Langton Capital – 2019-05-09 – JDW Q3, Gregg’s, Cote, TUI, Compass, AB InBev etc.:
JDW Q3, Gregg’s, Cote, TUI, Compass, AB InBev etc.:
A DAY IN THE LIFE:
Bit busy with reports this morning. And an early conference call with JDW to look forward to. On to the news:
JD WETHERSPOON – Q3 UPDATE:
JD Wetherspoon has this morning updated on trading for the 13wks to 29 April and our comments thereon are set out below:
• JDW reports for the 13 weeks to 29 April 2018 like-for-like sales increased by 3.5% and total sales increased by 2.8%.
• The group had begun the quarter at +3.8% suggesting that the run rate continued to slow. The Bank Holiday timing will have impacted this
• The group says year-to-date like-for-like sales have increased by 5.2% and total sales have increased by 3.8%.
• JDW says that ‘the third quarter last year included the early May bank holiday, but the third quarter this year did not, which is likely to have reduced like-for-like sales by about 0.5% in the period.’
More on Trading, new openings etc.:
• JDW reports ‘since the start of the financial year, the Company has opened 5 new pubs and sold 19.’
• It says ‘we intend to open one further pub in the current financial year. The Company believes the market value of our pub estate remains comfortably above the net book value.’
• JDW comments that it ‘has spent £15.4m on buying the freeholds of pubs of which we were previously tenants and has bought back £51.6m of shares in the financial year to date.’
• The group reports ‘the Company remains in a sound financial position. The net debt at the end of the quarter was £754m and is expected to be around £740m at the end of the financial year.’
Outlook & current trading:
• JDW chairman Tim Martin says he believes the UK should leave the EU Customs Union
• Re trading, Mr Martin comments ‘as anticipated, the rate of like for like sales growth slowed slightly in the third quarter.’
• He says ‘we continue to face significant cost increases in the second half in areas which include labour, business rates and the sugar tax.’
• JDW says ‘there is also some uncertainty as to the effect on sales of the FIFA World Cup.’
• It nonetheless concludes ‘we continue to anticipate a trading outcome for this financial year in line with our previous expectations.’
• JD Wetherspoon has reported that trading remains in line with expectations. Trading has, as expected, slowed a little.
• The group is uncertain as to the impact of the World Cup and it (in common with the industry) faces rising costs.
• The group’s shares have given back a little ground recently despite upgrades following the H1 numbers. Langton suggested taking profits but, at these lower levels, the shares once again offer value.
• Openings remain at relatively low levels. JDW remains a good operator and we believe that the group’s competitors may be feeling the pinch a little more acutely than JDW itself.
• However, the group does not operate in a vacuum and, if competitors continue to cut prices and offer deals, it could be impacted.
PUB, RESTAURANT & DRINK PRODUCERS:
• Greggs has reported sales up 4.7% in the first 18 weeks of 2018, with LfL sales up 1.3%. The group also reported that they had opened 41 new stores with 12 existing stores closing. Greggs stated that trading through March and April was difficult, however, sales appear to have pick up slightly in May.
• Compass group has reported H1 organic sales up 4.8%, with strong performances from North America (up 7.3%). CEO of the group, Dominic Blakemore said: ‘Compass had another strong half with good revenue growth. North America continues to make excellent progress with broad-based growth across sectors. Performance in Europe was mixed, with good growth in the UK, offset by subdued trading in Continental Europe. Notably, the performance in our Rest of World region is improving’.
• A minimum unit price for alcohol in England was making the rounds in the House of Commons this Tuesday. The proposal was rejected five years ago, but following Scotland introduction of a minimum price the idea is being reconsidered.
• Wendy’s share price fell 5% on the back of worse than expected results in North America. The group saw North American sales increase 1.6% instead of the anticipated 1.8%.
• AB InBev reported revenue up 4.7% even though total volume sales declined 0.2% in its Q1 trading update. The group saw EBITDA rise 6.6% with margin expansion of 70 bps to 38.2%.
• UK retail sales have fallen ‘off a cliff’ in April, according to data from the British Retail Consortium. LfL sales declined by 4.2% compared to the same period last year, with total sales down 3.1%. Helen Dickinson, the BRC’s chief executive said: ‘A drop in sales this April… was almost inevitable given the earlier timing of Easter. With much of the spending in preparation for the Bank Holiday weekend falling in March this year, a record low in sales growth, in contrast to last year’s record high, does not come as a surprise’.
• Restaurant chain Cote is looking to shut down a number of restaurants that trade under the Limeyard and Jackson & Rye brands, with a CVA one possible option. Toys R Us, Carpetright, New Look, House of Fraser and the casual dining chain Prezzo have all announced proposals for CVAs in recent months, although some have yet to be approved or implemented. Sites operating under the main Cote brand are said to be performing resiliently in tough market conditions.
