Langton Capital – 2019-01-30 – Charles Wells’, CAKE, JDW, Whitbread, Domino’s & other:
Charles Wells’, CAKE, JDW, Whitbread, Domino’s & other:
A DAY IN THE LIFE:
So, it’s minus four out there and the dog has decided that he prefers it a bit warmer.
He’s taken to moaning to be let out the front door – only to immediately scratch to be let back in, after which he’ll try the back door because the weather might be different out there.
And one of these days, he might be right.
He could just miss a rain shower that was in the process of clearing the house but, though our house isn’t the smallest in the world, the distance between both doors can’t be much more than 25 feet and the temperature should be pretty much the same.
Anyway, who are we to criticise a clueless pack animal that remains optimistic in the face of all evidence to the contrary. Good luck to Mrs May in Brussels is what we say. On to the news:
PATISSERIE HOLDINGS DEVELOPMENTS:
• CAKE was apparently heading for a £2.6m loss this year. The group said in October that it would make £12m at the EBITDA line. Since the group charges over £5m p.a. in depreciation, even the £5.3m the group could make in EBITDA in the FY2020 could represent a loss (even before expected exceptional costs).
• The group is saying that it can cut costs and restore profitability if it can exit bad sites & just keep the good stuff.
• KPMG says the group had been in LfL sales decline for three years or more. The Telegraph quotes former chief executive Paul May branding the numbers “a bit meaningless”. This can sometimes be the case if a group is expanding rapidly. If it is expanding by opening loss-making units then the problem will be exacerbated.
Sale of the business (or the units):
• Mike Ashley is a law unto himself but why would anyone buy the business (with any legacy issues that it may have) when they may be able to buy the assts instead.
• Lists of the c70 units that are closed show a very over-rented estate.
• Pat Val’s property people presumably believed that they could agree to super-high rents because the company was super profitable. That now looks like a garbage-in, garbage-out kind of decision.
• Landlords will have to take a haircut otherwise a large number of the group’s flagship units may remain boarded up for some time.
• Bidders have till noon Friday with presentations due to begin next week.
• Whilst the incoming management has been pouring scorn on the methods adopted (or not adopted) by its predecessor (and the auditors etc.), chairman Luke Johnson is still a director of the company.
• Whilst Mr Johnson has a lot of skin in the game, it’s not clear why this is the case.
• Penny wise, pound foolish? Any internal auditor following audit 1.01 procedures would have been able to pop into a few stores, could have checked the till float, the petty cash & the daily takings. Check them to regional & then head office and…bingo.
• Lack of management control. Confirmatiory bias and an unwillingness or inability to process or even to hear news that was out of line with that expected.
• This still has the feel of an unsophisticated but very time-consuming and difficult-to-keep going fraud that should have been spotted years ago. It is almost inconceivable that several other people (either inside or outside the company) were not involved in this process.
PUBS & RESTAURANTS:
• Charles Wells Ltd has reported full year numbers to 29 Sept 2018 to Companies House saying that revenues dropped from £138.8m to £43.0m in the year after the group sold its brewing business to Marston’s.
• C Wells reports EBITDA of £10.3m (2017: £10.3m) with cash on hand at the year end of £6.1m (2017: £9.2m). The group reports that continuing operating profit before exceptional costs was £5.0m, up from £3.9m in the prior year.
• Charles Wells reports ‘the Pub Partner business delivered operating profit 2.9% ahead of last year with 8 fewer pubs’. The group has grown its managed estate from 6 pubs to 10 units during the year. French revenues are up 21.6%.
• Whitbread yesterday bought back £4.9m worth of its own shares for cancellation at £49.45 per share.
• Morning Advertiser reports JD Wetherspoon employees have formed a group to protest the pubco chairman’s advocacy of a no-deal Brexit within his pubs, arguing “migrants don’t drive down wages”’
• JDW staff say ‘wealthy, exploitative bosses like Tim Martin’ are responsible for driving down wages. The MA reports ‘Chairman Tim Martin has used his pubs as a canvas for his political arguments’. Mr Martin has printed hundreds of thousands of anti-EU beer mats & has included voluminous articles promoting no-deal in his Wetherspoon News.
