Langton Capital – 2019-10-10 – PREMIUM – Chipotle, Pret, TCG shops, Domino’s Inc & other:
Chipotle, Pret, TCG shops, Domino’s Inc & other:
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A DAY IN THE LIFE:
Corporate governance is on everybody’s radar these days.
And not just for the goodie-goodies amongst us because various pension advisory firms will suggest that shareholders vote against the re-election of directors if there aren’t systems in place to promote effective and accountable sub-committees, increased transparency, responsibility and to prevent cliques developing and decisions being made on the hoof or after a long lunch.
And directors shouldn’t be ‘over-boarded’ (i.e. too busy to keep an eye on all the plates that they have set spinning), all of which is good stuff but it does make you wonder just how our current PM Boris Johnson would cope if such rules applied to the governance of UK PLC.
But maybe we’ve got nothing to worry about.
It’s not as if some crackpot subcommittee of one person is sending out texts, briefing journalists and keeping Cabinet in the dark, is it?
And the PM isn’t distracted by lewd and / or financial scandals, his prior comments regarding race, gender and the like. He’s fully focussed on what’s best for us, the country that pays his wages rather than self-aggrandisement and the like because how could we let it be otherwise? On to the news:
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PRIVATE COMPANY RESULTS – CHIPOTLE MEXICAN GRILL UK: Chipotle UK has reported numbers to 31 Dec. 10 Oct 2019:
o Chipotle Mexican Grill UK ‘develops and operates fast-casual restaurants which serve a focused menu of burritos, tacos, burrito bowls (a burrito without a salad) and salads’ in the UK.
o The company was incorporated in 2008 and is owned, ultimately, by Chipotle Mexican Grill Inc, which is incorporated in the UK.
o The company says ‘we are passionate about serving great food and providing a great guest experience, and we are a long-time leader and innovator in the food industry.’
o The first restaurant (owned by the US parent) opened in Denver, Colorado in 1993.
o The company says ‘over 25 years later, our devotion to seeking out the very best ingredients, raised with respect for animals, farmers, and the environment, remains at the core of our commitment to Food With Integrity.’
• Chipotle reports that it had six restaurants in the UK at December 2018. It has since opened a 7th site.
• The company points out that revenue for the year increased by 21% to £8.7m.
• LfL sales bounced back in 2018 and were up by 16.8%. In 2018, they had fallen by 5.4%. Delivery will have helped the most recent numbers.
• Sales did indeed rise by 21% on the year to £8.7m. The direct cost of sales, however, was £9.1m meaning that the group made a gross loss of £340k.
• Take off admin expenses and the group reported a loss before tax of £3.9m (2017: loss £5.9m).
• The group has lost £29.3m since incorporation but has positive shareholders’ funds of £7.1m (down from £9.5m).
• The group is funded by its parents and has no debt. Which is just as well.
• Chipotle says ‘the company has made a loss in the current and prior years and is reliant on the support of its ultimate parent company to meet its day to day working capital requirements’.
• it says ‘Chipotle Mexican Grill Inc. has indicated that it will continue to provide future financial support to enable the company to continue to trade as a going concern for a period of at least twelve months from the date of the approval of these financial statements.’
• It concludes ‘accordingly. the directors consider it appropriate that these financial statements have been prepared on the going concern basis.’
• The auditor is RSM and it has signed off the accounts on this basis.
• Gross losses are rarely a good sign.
• They could be generated during a furious land grab or a move for market share but, as Chipotle has accumulated losses of over £29m in the 10yrs that it has reported numbers in the UK, the group should perhaps have matured beyond this point by now.
• We have not checked back 10yrs but it is hard to believe that the company will have made a profit in any of its trading periods.
• Hence deep pockets are needed. Chipotle is a US company about which we know relatively little.
• However, a Trump-style, what’s this, we’re in Syria, let’s get out type move is always possible.
• Were the US group to have a management change or undertake a ‘strategic review’ of any kind, the losses in the UK could be questioned.
• Unless the group can make real strides towards profitability relatively quickly, then its future in the UK may come under question.