• Caskade Caterers, the Taco Bell and KFC franchise business, has secured a a £13m loan, a £10m revolving credit facility and a £6.4m commercial mortgage to support its expansion plans, per MCA.
• BrewDog has appointed Jason Marshall as its new chief financial officer. Marshall, who spent 20 years at Coca-Cola European Partners, will play an important role in the craft brewer’s expansion plans.
• Diageo has acquired mezcal brand Pierde Almas and will hope to capitalise on growing international demand for the Mexican drink.
• The US fast-casual segment has rebounded since 2016, with two consecutive years of sales growth, although unit continues to fall (from 9.8% in 2015 to 6.1% in 2017), per Technomic. Chicken was the hot protein of 2017 and fast casuals capitalized on its popularity, according to the Top 250 Fast-Casual Chain Restaurant Report. One chain with impressive triple-digit unit growth was Wahlburgers, the Boston-based burger concept owned by the Wahlbergs. Despite being the smallest fast-casual menu category by sales, the pizza segment also continued to outperform with a 27.3% year-over-year increase.
• In the US, Pizza Hut is expanding its beer delivery to 100 locations in Arizona and California after a successful trial in Phoenix. The company is offering delivery of two packs and six packs of beer, ranging in price from between $3 and $4.50 for two packs and $5.99 and $10.99 for six packs.
• China’s Q1 imports of wine grew 32.3% in volume and 35.8% in value to 200.57m litres worth $792m. France held 38.2% of market share but second place-Australia was closing in with 28.1% market share.
• Alibaba reports Q4 revenue up 61% yoy to $9.9bn, beating analyst estimates.
• BHS.com has increased sales 23% in the six months to 28th April, prompting some to question whether there is indeed life after death?
TUI Q2 & H1 NUMBERS:
• TUI has reported Q2 numbers showing revenue +6.3% to €3.26bn with an underlying EBITDA loss of €159m, down on last year.
• TUI has said it is ‘on track to deliver our growth targets’
• TUI reports ‘we have delivered a good H1 performance, with a further improvement in the seasonal result.’ It says ‘growth in earnings was delivered as a result of continued strong demand for our Holiday Experiences – including additional hotel and cruise ship capacity as we continue to deploy the proceeds of disposals into higher returning assets – and a good portfolio performance by Sales & Marketing.’
• TUI says ‘we will become the world’s leading provider of destination experiences, with the acquisition of Destination Management from Hotelbeds Group. The acquisition is expected to complete in H2 FY2018, funded from the remaining proceeds of business disposals.’
• TUI says it is to add a third cruise ship ‘due to the continued strong demand for TUI Cruises.’
• Re current trading, TUI reports ‘our portfolio of over 380 hotels continue to perform very well, thanks to the strength of our portfolio of destinations, new hotel openings and integrated model.’
• The group says ‘demand for our cruises remains strong, with higher yields year on year for the periods currently on sale in all three brands.’
• It says ‘volumes in Destination Experiences (formerly Destination Services) are expected to develop in line with our Sales & Marketing business. The acquisition of the Destination Management business of Hotelbeds Group is expected to complete in H2 FY2018, adding a further 25 countries to our global destination presence.’
• TUI says Winter 2017 / 18 ‘closed out well with revenues up 5 % on prior year and bookings up 3 %.’ It says ‘growth was driven by North Africa, Cape Verde, Thailand and Turkey, with stable demand for Spain.’ The group adds ‘summer 2018 is also progressing well, with 59 % of the programme sold, in line with prior year.’
• TUI reports ‘we reiterate our guidance of our Annual Report 2017.’ It says ‘we are continuing to deliver our growth strategy as set out in December 2017, based on market demand, digitalisation and investments, including the announcements in H1 of further actions to enhance our destination experiences business and accelerate growth in cruise.’
• The group concludes ‘based on a good H1 performance and strong current trading we are on track to deliver at least 10 % underlying EBITA growth in FY2018.’
HOLIDAYS & LEISURE TRAVEL:
• Global tourism contribute 8% of total carbon emissions, nearly three times more than previous estimates suggested.
• Two in three holidaymakers spent an average of £98 more in overseas resorts than intended, according to research from the Post Office Travel Money holiday spending report. The total overspend is estimated to be valued at c£1.9bn.
• Hertz has reduced Q1 loses for the year to $231m from $294m in the same period last year. The group increased revenue 8% to $2.1bn.
• Marriott International has reported Q1 saying diluted EPS rose 15% to 109c.
• TripAdvisor shares increased 19% following positive results. The group saw revenue increase 2% to $378m, beating estimates of $361.3m.