• JDW has devoted the bulk of its recent trading updates to anti-EU comment & is said in the MA to be ‘exploiting his position to promote an extremely damaging no-deal Brexit through pubs up and down the country’. Mr Martin owns over 30% of JDW’s shares but that implies that he does not own nearly 70%.
• JDW has denied that it pays poverty wages. The chain has been the subject of strike action to raise wages in recent months.
• Domino’s Pizza shares fell yesterday on the announcement that some of its overseas markets were slower than had been hoped.
• The London Distillery Company has teamed up with Drinks99 in Hong Kong to help the group distribute its brands in Asia, as demand for British craft spirits grows in the region.
• The fast-food restaurant group, Tortilla has seen LfL sales increase 6% during FY-2018.
• Data from the HMRC has shown that UK distillery numbers have almost tripled in the last five years, to 361 registered distilleries. Wine & Spirit Trade Association chief executive Miles Beale said:’It’s not just our gins picking up awards, but we have also seen a growing number of excellent quality English and Welsh whiskies too’.
• The sourdough pizza chain, Three Joes has entered into overfunding after the group hit its £400k crowdfunding target.
• The online retailers, Wine Direct and Just in Cases have ceased trading after parent company, Fermentation Ltd entered into administration earlier this month.
• For the first time in over 50 years, Champagne consumption outside France outstriped that of domestic consumption.
• Ei Group expands its Pub Pros programme aiming to inspire young people to enter the pub business across England and Wales.
• Feed It Back launches a new service integrating social media comments posted on operators’ Facebook, Instagram and Twitter into its platform.
• Howard Schultz, former Starbucks CEO, has been tipped to run for US president as an independent outside of the two-party system. Schultz said he was ‘seriously thinking’ about a run for president as a centrist independent.
• The BRC-Nielsen Shop Price Index shows a 0.4% rise in overall store prices in the year to January, compared to a 0.3% rise in the year to December, showing lighter levels of discounting this January compared to last.
HOLIDAYS & LEISURE TRAVEL:
• The government has revealed EHIC cards may not be valid in all EU countries in the event of a no-deal Brexit.
• Riviera Travel offers previous passengers £150 each for booking selected river cruises after the Brexit deadline.
• Transport Focus reports passenger satisfaction with rail services is at a 10-year low, with only 79% saying they were satisfied with overall services.
• Sky News reports a document from the Border Force reveals UK holidaymakers may no longer be able to use e-gates, facing longer queues at airports in the event of a no-deal Brexit.
• STR’s U.S. pipeline data shows more than 150,000 hotel rooms with projected opening dates in 2019.
• Scribd, a reading subscription site, announces more than 1m people have signed up for the service, with paid subscriptions increasing by over 40% since last year.
• Tim Cook, CEO of Apple hints that the firm could lower iPhone prices to boost sales, after revenue from iPhones fell 15% in its last quarter.
• Harley-Davidson reports quarterly profit below expectations, saying it will boost investment in Thailand to service the European market. Shares were down 7.5 percent at $33.88 in afternoon trading on Tuesday.
• GameStop shares fell by as much as 26% on the news the firm will stop trying to sell itself. The company has faced tough conditions as video-game sales continue to move towards digital streaming.
• William Hill has announced that its transaction with Eldorado Resorts, Inc. has closed.
FINANCE & ECONOMICS:
• The number of people in England and Wales becoming insolvent due to debt problems is at a 7yr high. Some 115,299 personal insolvencies were recorded last year, up 16.2% rise on 2017 per the Insolvency Service.
• Sterling down at $1.3096 and €1.144. Oil up a dollar at $61.64. UK 10yr gilt yield down 1bp at 1.27%. World markets mostly up yesterday with Far East mixed in Wednesday trade.
