Langton Capital – 2019-10-17 – PREMIUM – Mexican food, Domino’s, JDW, tips, whisky, TCG etc.:
Mexican food, Domino’s, JDW, tips, whisky, TCG etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Is it just me or is it a tad irritating to be lectured on climate change by celebrities and their flunkies who’ve been jetting around the world on various junkets looking at forests and lakes and mountains and the like?
Maybe they’re ‘raising awareness’ or whatever but I’d like a slice of that and, unless you’re going to do a Thunberg and swim to America or wherever you’re going, then can’t you do the whole thing on Skype and give a speech down the local WMC?
Or they could talk about recycling plastic, eating less beef and generally being a bit more respectful of the planet in a rain-soaked English city (where the rest of us are). Or plant a few trees on their land or even do a bit of an Elton John and quietly give away a chunk of their money to good causes whilst not making a song and dance about it?
Anyway, that’s all probably another topic best avoided so, with Boris Johnson in Brussels today finding out that this negotiation wheeze isn’t just about presenting a one-sided wish-list in a firm voice, on to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
Part II (of II) on MEXICAN RESTAURANTS: The number of Mexican, Better Burger and East Asian restaurants in the UK has mushroomed. Here we look at the former. Have the operators been making money? 17 Oct 2019:
• Whilst Chicken, Pizza and Burgers may be the big-three, there are always attempts to liven up the market.
• This might be via Chinese, Indian, tapas, East Asian or Mexican offers and there are many other formats. Latterly Better Burgers and even more recently meat-alternative restaurants have increased in number.
• Mexican and Better Burger outlets have grown most rapidly whilst East Asian grab n go has boomed (at least in terms of unit numbers).
• The distinction between ‘success’ and ‘failure’ can depend on the standing of the observer.
• Yesterday we outlined the rapid growth in Mexican restaurant numbers and queried just whether these operators were making money.
• The answer is ‘no’.
• Of the nine operators we’re looking at, one, Restaurant Group’s Chiquito, appears to make money. Another, Tortilla, broke even in its last set of results. Five are losing money (some of them horribly), one has undergone a CVA and another is in liquidation.
• Winners: Equity funding platforms, customers, journalists, landlords (in the early stages), some staff, directors (in the early days) and latterly CVA accountants, lawyers and various vultures.
• Losers: Equity providers, lenders (very few), landlords (in the latter stages), some staff, directors (in the latter stages) and decent rival who have had the price of property and staff bid up against them.
• Warren Buffett says that he judges the strength of a business by estimating what would happen to it if a deep-pocketed, crackpot competitor assaulted its market.
• An unregulated, monopolist water provider might be OK. A casual dining restaurant perhaps less so.
• Company specific appendices below. Whilst definitions may be challenged, we’ll have a look at them in the order good, bad and ugly.
Aggregate numbers for the sample base:
• The companies covered below, ex-Chiquito’s, which we view as a special case, have not returned profits to investors.
• The eight (ex-Chiquito’s) operators have annual revenues of about £110m. On that, they lose around £13.5m. Accumulated losses for the eight operators are £74m.
Chiquito’s – Reg no. 01854767:
• 100% owned by The Restaurant Group, Chiquito’s was incorporated in 1984 under catering legends Philip and Reg Kaye.
• It is much older, bigger and ‘more corporate’ than its competitors in the Mexican space.
• Corporate figures announced by RTN are rather blunt and Chiquito’s own accounts, as lodged at Companies’ House, are very out of date.
• The last lodged set were for the year to end-December 2017. The Dec 18 accounts, though FY17 had been lodged by early October, are not due until the end of the month.
• Last seen, Chiquito’s announced like-dish for like-dish price cuts of 6%, sales down 7% at £92.5m and PBT down 42% at £5.6m.
• Prices, revenues and profit falls don’t indicate a position of strength. But Chiquito’s is better-off than its peers.
Mexican Grill (t/a Tortilla) – Reg no. 05553988:
• Incorporated in 2005, Tortilla has lodged accounts to Dec 2018.
• The group announces sales up 11% at £33.6m, gross profit margin up 70bps to 73.9% and EBITDA up from £2.0m to £2.6m. A good start.
• Costs below the EBITDA line mean that the company only broke even (positive but negligible £46k) at the PBT line after a loss of £994k in the prior year.
• The group has accumulated losses of £3.0m.
• Tortilla says that 2018 was ‘a successful year’.
Barburrito – Reg no. 04565665:
• Manchester-based Barburrito was incorporated in 2002.
• The group has filed accounts for the year to March 2019. There’s no hard-and-fast rule, but companies that file promptly are often quite pleased with their trading
• Having said that, there isn’t much to be happy about here.