GENERAL NEWS – PUBS & RESTAURANTS:
• JD Wetherspoon yesterday announced that senior independent director Elizabeth McMeikan had left the board ‘with effect from the close of play 8 October 2019.’ JDW says ‘the Board would like to place on record its thanks for her contribution to the Company since 2005 and wishes her well for the future.’
• Greene King has announced that all resolutions necessary to allow the takeover of the company by CK Bidco were passed in the required court meeting. The company says ‘completion of the Acquisition remains subject to the satisfaction or waiver of the other Conditions set out in the Scheme Document.’
• UKHospitality has said that the calorie cap, an anti-childhood-obesity limit of the number of calories in portions of food and drink sold to be consumed out-of-home, is a blunt instrument that ‘removes choice for all customers irrespective of age’. UKH suggests rather that ‘reducing the rate of VAT for healthier options on menus could be a good way to promote healthier choices. We would certainly be interested in exploring options to reduce costs for businesses providing healthy food and drink for customers. Many businesses have been hammered by increasing costs, so making it cheaper and easier for them to provide healthy options would be a good move.’
• The Chairman and Directors of Oakman Inns have announced LfL sales up 5.1% for the 13 weeks to the 29th September 2019, with total sales up 15.7% to £10.9m.
• CEO and company founder of Oakman Inns, Peter Borg-Neal, commented: ‘This month we will be celebrating the fifth Oakman Cup which is our largest community investment providing support for many of our local partner rugby clubs. There will be over 600 children under 10 playing in a Rugby Festival at Allianz Park on the same weekend as England will be battling for a place in the Rugby World semi-finals’.
• Pret a Manger (Europe) has reported 53wk numbers to 3 January to Companies House saying that revenue rose by 11.5% to £710m but PBT fell by 25% to £48.8m. PBT is after receipt of £29.9m of interest and investment income from intercompany loans along with the foreign currency movements thereon.
• Pret Europe’s operating profit before investment and interest income was £19.6m, down from £58.0m in the prior year. Pret says its ‘estate is well positioned to continue growth through disciplined opening of new company-owned stores, increasing sales at existing shops, and opening franchised shops with like-minded, capable partners.’ It says it ‘has a track record of delivering growth at scale.’
• Pret adds ‘the UK business intends to continue delivering consistent like-for-like sales growth by focussing on: menu innovation; growth of day-parts; attracting new customers through expanded brand awareness; maintaining focus on shop operations; and strategically expanding shop size and refurbishment of shops.’
• It says ‘following the popularity of a “pop up” vegetarian-only shop in London in 2016, Veggie Pret has now become a permanent concept and has also influenced the Pret menu across all shops. There are 4 Veggie Pret shops in London and Manchester. The acquisition of EAT in July 2019…will allow for rapid expansion of the Veggie Pret brand. The plan is to convert as many EAT shops as possible to Veggie Prets in order to serve a growing demand of vegetarian and vegan customers.’
• The group concedes that ‘a number of commercial pressures exist in the UK.’ It names inflationary pressures, political uncertainty and the potential of a no-deal Brexit. Business rates have risen but the company says ‘nevertheless, the UK business had a good performance despite the challenging market and has a strong statement of financial position and good cash reserves in order to embark on its next stage of growth.’
• Rosa’s Thai Cafe will open a new site on Northcote Road, Clapham, on 3 November.
• LVMH reports sales up 11% in Q3 to €13.3bn, with Europe and the US making ‘good progress’ during the quarter.
• Drafthouse, which was bought by BrewDog PLC in March 2018, has reported 14mth numbers to end-December 2018 saying that revenue rose to £14.8m (14mths) from £10.4m in the prior year. The company made a profit of £717k after a loss of £2.8m in the prior year.
• Flyt, which is now owned by Just Eat and which provides and operates payment systems to the hospitality industry, has reported full year numbers to end-December 2018 showing that the company increased revenues in the year by 39% to £884kin the year but lost £2.9m before tax in the process. The loss, down on the £3.1m lost last year, takes accumulated losses since the group’s 2013 incorporation, to some £11.4m.