• Brexit etc.:
o Mrs May has been told by the House of Commons that it does not want her deal, it does not want no-deal but it does want an agreement that does not include a backstop for Northern Ireland.
o The EU could blink. Or this may be about blame-shifting for when or if the UK crashes out in 59dys time.
o Mrs May says ‘it will not be easy’ to persuade the EU to budge. The latter has said that, after two years of negotiation, the deal is closed.
o Mr Corbyn will meet Mrs May over Brexit
PRIOR DAY LATER TWEETS:
• Later tweets: CAKE: Mike Ashley said to be interested. Group was ‘headed for a 2019 EBITDA loss’. True level of profitability yet to be determined.
• CAKE – bids for co ‘in by Friday’. But who would buy the company with its corporate issues etc.? Why not just buy some of the assets?
• CAKE. How ‘the big lie became the truth’. How to bust a company, lose half a billion quid and not profit from it….
• CAKE. There’s a lot of money gone to heaven & shareholders, lenders & landlords won’t queue up to blame themselves for having lost it
• Sykes Holiday Cottages says staycations on the up, recorded an increase of 36% in bookings year-on-year during 2018
START THE DAY WITH A SONG:
Yesterday’s song was Good Enough by Dodgy. Today, who sang:
I bought a toothbrush, some toothpaste,
A flannel for my face
Pajamas, a hairbrush
New shoes and a case
RETAIL NEWS WITH NICK BUBB:
• Waitrose Watch: The management of Waitrose probably has mixed feelings about the rumours that their rival M&S wants to tie-up with Ocado, given that their own distribution contract with Ocado runs out in September next year, but at least they will be happy that trading this month has been better. And in JLP’s weekly overview yesterday morning, Waitrose reported a decent end to the financial year, with a 2.4% increase in gross ex-petrol sales (c2.5% up LFL) last week, in w/e Jan 26th. That shifted the cumulative sales run-rate up a notch, to -0.1% after the full 26 weeks of H2. With no new store openings to speak of, the flat LFL sales outcome in H2 was still disappointing, but Waitrose worked hard to improve gross margins by cutting back on discounting and price promotions, so the expectation is still that Waitrose operating profits will be ahead in y/e Jan, in the final results
• John Lewis Trading Watch: By contrast, John Lewis ended January and the financial year on a weak note last week, as the w/e Jan 26th was down 3.5% gross (over 5% down on a “LFL” basis, excluding new stores like Westfield), as they ran up against strong comps last year from the end of the Clearance Sale. In terms of sales mix, Home sales were down 7.2% gross last week and Electricals were 7.6% down, but Fashion/Beauty sales were up by 5.0% gross. Gross margins have been under a lot of pressure, in contrast to Waitrose, so full-year profits will not make pretty reading, and the cumulative H2 sales run-rate was only +0.3% gross after 26 weeks (c2% down LFL).
• ScS: Ahead of its trading update tomorrow (which will confirm that it is pulling out of running the House of Fraser furniture concession business), the sofa retailer ScS confirmed yesterday afternoon the Sky News rumour that it is in discussions about buying the struggling Online furniture retailer Sofa.com. Although, if memory serves, Sofa.com was once talked about as a potential IPO, it has fallen on hard times, so ScS wouldn’t have to pay much for it and as a trade buyer it is worth more to them than anyone else. The only problem is that “Mad” Mike Ashley, fresh from the “bonkers” idea of a bid for Patisserie Valerie, is also in the running…In case you think that Mike really has gone mad, there may be some logic in buying some expertise in furniture retailing to boost the ailing House of Fraser, but there would be better ways of doing that, like buying ScS…
• News Flow This Week: There will be no trading update at the Topps Tiles AGM today, but there is an update from ScS tomorrow. Otherwise, with the end of the month looming large, we get the GFK Consumer Confidence survey for January first thing tomorrow.