• Sales increased from £15.2m to £16.0m and EBITDA clawed its way up to £152k. But the group lost £2.5m at the PBT line (last year loss £2.8m).
• Accumulated losses are £14.6m. That’s £14.6m. The company has negative shareholders’ funds of £6.7m.
• The auditor, BDO, has signed the Barburrito’s accounts off under the Going Concern principle.
• The Restaurant Group operates Barburrito sites on airports. The company itself operates them elsewhere.
Oaxaca (t/a Wahaca) – Reg no. 5836870:
• Wahaca, under directors Mark Selby and Thomasina Miers, is well-regarded as a casual diner.
• However, whilst the food may be good, the numbers are pretty horrible.
• Revenue for the year to June 2018 (June 2019 will probably not be reported until March next year) rose by 3% to £47.9m.
• Operating losses (a very bad idea) fell slightly from negative £3.3m to negative £2.7m.
• The loss before tax was £4.9m (2017: loss £4.7m).
• There is an accumulated loss of £8.0m but auditor KPMG has signed off the accounts under the going concern principle.
Mucho Mas (t/a Chilango) – Reg no. 05944758:
• Chilango, incorporated in 2005, is part funded by crowd-funded ‘Burrito Bonds. The appropriateness of this is open to question.
• The group, perfectly correctly, has not yet presented accounts to March 2019. The most recent accounts are to March 2018.
• The company said it was ‘pleased with the current trading performance’.
• Revenues rose 6% to £10.3m and the group made an EBITDA profit of £0.4m (2017: loss £1.2m).
• At the PBT line, the group made a loss of £1.4m versus a loss of £3.2m in the prior year. There are accumulated losses of £14.4m.
• Although we do not have sight of a current balance sheet, the company subsequently issued shares in July 2018, and in May, June and September 2019.
• Grant Thornton has signed the company off as a Going Concern.
Chipotle – Reg no. 06708087:
• Chipotle UK is ultimately owned by its American (and much, much larger) namesake.
• The UK subsidiary was incorporated in 2008 and has proceeded to lose an accumulated £29.3m in the accounting periods to Dec 2018.
• In calendar 2018, the group lost £3.9m on revenues of £8.7m. Quite an achievement. This is down on 2017 losses but, even to such a large company as Chipotle Inc, this may be categorised as a non-negligible irritant.
• We commented more fully on Chipotle on 10 October.
The Burrito Kitchen – Reg no. 08382045:
• Incorporated in 2013, The Burrito Kitchen produces micro-accounts indicating that it lost perhaps £24k
Pico’s Ltd (t/a Benito’s Hat) – Reg no. 06430798:
• Incorporated in 2007, accounts to July 2018 suggest that the group lost c£490k in that year and reported that it had £3.1m in accumulated losses.
• The group agreed a CVA under the 1986 Insolvency Act with its creditors in August this year.
• Balance sheet totals were c£1m in July last year but, if a CVA has taken place, there will be little or no equity left.
Wrapchic – Reg no. 07619327:
• Birmingham based Wrapchic, which offered ‘Indian Burritos’, was incorporated in 2011. It is currently in liquidation after a period of administration.
• Accounts to end-May 2018, very out of date, were only lodged in May this year. They suggest that the company lost about £252k in that year.
• Accumulated losses were £1.7m and the company had negative shareholders funds also of £1.7m.
• Quite how the business was funded isn’t clear from its shortened accounts.
• In August this year, Big Hospitality reported that the assets of the business were bought by Zampar Limited and Fairway Commerce. It said ‘both companies are registered at the same address as Wrapchic in London.’
GENERAL NEWS – PUBS & RESTAURANTS:
• DOM says trading has ‘stabilised’ but it intends to exit each of its four international markets.
• Domino’s Pizza Group has updated on Q3 trading saying that group system sales rose by 3.4% in Q3 and UK & ROI sales were 3.9% higher. Domino’s calls this latter performance ‘solid’.
• Domino’s has opened 12 new stores in the UK & ROI in Q3. It adds that online sales in the UK are +7.2%.
• DOM says its ‘review of International markets [has been] concluded’. It says ‘the Board has decided to exit the markets in an orderly manner.’ It says ‘the search process for the new CEO continues and the process for the new Chair, led by Ian Bull, has commenced, with recruiters appointed. The Board intends that both processes are progressed as quickly as possible.’
• Current DOM CEO David Wild says ‘we delivered a solid performance in our core UK and Ireland markets, with system sales up 3.9%, against a market backdrop that remains challenging.’
