Langton Capital – 2019-01-29 – Domino’s, CAKE, food prices, domestic holidays, discounts & other:
Domino’s, CAKE, food prices, domestic holidays, discounts & other:
A DAY IN THE LIFE:
How often should you get your hair cut?
I go to the nearest hair cutter to me at the time I decide I really have no choice in the matter but, independent of where I go, I have noticed that the hairdressers and even the barbers in question have the same pitying look on their faces when they ask me when I last got my Barnet cropped.
So I have to make up a figure like three weeks or three months or three years and then they ask me tricky questions like ‘what style did I used to have’ (the ‘before it all went wrong’ is usually silent) to which I can only employ my limited barbering vocabulary which consists of the words ‘short’, ‘shorter’ and ‘enough’.
Then I have to work on getting enough exclamation points at the end of the hoooow much??! question and get out of the building without booking my next ‘appointment’. On to the news:
PATISSERIE HOLDINGS DEVELOPMENTS:
• Daily Mail reports that Mike Ashley ‘could add Patisserie Valerie to his rapidly expanding High Street empire.’
• Mr Ashley is reported to be considering a bid for the failed cake chain. PwC has not yet publicly released the results of its investigation into the operator’s collapse.
• The group’s true level of profitability (or indeed the lack of it) has yet to be determined.
• Ashley is bidding for collapsed music chain HMV and has already bought other failed or struggling operators such as House of Fraser, Evans Cycles and Agent Provocateur in ‘cut-price deals’.
• Restaurateur David Scott is also reported to be interested in some of CAKE’s better units. Meanwhile, some 71 stores have already closed. Some appeared to have been busy, suggesting that the operator had perhaps signed up to some horrendous and ultimately uneconomic rents.
• The depth of the group’s problems were unknown in October when existing investors, including chairman Luke Johnson, put in an additional £25m in a failed attempt to keep Patisserie Valerie afloat.
• FT quotes the PwC inquiry as suggesting that five individuals and a supplier who may have been submitting fake invoices were at the core of the fraud.
• FT says ‘members of finance staff’ discussed in emails ‘whether they should adjust fake ledgers to take account of roadworks outside stores.’ There is still said to be ‘no evidence in the document that the people involved in the suspected fraud were siphoning off profits for their own use, although the extent and motivation of their actions are unclear.’
• Over time, the lie perhaps became the truth. Everyone involved had an interest in believing the fiction. Information flows were clearly questionable. Giving bad news to a bully at the best of times is tough. The non-executives, the advisors etc. combined to drop the ball.
When the dust has settled:
• There’s a lot of money gone to heaven & shareholders, lenders & landlords will not be queueing up to blame themselves for having lost it.
• They will be asking, in the time-honoured fashion, ‘who knew what and when?’
• And, as incompetence isn’t really a defence, they will soon tailor this to read ‘who should have known what and when?’
• The buck will then no doubt be kicked around a bit, but it will ultimately stop somewhere.
• Financial losers from the current situation will be asking just what the advisors, the auditors and the directors were doing all this time when they perhaps should have been concentrating on the safe-custody of the former’s money.
• It is not yet known if the fraud extended to the period before 2014, at which point the group represented itself to incoming shareholders as an extremely profitable and growing company. The existing shareholders sold shares at the time at 170p. The attempted rescue in October was at 50p and the assumed worth of the equity in the company presently is at or near zero.
PUBS & RESTAURANTS:
• Food supply companies including Sainsbury’s, Asda, McDonald’s, KFC & others have said that UK food supplies could be seriously disrupted in the event of a no-deal Brexit. Some industry players such as JDW chairman Tim Martin have maintained that food prices would fall.
• Bosses of the Co-operative, Marks & Spencer, Lidl & Waitrose all say that prices would rise & that some fresh foods would be unavailable. The joint letter says ‘it is not possible to mitigate all the risks to our supply chains and we fear significant disruption in the short term as a result if there is no Brexit deal.’
• Some restaurants have begun to stockpile non-perishable products. There’s not much can be done about lettuces etc.
• Leisure companies in move to overhaul governance in the wake of the Patisserie Valerie fraud & collapse. Cash balances being checked, etc. Need to have a look at the calibre of Non-Execs, particularly at companies with a similar management structure to Patisserie Holdings.
• Domino’s Pizza UK updates on Q4 trading saying it has seen a ‘strong’ performance in the UK but that it has seen ‘weaker sales in some international markets.’
• DOM says system sales are up 5.5% in Q4 but that international sales are down 2.0% (up 1.6% organically). DOM saw its ‘busiest week ever in the run-up to Christmas’.
• DOM now has 1,261 stores group-wide. It opened 25 in Q4. The group says its current pipeline is similar to that at this time last year. CEO David Wild reports ‘I’m pleased with the continued strong performance in the UK and Ireland, where we opened a further 59 stores.’
• Mr Wild says ‘our international businesses offer significant long term potential, but we have experienced growing pains this year, particularly in Norway, where we have faced business integration challenges. Looking ahead, we will invest further in robust teams and infrastructure in our newer markets, to create a solid platform for profitable growth.’
• DOM concludes ‘the UK delivered food market is vibrant and we estimate that it will grow at a compound rate of 8% a year to 2022. We aim to maintain our share of this market, thanks to over 30 years of experience in delivery, a leading brand, great-tasting pizza and superior franchisees.’
• Prezzo still 50% off. Jamie’s 30% off & Carluccio second meal for a quid.
• HMRC reports more than 430 craft breweries opened in 2017, down from 520 in 2016. Many breweries are relying on crowdfunding and selling shares to secure investment as banks are becoming more reluctant to lend due to risk management.
