Langton Capital – 2020-02-13 – PREMIUM – Domino’s Pizza, Coca Cola HBC, January Tracker etc.:
Domino’s Pizza, Coca Cola HBC, January Tracker etc.:
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A DAY IN THE LIFE:
Organised by my daughter, I now have indoor (a.k.a. gardening, slouching or ruined) pullovers and outdoor pullovers (which I can wear in public).
This because I’ve made a tactical retreat as to what makes a pullover unwearable.
I’ve always maintained that (admittedly huge) bleach stains and pulls and bonfire-night burn holes do nothing but add a bit of character (and often aroma) to a garment as, usually, the rest of the fabric is undamaged and it would be a shame to throw out something that was still 95% operational.
My daughter, however, insists that it makes the wearer look like a tramp and asks me, rather pointedly, if I’d like my loved ones to be seen out of doors in the company of such a person.
Which is a bit of a lose-lose question so, in order to maintain something approaching harmony, I’ve decided to dutifully reply ‘no’ and wear my ‘smelly old clothes’ in the shed.
She hasn’t yet asked me if I’d drive across a bridge that was 95% complete or use a dog blanket as a scarf because it didn’t have any holes in it but, I would imagine, it’s only a matter of time. On to the news:
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JANUARY PUB, BAR & RESTAURANT TRACKER: LfL sales up 1.9% on the month. 13 Feb 2020:
• January LfL sales were up by 1.9% in January this year compared with the same month last year reports the Coffer Peach Business Tracker.
• The Tracker says that operators ‘kicked off the New Year on the front foot.’
• CGA comments ‘reasonably good weather, in particular the lack of snow, will have helped sales, but nonetheless it is encouraging to see that the public is continuing to go out to eat and drink.’
Breaking down the numbers:
• The Tracker says that restaurants outside London showed the strongest trading
• Restaurant companies saw LfL sales up by 2.5% ‘driven almost entirely by strong sales outside of London.’ London remained in modest growth
• Managed pubs saw like-for-likes grow 1.7% over the month, while bar operators were also up, although by only 0.9%.
• Taking pubs, bars & restaurants together, the provinces saw LfL sales up by 2.5% whilst sales by operators inside the M25 were up by only 0.7%
The numbers in context:
• The Tracker points out that ‘January’s positive results come on the back of strong trading over the festive period, which saw collective like-for-likes up 2.5% against the previous year.’
• Davis Coffer Lyons comments ‘to put these figures in context, last January the market saw a 1.8% drop in like-for-likes against 2018, so essentially we are back to where we were two years ago.’
• It goes on to say that the numbers nonetheless ‘show an underlying stability in the market, despite the political climate and what has been going on in the wider economy.’
• It says ‘the eating and drinking out market is showing resilience and people’s appetite for going out remains intact.’
Consumer confidence a little better:
• Davis Coffer Lyons says ‘there is a universal feeling of improved investor confidence, however, this has not yet translated into deal flow.’
• The agent hopes ‘the stabilised consumer confidence combined with a stronger investor mentality is likely to result in steady improvement as the year progresses.’
• Sponsor RSM says the bump in sales ‘is a welcome reward for the many pubs, bars and restaurants who refined their New Year offering to capitalise on the trends for Veganuary and alcohol alternative drinks.’
• Rolling 12mth sales are running up by 1.6%, almost exactly in line with inflation.
• Total sales, which take into account the impact of new openings, were up by 4.7%, suggesting the impact of new supply is around +3% or so
• The Tracker does not attempt to break out delivery versus eat-in sales.
• If delivery 1) accounted for 10% of sales and 2) was growing at 20%, then it would account for more than all of the +1.9% mentioned above
• Those numbers we’ve used may be too high, however, as pubs are very light in the home delivery market
• Nonetheless, delivery will be growing much more rapidly than the 1.9% experienced by the market as a whole
• As this is lower margin business, it will impact profits
• In addition to not mentioning delivery, there is no attempt to strip out discounting or to comment on margins in any other way as this is beyond the scope of the Tracker
• Nonetheless, a positive number just a little ahead of inflation is better than a decline and, as the sponsors are keen to point out, the year is off to a reasonable start
• The Tracker, though the best measure that the industry has, is also noteworthy for what it does not include. It does not have data from Nando’s, JD Wetherspoon or Franco Manca, for example.
PUBS & RESTAURANTS:
• DOM out of Norway. Sweden to follow.
• Domino’s Pizza Group has announced that, conditional on shareholder approval, it has agreed to sell its Norway business to its existing minority shareholders. The group says this ‘provides a complete exit for DPG from Norway for a cash outlay of up to £7.0 million, in addition to funding DPN’s losses to completion.’
• DOM says its Norway business ‘reported an underlying operating loss before tax of £6.6 million for the year ended 31 December 2018.’ It says this ‘facilitates an orderly exit from [its Sweden business] in due course through the transfer of minority shareholdings in DPS to DPG as part of the transaction.’