• DOM cautions that ‘normal working practices continue to be impacted by our franchisee dispute. As we said at our interim results, this situation is complex and we expect a resolution to take time, certainly into 2020. We remain committed to working with our franchisees to agree sustainable win-win solutions.’
• DOM says ‘although the financial results have stabilised, the performance of our international business remains disappointing. Over the past six weeks we have completed a review with external consultants, assessing each of our four international markets and the future prospects for our businesses. We have concluded that, whilst they represent attractive markets, we are not the best owners of these businesses. The Board has therefore decided to exit the markets in an orderly manner.’
• Excluding the UK & ROI, international system sales were down 2.9% in Switzerland, down 1.0% in Iceland, down 0.3% in Norway and up 25.0% (only up 1.0% LfL) in Sweden. DOM says ‘the trading performance of our German associate was encouraging.’
• JDW yesterday reported that directors John Hutson, Su Cacaioppo and Ben Whitley received 14,412 shares between them under an unapproved SIP award and sold all but 849 of them immediately. The directors still hold a number of shares in the company either personally or under other schemes. The company has recently been buying shares back. group’s shares have risen by around 50% from recent low of 1069p in December last year.
• Fourth has undertaken research into the hospitality industry’s performance by region. It says it has unearthed ‘information across a number of areas, including diners’ biggest bugbears, tipping and what consumers really look for when choosing a restaurant.’
• Fourth suggests that ‘Londoners have been revealed as the most generous diners, leaving a 10.57% tip on average, with the data showing they are also the most likely to dine out during the week, eating at restaurants on average 2.4 times a week.’
• Fourth says ‘diners from Northern Ireland are least likely to leave a generous tip, offering on average just 6.86% of the total bill.’
• Fourth suggests that meal price ‘is the most common source of irritation at restaurants’ and adds that attitudes to rude service varied with diners in London more tolerant than those elsewhere in the country.
• Fourth concludes ‘while it’s clear that the UK’s dining scene continues to prove popular with consumers because of its vibrancy, quality and choice, our survey unearths some of the habits, idiosyncrasies and frustrations experienced by diners across the country.’ It says the survey ‘demonstrates is that operators with estates across the UK need to be pragmatic to the cultural nuances and demands of each region.’
• The CMA has launched an investigation into the $575m Amazon lead investment into Deliveroo. Amazon had tried and failed to launch a food delivery platform in December 2018.
• The first stage of the CMA investigation into the Amazon investment into Deliveroo will decide whether the deal has created a serious lessening of competition in the British food delivery market.
• Chick-fil-A has opened its first UK branch. This has attracted the attention of LGBT rights campaigners after the chain caused controversy in the US by describing the definition of marriage as anything different to that which is in the bible was akin to ‘shaking a fist at God’.
• Rose wine sales in the UK off-trade declined by 2.5% y-o-y, according to data from Kantar, while 63% of all still wine bottles are bought for under £5.
• In the US, Taco Bell has voluntarily recalled about 2.3 million pounds of seasoned beef from its restaurants and distribution centres in multiple stores across the Midwest, East Coast and Southeast, after a customer found a metal shaving in their food. This marks the second supplier issue to impact the chain in recent months.
• The WTO has formally granted the US authorisation to implement tariffs on a number of goods made in the EU, including wine, Scotch, Irish whiskey and liqueurs.
• Distilleries have been flying whisky across the Atlantic to the US before Trump’s trade tariffs kick in, whisky is usually shipped to the US due to its weight.
• Google has stated that local marketing on its platform can drive guest traffic to restaurants better than national ad campaigns. The group stated that 89% of diners research where to eat on their smartphones.
• Jessops has filed for administration, as the group looks to restructure its obligations and cut outgoings. It has filed a notice of intent to appoint ReSolve as administrators, a move that affords the company creditor protection for a period of 10 days.
• SSP Group has opened its first outlets at Brazil’s two main international airports, Rio de Janeiro and São Paulo International Airport.
• Nearly 12,000 Asda workers are currently facing lossing their jobs next month after refusing to sign controversial new contracts. Vertical Aerospace’s mission is to make air travel personal, on-demand and carbon-free.
• The liquidators of Thomas Cook’s British operations have kicked off a process aimed at raising tens of millions of pounds from an auction of dozens of airport take-off and landing slots.
HOLIDAYS & LEISURE TRAVEL:
• The business, energy and industrial strategy (BEIS) committee chair, Rachel Reeves, said Thomas Cook’s directors were guilty of a ‘series of misjudgments’ that ‘guided’ the company ‘into the rocks’. The former boss claimed the prime minister’s office was aware of a financial rescue plan that could have saved Thomas Cook but ‘didn’t want to set a precedent’.