• The restaurant group MEATliquor and Franco Manca are in advanced talks to take the former Jamie’s Italian site in London’s Piccadilly.
• Leeds based bar operator Arc Inspirations, which trades as Banyan Bar & Kitchen, BOX and Manahatta, has announced results for the year to end-March 2019 saying ‘the company continues to deliver outstanding results in a challenging operating environment thanks to its continued commitment to, and investment in delivering exceptional, highly-differentiated bar experiences for customers.’
• Arc reports turnover increased 16.7% from £23.3m to £27.2m with LfL sales up 1.1%. the group says ‘adjusted EBITDA has increased by 15% (from £3.2m to £3.7m) [with] 5 sites opened in Manchester, Leeds and Newcastle across a six-month period.’
• Arc says ‘the company’s strategy of operating sites in ‘clusters’, with several venues located in close proximity and complementary to each other, each targeted at a different customer demographic, is driving growth.’ The company says that it has an ‘exciting period ahead and strategy for further expansion in 2020 and beyond, including plans to expand into new locations across the North and Midlands.’
• Arc CEO Martin Wolstencroft reports ‘we have enjoyed arguably our most successful year in the company’s history and believe we are now operating at the very peak of the sector, delivering through our continued focus on our people, brands and guest experience.’ He says ‘there are some very exciting times ahead for the business as we look forward to the full-year contribution of our new sites.’
• Eight Spudulike outlets have been acquired and reopened by Albert Bartlett, a global potato firm dating back to 1948.
• Remarkable Pubs has announced it will open its Leytonstone pub, The Holly Tree on the 18th October after a refurbishment.
• Restaurant bar group Drake & Morgan has been deemed ‘irresponsible’ by the Advertising Standards Authority after the group claimed cocktails could enhance moods.
• Imbiba has invested a further £2.5m into Farmer J as the group eyes UK expansion.
• The mindful drinking organisation, Club Soda has stated that UK pubs should take note of Spanish and German bars in promoting the health benefits of low-and-no alcohol beers.
• The vegan restaurant group, SpiceBox has reached its crowdfunding target of £275k on Seedrs, five hours after going live on Monday.
• Punch completes a £480,000 investment in The Rock House pub in Eccles, near Manchester, giving the pub ‘a more modern and cooler vibe’.
• Adventure Bar Group opens The Lost Alhambra at 28a Leicester Square, featuring theatrically-inspired decor, offering a range of cocktails and other beverages.
• Manchester United partners with chef Tom Kerridge to boost its match day food offering. Kerridge operates three pubs in Marlow – two Michelin starred The Hand & Flowers, one star The Coach and The Butcher’s Tap – and Kerridge’s Bar & Grill in London’s Corinthia Hotel.
HOLIDAYS & LEISURE TRAVEL:
• Hays Travel has acquired the leases of all 555 former Thomas Cook shops with the aim to rebrand and re-open them as soon as possible. MD John Hays said a ‘good percentage’ of the shops will be open by tomorrow. Chair Irene Hays said Hays Travel had spoken to around 140 landlords so far, and conversations had been ‘only positive’ so far.
• This is another sign that capacity rarely exits a market. Shops are rarely permanently shuttered, planes are not scrapped and hotels in resort are not torn down.
• We would suggest that the superior margins that must now be being earned in the package tour industry are likely to be temporary. If the excess profitability sucks in more capacity than was there before, then late 2020 could be somewhat difficult.
• Per Travel Weekly, Discover Ferries has announced plans for 13 new ships before 2023, with seven to be introduced before 2021. This represents £1 billion investment in new ships and ports.
• Donald Trump’s Turnberry resort in Scotland reported losses of more than £10.7m last year, bringing cumulative losses to £43m since Trump acquired the property.
• Powerleague, the five-a-side soccer pitch operator, has reported shortened accounts to end-Dec 2018 to Companies’ House showing that the balance sheet took a battering with accumulated profits moving from £795k (positive) to £50.2m negative.
• Powerleague had negative net equity at end-December of £2.3m after having positive shareholders’ funds of £48.7m at end-2017.