• DOM owned 71% of the Norway business. The consideration will be a nominal 1 Krona. DOM will fund DPN for the period up to Completion inclusive of a marketing campaign of NOK 6 million (£0.5 million).
• DOM says ‘Domino’s Norway has incurred operating losses for a number of years and required high levels of capital expenditure to fund organic new store growth, the Dolly Dimple’s acquisition and store conversions. It has therefore required ongoing funding support from DPG. Following Completion, funding previously allocated to Domino’s Norway will be retained within DPG. The Transaction will also allow DPG management to focus on the core business and the orderly exit from the remaining directly operated international businesses.’
• DOM CEO David Wild comments ‘this transaction is positive for all stakeholders and also provides DPG with a clean exit from Norway following operating losses and high levels of capital expenditure over a number of years. The new owners have exciting plans for the business and importantly, the Domino’s brand will retain its presence in Norway.’
• Mr Wild says ‘now we have agreed the transaction for Norway, we will focus on progressing transactions for our businesses in Sweden, Switzerland and Iceland. We are focused on securing the best possible terms for shareholders and are working closely with Domino’s International throughout. We will update the market in due course.’
• CCHBC. Good Q4 partially claws back poor summer (due to weather).
• Coca-Cola HBC has reported full year numbers to 31 December 2019 saying that it saw ‘solid full-year FX-neutral revenue growth of 4.4% (+3.7% excluding the Bambi acquisition) [with] strong Q4 revenue growth (+7.4% FX-neutral, +6.0% excluding Bambi).’ It says this good performance ‘partially offset the impact of poor weather in Q2 and Q3.’
• CCHBC EPS is up 10% at €1.436 with basic EPS +10.2% to €1.340. The group is proposing an ordinary dividend of €0.62 per share, an 8.8% increase on 2018.
• CCHBC CEO Zoran Bogdanovic says ‘2019 was another year of strong growth with the business recording its highest ever volume and comparable EBIT.’ The CEO says ‘I am particularly pleased with how we finished the year, following the unseasonable weather we faced in Q2 and Q3. We drove growth across all three market segments as well as in our three largest markets of Russia, Italy and Nigeria.’
• CCHBC says ‘we enter 2020 with considerable momentum and exciting plans that include the roll-out of Costa Coffee in at least 10 of our markets. We are confident that we are well on track to deliver our 2020 commitments and to make solid progress on our 2025 growth agenda.’
• Denny’s Corporation, the US based operator and franchisor of restaurants, reported Q4 revenue of $113.8m, with domestic LfL sales up 1.7%. John Miller, Chief Executive Officer, commented: ‘Denny’s delivered its ninth consecutive year of domestic system-wide same-store sales growth and substantially completed its refranchising strategy’.
• Itsu has announced that it plans to open a further 100 restaurants in the UK and overseas over the next five years.
• Hospitality Works, the organisation that promotes careers in hospitality, has teamed up with the BBPA and UK Hospitality in order to highlight the value of a career in beer and pubs. Emma McClarkin, Chief Executive of the British Beer & Pub Association, commented: ‘Hospitality, including beer and pubs, is a sector with fantastic career opportunities for anyone. The career progression can be rapid too’.
• Taco Bell has stated its ambitions to become a ‘brand beyond QRS’ with the appointment of a global chief brand officer, Nikki Lawson. Taco Bell CEO Mark King commented: ‘One of our biggest opportunities moving forward is positioning Taco Bell as the powerhouse global brand that it is, pushing us to continue to be a brand beyond QSR’.
• The high-end Italian restaurant Il Borro is to take over operations at the Nobu Berkeley Street site in London’s Mayfair later this year.
• Remarkable Pubs managing director Elton Mouna will step down from his role on June 30th, saying ‘The world of radio broadcasting, podcasting, writing, motivating and sharing my knowledge to a wider audience beckons’.
• The Jamie Oliver Group is set to launch the 100-cover Chequer Lane restaurant in Dublin.
• HMRC figures show exports of Scotch whisky rose by 4.4% to reach £4.91 billion in 2019, despite tariffs leading to fall in volume sales to the US of 7%. Around 1.31bn bottles of Scotch whisky were exported to the 180 markets in 2019.
• Official figures show the Californian wine grape crush fell by nearly 10% in 2019, with the average price of wine grapes down by 5%.
• Café Rouge has attributed growth in the late afternoon daypart to successful partnerships in developing seasonal afternoon tea offers.
• A report produced by IWSR has suggested that younger Americans are changing their drinking habits. Beer consumption in the US fell to 94.1 litres per drinking-age adult in 2019, down from 111.9 litres in 2009. There is a move away from beer and towards spiked seltzers and cocktails.
• The FT says that, in response to the above and other trends, Molson Coors is ‘cutting costs, diversifying into non-beer drinks and ramping up spending on advertising. But some of these initiatives — like the launch of its own hard seltzer brand — are coming too late.’