• London Luton Airport Limited (LLAL) want to build a second terminal and increase passenger numbers to 32m a year by 2039. Opponents say the plans are ‘reckless and irresponsible’ at a time when the UK should be reducing air travel.
• Six Confederation of British Industry (CBI) regional councils have called on the government to ‘be bold and deliver’ HS2 ahead of a critical review of the project.
• Netflix has warned investors that the group faces ‘headwinds’ in the next few months as rivals Apple and Disney launch competing services.
• Apple has released a new iOS update – its fourth since September – following user complaints about bugs.
FINANCE & ECONOMICS:
• The ONS has reported that UK CPI has remained at a 3yr low of 1.7%. Fuel costs fell with the price of certain household goods, such as furniture, rising. The NIESR says that ‘underlying inflation remained unchanged at 1.0 per cent in the year to September 2019, as measured by the trimmed mean, which excludes 5 per cent of the highest and lowest price changes.’
• The NIESR says ‘headline CPI inflation remained unchanged at 1.7 per cent in the year to September 2019. Our analysis of more than 130,000 goods and services included in the basket, suggests a pause in inflationary pressure.’
• The NIESR adds ‘underlying inflation fell in most of the United Kingdom regions. On this basis, we expect CPI inflation to settle just below the Bank of England’s target of 2 per cent in the coming year.’
• Sterling up at £1.2821 and €1.1574. Oil unchanged at $58.95. UK 10yr gilt yield up 1bp at 0.71%. World markets mixed.
• Brexit & politics:
o Negotiations continue both in Brussels and London as the UK team seeks a deal that it can both accept from Europe and sell in the UK.
o The FT says that all of this noise ‘distracts from the issue that ought to be of primary concern: that Mr Johnson’s proposed Brexit pact is bad for the UK economy and will leave most British citizens poorer.’
o FT quotes former Foreign Office head Simon Fraser as questioning ‘are we losing sight completely of what a lousy long-term choice Brexit is for this country?’ the FT says that Mr Johnson’s deal is economically worse than that proposed by his predecessor and that both deals would make the UK worse off than it would be staying in the EU.
START THE DAY WITH A SONG:
Yesterday’s song was Blossoms with Your Girlfriend, today who sang:
Oh she may be weary,
Them young girls they do get wearied
Wearing that same old shaggy dress, yeah, yeah
RETAIL WITH NICK BUBB:
• WH Smith: Today’s finals for y/e Aug are the swan-song for the retiring CEO Steve Clarke, but he is going out with a bang, as the big news is that the group is stepping up its presence in the US with another major acquisition: the Marshall Retail Group is being acquired for $400m (£312m) in cash, with half the consideration being financed by a £155m placing of new shares. The multiple is 13.7x EBITDA, but that comes down to only 10x after synergies and the deal will be usefully earnings enhancing. We had never heard of Marshalls, but that may be because it operates 170 gift shops under a whole variety of different brand names in casino-resorts and airports, including Flight Stop, Larimer Street Market, Baggallini and Ciao! WH Smith has also announced that it just won its first US airport locations. Given the strong results and the exciting acquisition, the share placing should be well
• Planet ONS Watch: In “the real world”, as per the overall BRC-KPMG figures for September (the 5 weeks to September 28th), Retail Sales were disappointing last month, given the impact of Brexit uncertainty and the warm spell at the end of the month, but we will find out at 9.30am this morning what “seasonally adjusted” life was like on the High Street on that strange parallel world, the Planet ONS (aka the bizarre world of the Office of National Statistics in Newport), via their official Retail Sales figures…Now, City economists (who still, unaccountably, treat the dubious-looking ONS figures as the gospel truth) generally expect a small dip of 0.1% in month-on-month seasonally adjusted sales volumes, but our friends at Capital Economics have pencilled in a 1.0% fall in September (to give year-on-year volume growth of 2.4%), for what it’s worth. We will be focusing, as usual, on the
• John Lewis Retail Report: John Lewis released its seventh annual Retail Report to the press yesterday, looking back on spending trends in the past 12 months and what shaped the year that has been. John Lewis themselves summed up the last year as “The UK waged war on plastic waste and embraced the Joy of Missing Out (JOMO) over the Fear of Missing Out (FOMO)”, but the papers put their own twist on things. The Daily Mail, for example, flagged that a “New age of modesty” is dawning, in which “we appear to be turning away from excess, uncomfortable fashion and displays of wealth”. But the Guardian highlighted that “TV shows prove the best shop window in tough times”, noting that TV shows such as “Peaky Blinders”, “Fleabag” and “Stranger Things” have heavily influenced what shoppers have bought over the last year.