc. etc. but, at the end of the day, it did confirm us in our view that, if the money’s simply not there, then it isn’t there. Anyway, this is a busy time of year for Langton as, not only do we have to delete those billion and one ‘out of office’ responses, but we need to deal with all those birthday offers as, in the past, we’ve always put our birthday as 1st Jan (which isn’t true) in order to throw those ID theft chappies off the scent. So, we’re being threatened with ‘cheap’ meals and ‘free’ bottles of wine offers left and right and our attempt at moderation during January is under siege. On to the news: CHRISTMAS & NEW YEAR 2018: • We would welcome feedback as to how the Festive period traded out. • A word of thanks to those who’ve contacted us so far. And congratulations, too, as respondents to date have performed well. This could imply strong trading across the board or it might suggest that operators are understandably happier to comment when trading is good. • LfL sales so far reported were positive across respondents with figures of +5% to +10% (remarkably consistent & the better numbers coming from smaller operators). There has been no red ink – but little feedback from larger players. Arguably, the market needs a loser (or losers) in order to feed the winners. • Smaller operators have been positively impacted by their level of new openings with total sales up by up to 30%. This is good news for the operators in question but less good news for the market where new capacity could cause problems over the medium term. • As regards December itself, the month stuttered & was impacted negatively by awful weather on Sat 15th. It then picked up. Trading remains competitive. • Producers have suggested that their experiences with the on-trade were better than with the supermarkets. This could be either a structural shift (unlikely) or a widening of the product offer in the off-trade leading to less good numbers for each brewer in question but providing higher numbers in total. • Overall, the sample size is too small to draw wider conclusions. But it does allow us to say that there is room for winners out there. • However, in a sub-1% real wage growth economy, it will be tough for the wider market to boom. As Barclaycard points out, spending on essentials outstripped that on non-essential items in 2018 as a whole and there is little to suggest that this will change in 2019. PUBS & RESTAURANTS: • Barclaycard has updated on consumer spending in 2018 as a whole saying it rose by 4% with a 4.7% uplift in spending on essentials and 3.6% on non-essential products. This compares with growth of 3.5% in the prior year. • Barclaycard says ‘2018 was a tumultuous year with spending slowing to just 2.0 per cent in March, before rebounding in the long, hot summer that saw three months of consecutive growth surpassing 5.0 per cent.’ • Barclaycard points out that the year was pulled up by the long, hot summer after the Beast from the East hit the end of Q1. It says ‘entertainment spending was consistently strong, resulting in robust discretionary expenditure in contrast to the challenges faced by the high street.’ • Barclaycard says ‘spending in the retail sector was in decline. Clothing expenditure reached just 0.7 per cent growth, falling below the rate of inflation and representing a decline in real terms.’ The card processor reports that entertainment spend was up 9% and spend on travel rose by 7.2%. As wages only grew by 3% or so, either Barclaycard is only looking at card spend or there must have been displacement of spend elsewhere. • Barclaycard concludes ‘spending remained relatively robust in 2018, with strong growth in entertainment spending balancing continued struggles on the high street. The weather played a key role, with the long hot summer driving spending, while the colder weather kept consumers from the shops earlier in the year.’ It says ‘ongoing political and economic uncertainty has begun to have a marked impact on how people feel about their finances. Confidence in the UK economy and confidence in household finances both dropped to their lowest levels in October and November respectively. Looking ahead, it will be interesting to see how consumers respond to the January sales and what impact the wider environment will have on household budgets and consumer confidence in the New Year.’ • Concerns about retail property values. With High St shops closing, there are some concerns that valuations for the properties concerned may be too high. It’s not easy to see who, if anyone, will take space on the High St at the same level of rent that has been payable in the past by retail giants. • Residential, experiential and artisanal occupants may eventually fill some of the space but this may be at lower rents, Begbies Traynor says it expects ‘a lot of retail fallout over the first quarter.’ Property advisor Harper Dennis Hobbs says ‘so many retailers have gone into administration and the ones that are left over have tried to negotiate rents down even further. With rents being forced downwards, they [the properties in question] can’t retain the valuations they had before.’ • EI Group yesterday bought back 220,208 of its own shares for cancellation at 285.2p per share. • Dominos is offering 35% off orders over £25. Carluccio is offering a second main meal for £1. We expect the level of discounting to pick up in the next couple of weeks. • Coaching Inn Group reports that it increased sales by 27.1% over the Christmas period with LfL sales +9.4% to give a total of £3.06m. Coaching Inn says ‘these results are a clear reflection of our continued investment in the estate, as well our continued investment in our central sales office with improved take-up of our Christmas accommodation packages, festive party nights, and Christmas menus helping to drive the overall performance.’ • The Coaching Inn Group has also reported full year results to March 2018 to Companies House showing that revenue for the historic full year rose to £20.0m from £17.1m in the prior year. Site EBITDAR rose to £3.9m from £3.1m. The group reported a loss after financing costs of £600k versus a loss of £940k in the prior year. • Junkyard Golf has reported full year numbers to Companies House showing that retained earnings declined by around £28k over the period. • Panther Partners, which operates as D&D Restaurants, has reported full year numbers to end-March showing that revenue rose by 1% LfL to £130.9m. EBITDA slipped to £11.6m from £13.1m and the group reported a loss before taxation but after exceptional items of £5.7m (2017: loss £4.1m). Panther says ‘the group continued to grow during the financial year despite a challenging macroeconomic environment’. • The North Yorkshire-based Black Sheep Brewery has acquired York Brewery for an undisclosed fee. Black Sheep Brewery chairman Andy Slee said: ‘This acquisition fits perfectly with our strategy of developing our presence in our Yorkshire heartland and owning pubs. Entering administration was worrying for the team at York Brewery, but our deal offers some comfort that its successful brand can be maintained and the pubs can continue to operate’. • Sales of sparkling wine and Champagne have reached record levels in 2018 throughout the UK with sales totaling £2.2bn, research from the Wine and Spirit trade Association has found. • Ei Group’s managed operations, the Craft Union Pub Company, is to invest £650k into four of its pubs in Plymouth. • Caprice Holdings, owner of They Ivy, Daphne’s and J Sheekey, reports LfL sales up 2.1% in the year to 31 December 2017. Turnover was up to £67.7m with pre-tax profits of £9.2m. HOLIDAYS & LEISURE TRAVEL: • Research from Atol has found that as many as 5.2m people are expected to book their holidays this month. Holiday prices have been named the greatest consideration, with 35% admitting they were looking for a bargain. • Ryanair is named the worst airline for disruptive passengers in a Which? Travel survey, with 17% of Ryanair passengers saying they have been on a flight with a disruptive passenger. Thomas Cook, Tui and easyJet were close behind Ryanair. • STR claims US hotel demand in Q1 will still be positively affected by the hurricane demand surge in October 2017. Supply is expected to tick up to outpace the demand increase. OTHER LEISURE: • Tesla reveals that it missed expectations for deliveries and announces a $2000 price cut in vehicle prices, the news sent the shares down 8% at the start of US trading yesterday. • The Entertainment Retailers Association (ERA) reports the value of the video games sector is £3.86bn, with the figures not including sales from digital games, mobile games and ‘freemium’ games. • Playtech agrees to pay a €28m fine to Israeli tax authorities in regards to ‘transfer pricing adjustments in relation to certain functions’. • The British Phonographic Industry reports physical CD sales fell by 23% last year as digital streaming continued to become more prevalent. Streaming – via the likes of Spotify, Apple Music and Deezer – now accounts for nearly two-thirds of all domestic music consumption • Apple reveals sales have been slowing, lowering forecasts for sales in the three months to 29 December from $89bn to $84bn. The company has blamed weakness in China, a region which accounts for almost 20% of its revenue. FINANCE & ECONOMICS: • The BCC has reported that UK firms are being squeezed by labour shortages, rising prices and a slowdown in sales. The BCC says ‘business concerns about the government’s recent blueprint for future immigration rules must be taken seriously – and companies must be able to access skills at all levels without heavy costs or bureaucracy.’ • December PMI up to 54.2 from 53.6 in November as manufacturing registers an uptick and firms stock up ahead of Brexit. The Dec number is a 6mth high but Q4 as a whole is the weakest since Q3 2016. Markit says ‘input inventories subsequently rose at the fourth-fastest rate in the 27-year survey history.’ Markit reports ‘any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete.’ • Sterling weaker at $1.2546 and €1.1043. • Oil $54.28 • UK 10yr gilt yield down at 1.22% • World markets: UK & Europe higher, Wall St up but Far East lower in Thursday trade. • Brexit taking a breather. PRIOR DAY LATER TWEETS: • Later tweets: Christmas trading; how was it? Drop us a line & we’ll compile feedback. • Whitbread to seal Costa deal this month, RTN purchase of Wagamama completed. • Discounting still an issue. Prezzo 30% off mains over Xmas holidays & New Year. • Retail landlords under the cosh. Asset values based on hope rather than experience?? • Markit manufacturing PMI for UK in Dec jumps to 54.2 from 53.6. Markit points to stocking up ahead of uncertain Brexit START THE DAY WITH A SONG: Yesterday’s song was Club Foot by Kasabian. Today, who sang: Well you wore out your welcome with random precision, Rode on the steel breeze. Come on you raver, you seer of visions RETAIL NEWS WITH NICK BUBB:
Next: Ahead of today’s much-awaited trading update, we flagged yesterday that a year ago Next did better than expected at Christmas (thanks to cold weather), sending its share price soaring, but that this time it could be different (with full-price sales likely to be 3%-4% down, we feared that the full-year PBT guidance of £727m would be cut to below £700m). Well, impressively, Next has broadly held its guidance, at £723m, with sales actually 1% up, thanks to a strong late run (which wasn’t confined to just the last week, despite the widespread pre-Christmas discounting going on elsewhere). Interestingly, Next run the period from Oct 28th to Dec 29th, rather than the usual Christmas Eve cut-off, but they haven’t included Sale trading last week, so it is a LFL comparison, as the focus is on full-price sales. Needless to say, the outcome is driven by Online trading, with sales up 15.2%, John Lewis Trading Watch: Christmas trading at John Lewis enjoyed a good late run, according to yesterday’s sales overview for the last fortnight from JLP. The w/e Dec 22nd was up 4.2% gross (c2% up on a LFL basis, excluding new stores) and w/e Dec 29th saw a very similar outcome, up 4.5% gross (“with very strong sales on Christmas Eve and a confident start to Clearance sales both online and in shops”). In terms of sales mix, Home sales were down by c2% gross over the fortnight and Electricals were 3%/4% up, but Fashion/Beauty sales were up by c9% gross, boosted by price-matching competitor promotions. We will hear next Thursday in the full 6 week JLP update what damage that did to gross margins, but at least the last 2 weeks have moved the cumulative H2 run-rate from down 0.7% gross (c3.2% down LFL) after 20 weeks to flat gross (down c2.5% LFL) after 22 weeks. Waitrose Watch: Over at Waitrose, the last 2 weeks were all over the place because of the calendar shift of Christmas Day from Monday to Tuesday, but although Waitrose say that the -12% outcome for w/e Dec 22nd and then the +19% in w/e Dec 29th were “in line with expectations”, the cumulative sales run-rate has drifted down from -0.7% to -0.8% after 22 weeks of H2. Given that w/e Dec 22nd was more than twice as important in total sales as the following week last year, we estimate that the 2 weeks combined were about 2% down gross (and LFL), which is disappointing and the only saving grace is that Waitrose were working hard to protect gross margins by not discounting. |
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