• The international betting technology company, Sportech, has appointed Thomas Hearne as CFO effective from 14th May. Tom has previously worked as CFO for theScore Inc. a digital media spin-off from Score Media.
• Black Panther’s success at the cinema has boosted Walt Disney’s profits in the last three months by 23% to $2.9bn, while revenue increased 9% to $14.5bn year-on-year.
• Match Group, the owner of dating apps Tinder and Match.com, has stated that it is not concerned about Facebook’s dating tool. Mandy Ginsberg, Match chief executive, said: ‘We don’t think Facebook will have any impact on Tinder, which is our growth engine’.
FINANCE & MARKETS:
• The Halifax has reported that UK house prices recorded their sharpest month-on-month decline for c8yrs in April.
• Halifax says prices down 3.1% in April vs March. Prices are still 2.2% higher than they were a year ago, which is below the rate of inflation. Halifax says ‘housing demand has softened in the early months of 2018, with both mortgage approvals and completed home sales edging down.’
• Sterling unchanged vs dollar at $1.3546 and up vs Euro at €1.1418
• Oil up 50c or so at $75.95
• UK 10yr gilt yield up 4bps at 1.44%
• World markets: UK little changed, Europe down, US static and Far East down in Wednesday trade
• Brexit etc.:
o Disagreement over Customs’ Union continued. Boris said to be ‘on manoeuvres’.
PRIOR DAY LATER TWEETS:
• Later tweets: 60 seconds on Deliveroo & disrupting the Grab n Go market. How do you deliver food all-in for £4.99? See email http://www.langtoncapital.co.uk/?p=1638
• Amazon reported to have offered to buy Waitrose. Could have been a host of approaches at time the group bought Whole Foods??
• Retailers ‘in worst shape for 5yrs’. Tell us about it. It could be 55 rather than 5 as perfect storm (Amazon, rates, labour) hits market
• Custom’s Partnership ‘crazy’ (per Boris), equates to not leaving EU (Rees-Mogg) & would lead to more red-tape (Boris). All correct.
• Bloomberg says UK choices re EU are delay, call another election, stay in Customs’ Union or leave with no deal. No1 is current strategy
START THE DAY WITH A SONG:
Yesterday’s song was Banquet by Bloc Party, but today who sang the following:
You got a new horizon, it’s ephemeral style,
A melancholy town where we never smile,
And all I wanna hear is the message beep,
My dreams, they got her kissing, ’cause I don’t get sleep, no
RETAIL NEWS WITH NICK BUBB:
Greggs: Back on 27 February, with the finals, Greggs reported a good start to 2018, with LFL sales growth of 3.2% in the first eight weeks of the year, but ahead of today’s AGM the up-to-date news is not so good…”The weather” and weak High Street footfall hit March and April hard, so that cumulative LFL sales over the last 18 weeks are only up by 1.3% and, although sales in May have started more strongly, Greggs are toning down their budgets for the rest of the year. The overall message is that, despite tight cost control, underlying profits for the year are now likely to be only flat compared to last year, which is obviously a bit disappointing.
BRC-KPMG Retail Sales survey for April (the 4 weeks to April 28th): We flagged yesterday that the April outcome was likely to be flat at best, given the boost to March from the early Easter, but the fall of 4.2% LFL was much worse than expected. March was up 1.4% LFL, so the combined March/April outcome was over 1% down LFL, which is disappointing, given the outperformance of the Food Retailers, although, having said that, Food seems to be slowing down…The exact Food/Non-Food LFL sales split in April was, as usual, buried in the 3-month moving averages (of +1.7% and -2.4% respectively), but it looks as if Food was nearly 5% down LFL and Non-Food was well over 3% down LFL (despite the boost to Clothing/Footwear from the hot spell of weather). Despite the early Easter impact, the underlying Non-Food outcome was poor, despite Online Non-Food sales growth of 6.7% (which would mean that
Next: It remains to be seen what the recent heatwave will do to trading patterns in May, but as the recent Easter/calendar distortions unwind, the underlying trend in Retail sales should become clearer and, after the poor BRC-KPMG Retail Sales figures for April, many observers will again look to the estimable Simon Wolfson for his reading of the sector/economic outlook, via the delayed Next Q1 tomorrow. The comps were weak for Next in Q1 (Brand sales were 3% down a year ago, with Next Retail LFL sales c13% down), so the City is expecting a 3% sales bounce this year, with Next Directory up about 13% (albeit that would still mean Next Retail LFL sales c6% down …).
News Flow This Week: Tomorrow brings the much-awaited Next Q1 update (see above), the Morrisons Q1 update and the Superdry Q1 update, as well as the MPC meeting/Bank of England Inflation Report.