• Powerleague says ‘the directors have sought and received assurance from the directors of the immediate parent company, Patron Sports Leisure SARL that they will continue to provide support for a period of not less than 12mths from the date of approval of the directors’ report’ (i.e. from 24 Sept 2019).
• Major rival Goals Soccer’s shares are currently suspended and the company is the subject of an investigation (and a bid from shareholder Mike Ashley).
• Sensor Tower reports the mobile version of Call of Duty has been downloaded more than 100m times in its first week.
• After a seven-year investment programme, Hull becomes the first city in the UK where everyone can get full fibre broadband.
FINANCE & ECONOMICS:
• The US Fed has confirmed that it is open to further rate cuts and may undertake more QE in order ‘to support continued growth.’
• Figures from the RICS show that the number of sellers putting their homes on the market has hit its lowest point in 3yrs. The RICS has warned of a ‘direct hit’ on the housing market if the current Brexit deadlock is not resolves soon.
• Sterling up vs dollar at $1.2226 but down vs Euro at $1.1129. Oil up a shade at $58.23 and UK 10yr gilt yield up 5bps at 0.46%. World markets higher yesterday with Far East up in Thursday trade.
• Brexit & politics:
o Corporate governance. If a company behaved in the cliquey way that Messrs Johnson and Cummings (extra-Cabinet decision making, unelected officials, leaking etc.) it would face severe sanctions.
o Parliament has been prorogued (this time legally) & will return on Monday 14 October.
o The EU has suggested that it will be apparent by the end of this week whether a Brexit deal can be agreed.
o The EU has suggested that PM Boris Johnson must make significant concessions if he wants to achieve a Brexit deal. A Downing Street source said on Tuesday that a Brexit deal was essentially impossible because German Chancellor Angela Merkel had made unacceptable demands. Michel Barnier appears to have become a little less optimistic. He said that a deal was still possible, though ‘very difficult’ but later said ‘to put things frankly, we are not really in a position to be able to find agreement with the UK.’
o Thursday October 17th and Friday 18th will see the European Council meet in Brussels. It is at this point that any agreed deal could be finalised.
o The Benn Act comes into effect on Saturday 19th October. The House of Commons will sit for the first time on a Saturday on the same day.
START THE DAY WITH A SONG:
• Training courses intruding. Back soon.
RETAIL WITH NICK BUBB:
• Dunelm: Todays’ Q1 update from the homewares chain Dunelm covers the ups and downs of the 3 weeks to Sept 28th and although the overall 6.4% LFL growth is fine, the company notes that “the beginning of the quarter was particularly strong, reflecting continued market share gains and the weak comparative period last year. In September trading was mixed, in part reflecting a softer homewares market”. However, the CEO Nick Wilkinson says: “Despite the recent softness in the homewares market and the increased political uncertainty, we are confident we can continue to win market share and our expectations for the full-year remain unchanged”.
• N Brown: The share price of the home shopping group N Brown fell sharply yesterday, as if today’s interims (for the 6 months to end August) would bring bad news, but, although there is no current trading update, the results and the outlook statement look OK: Steve Johnson, the new Chief Executive, says: “We announced our new strategy in May to return N Brown to sustainable profit growth and we have made good progress over the first half of the year…The retail environment remains heavily promotional, but we are concentrating on continuing to improve our customer proposition and ensuring we operate as efficiently as possible, which has led to an increase of 4% in adjusted EBITDA for the period. We remain focused on implementing our plans and the Board’s full year expectations are unchanged”.
• Today’s Press and News: The news that Hays Travel, which is the UK’s largest independent travel agent, has agreed to buy 555 of Thomas Cook’s 563 UK stores for an undisclosed sum is a big talking point in today’s papers. But the 2500 jobs saved there are offset by the 350 jobs put at risk by the collapse of the Links of London jewellery chain, as flagged by the Telegraph. The Times highlights that Nick Wilkinson, the CEO of Dunelm, has been given £50,000 in relocation costs to help with a move to a new house near the HQ in Leicestershire (partly funded by store vouchers!).
• News Flow This Week: Tomorrow brings the trading update from the struggling fashion chain QUIZ.