• Drinkaware is encouraging those participating in Dry January to take more drink-free days throughout the year in a campaign called ‘Drink Free Days are not Just for January’.
• Best Bar None launches a scheme in partnership with Manchester Airports Group to improve standards of airside alcohol retailing in some of the UK’s biggest airports.
• Oddbins and Wine Cellars appoints administrators for the second time in less than ten years, putting 500 jobs on the line. The business is reported to have made a loss of $4m in the 18 months to 31 July 2018.
• Pragma Consulting has reported that London has seen the number of vegan restaurant openings increase 55% in the last 12 months.
• The US based start-up foodMaven has received $10m in funding. The group sells oversupplied food to foodservice buyers.
• Chairman of City Pub Group, Clive Watson has talked with The Morning Advertiser following the group’s latest trading update, commenting: ‘With the sites that are going to open during the course of the year, by September, at the latest, we’ll have 50. So in the space of less than two years we’ll have increased the size of the estate in a very managed expansion, not buying other companies, as we set out to achieve’.
• The seafood restaurant group, Rockfish has announced it has hired ex-MD of Burger & Lobster as the group looks to expand across the south coast.
• A fall in demand from France and the UK has seen Champagne ship 5.3m fewer bottles in 2018 than 2017.
• The bosses of several major supermarkets and fast food chains have warned that a non-deal Brexit would result in higher prices and gaps in shelves.
HOLIDAYS & LEISURE TRAVEL:
• Sykes Holiday Cottages recorded an increase of 36% in bookings year-on-year during 2018 thanks to the royal wedding and the three-month summer heatwave. Chief executive Graham Donoghue said: ‘Last year had already got off to a great start, but the royal wedding and then the prolonged heatwave that followed really did show off the best that Britain has to offer’.
• Ian Taylor reports the impact of Brexit on the January peak booking period is hard to assess. Strong early sales for summer 2019 and solid current winter bookings by UK customers reflects attitudes on the continent, with German consumers showing similar behaviour.
• ACI Europe warns the EU’s intended response to a no-deal Brexit (freezing capacity) threatens small and medium-sized airports across the EU.
• ETOA CEO Tom Jenkins calls on the UK government to drop any post-Brexit increase in checks on arrivals from the European Economic Community (EEA) and to seek reciprocal arrangements from the EU as a matter of urgency.
• Airbnb acquires Gaest, a venue booking app out of Aarhus, Denmark which currently has listings for some 3,000 venues. It is speculated that Airbnb could IPO as early as this year, with a valuation upwards of $30bn.
• Edwards, a coach operator, reassures customers that holidays will not be affected regardless of the Brexit outcome.
• New York Times reports Mark Zuckerberg is considering merging Facebook’s three messaging platforms – WhatsApp, Instagram and FB Messenger – allowing users to send cross-platform messages.
• In the US, Caesars Entertainment plans to open its first non-gaming hotel called Caesars Republic Scottsdale.
• Huawei denies any wrongdoing after US prosecutors file criminal charges against the company, including bank fraud, obstruction of justice and theft of technology.
FINANCE & ECONOMICS:
• Sterling down at $1.3149 and €1.15. Oil down at $60.53. UK 10yr gilt yield down 3bps at 1.28%. World markets mostly down with Far East mixed in Tuesday trade.
• Brexit, politics etc.:
o House of Commons to debate & vote on what still appears to be an essentially unchanged Brexit deal from Mrs May today.
o Guardian reports Jean Claude Juncker as telling Mrs May that a permanent customs union may be the necessary price if an Irish backstop is to be removed.
o Moves to eliminate ‘no-deal’ as a potential outcome to be voted on this evening. Guardian says ‘British firms are “praying for an extension to article 50” rather than face a no-deal Brexit’ as the farcical march towards 29 March continues.
o Mrs May met with Tory MPs yesterday in order to guage what changes would be needed in order to secure support. The EU has said that, after two years of negotiation, no changes are really possible.
PRIOR DAY LATER TWEETS:
• Later tweets: Discounts still hard to shift. Prezzo 50% off, Giraffe 2-4-1, Carluccio 2nd meal for a quid. Frankie & Benny’s 40% off, Chiquito’s 30% off.
• Deloitte Consumer Confidence Tracker (Q4 2018) says overall consumer confidence fallen from -7% to -9%. GfK Tracker on Thursday
• Press getting hold of draft PwC enquiry into CAKE. Suggests fabricated invoices, dummy suppliers & the like.
• Unipart’s John Neill says Trade Sec Liam Fox has “extremely low credibility”. Mr Fox, a medical doctor, has little evidence of trade deals
START THE DAY WITH A SONG:
Yesterday’s song was Disco 2000 by Pulp. Today, who sang:
There’s always two sides you don’t have to suffer,
If this is heaven then send me to hell
So stay in the light, don’t take your eyes from the prize
Hey, there goes the bell
RETAIL NEWS WITH NICK BUBB:
• News Flow This Week: This week was meant to be quiet in terms of UK company news, but the controversial Tesco job cuts (which were confirmed by the company at lunchtime yesterday) have filled plenty of column inches in the papers, as has the rumoured M&S/Ocado deal (although that has still not been confirmed). In the US, the much-awaited Apple Q1 update comes out tonight. There will be no trading update from the Topps Tiles AGM tomorrow, but there is an update from ScS on Thursday. Otherwise, with the end of the month coming up remarkably quickly now, we get the GFK Consumer Confidence survey for January first thing on Thursday.