• Meat prices in China have been impacted by the coronavirus. Both pork and chicken (seen as a substitute good) rose in price last year on the back of African swine flu. Pigs were killed in China and demand for imports rose. However, chicken prices have fallen this year as a major cull has pushed a lot more product onto the market all at the same time. Pork prices are still rising as transport problems have slowed what pigs are available getting to the market.
• Nestle is reported to have dropped its range of low-sugar chocolate products due to poor demand.
• Valentine’s Day tomorrow. Still time to grab an online voucher and cut the price of love by 25-40%.
• Asda will start selling Greggs products in five of its stores in Corby, Wigan, Huyton, Eastlands and Boldon. More could follow if the trial is a success.
• In an effort led by the BRC, more than 50 major retailers have written to the Government, calling on ministers to overhaul business rates in next month’s Budget.
• In the US, TGI Fridays closed more than 30 restaurants in 2019 with the company reporting same-store sales down 11.3% and traffic down 9.1%. The company posted a $21.1 million loss in fiscal 2019, but hopes a $380m merger with Allegro could see the chain become profitable in 2020 and 2021.
• Fleurets has promoted Andy Frisby to lead the central London agency team, focusing on all leisure agency instructions within zones 1 and 2.
• In the US, data shows that Valentine’s Day falling on a weekend (this year it is tomorrow), is the best outcome for restaurateurs.
HOLIDAYS & LEISURE TRAVEL:
• London hotel market performance dampened by new-build volume. End-January saw some occupancy weakness at Heathrow as a result of coronavirus concerns.
• STR has reported that London hotels saw lower occupancy levels in January but they managed to push rates higher. Occupancy was down by 0.9% to 71.3% but rate was up by 1.5%. REVPAR rose by 0.6%.
• STR says supply in the London hotel market rose by 2.3% but demand, whilst still in growth, rose by only 1.4%. STR says the ‘absolute RevPAR level is the highest for any January in STR’s London database.’ It says ‘STR analysts note that occupancy comparisons have been affected by steady supply growth in the market. Strong performance during the first and last week of the month helped the month maintain overall positive levels.’
• STR says ‘like most major markets in Europe, London has not yet shown a noticeable impact on performance relative to the outbreak of novel coronavirus (COVID-19). However, an impact was visible in the final days of the month in the Heathrow Airport submarket.’
• Hilton has said that there will be an impact on Hilton’s net unit growth as a result of the coronavirus outbreak. It says ‘we’ve already delivered 1,500-plus rooms in China this year.’ It says ‘there are parts of China that are still business as usual in terms of deliveries.’
• The WTTC is urging people not to discriminate against Chinese and Asian tourists due to the Covid-19 outbreak.
• Moody’s reports that TUI’s integration of its Hapag Lloyd cruise business into the parent company is credit positive. TUI will receive a net cash consideration of €700 million from the sale. It says that the continued grounding of the company’s Boeing 737 Max aircraft is a pull in the opposite direction.
• Moody’s has also reported that Uber Technologies’ smaller than anticipated EBITDA loss for the quarter to end December is credit positive. It says ‘we expect Uber’s cash burn over the next two years to be substantially lower than our prior estimates.’
• The Gambling Commission has told MPs that it is considering putting limits on the amount consumers are allowed to bet online. MP Carolyn Harris says ‘a review of stake limits online has been clearly recommended by the all-party parliamentary group and is long overdue.’ She said ‘the Gambling Commission must stop being reactive and take action to protect the vulnerable from harm in line with their licensing objectives.’
• MGM Resorts has dropped its earnings guidance for 2020 as a result of uncertainties caused by the coronavirus outbreak. It has also announced that chief executive Jim Murren will step down from the company. Casinos in Macau, the only place in China where they are legal, have been closed since 4 February.
• MGM said yesterday at its Q4 numbers that it was seeing ‘increased volatility in our business due to coronavirus as well as the market-wide weakness in Far East baccarat in Las Vegas.’
• WhatsApp becomes the second social media platform to hit 2bn users. Facebook bought the start-up for £15bn in 2014 when it had 500m users.
FINANCE & ECONOMICS:
• Sterling down vs dollar but up vs Euro at $1.2949 and €1.191 respectively. Oil higher at $55.67. UK 10yr gilt yield up 5bps at 0.62%. World markets higher yesterday but Far East down in Thursday trading.
• Brexit & politics:
o Cabinet reshuffle today.
o Former PM John Major has said that any trade deal negotiated with the EU in the space of the next ten months will inevitably be ‘flimsy’.
START THE DAY WITH A SONG:
Yesterday’s song was Snow by Red Hot Chilli Peppers. Today, who sang:
“I’m looking to the sky to save me,
Looking for a sign of life
Looking for something help me burn out bright”
RETAIL WITH NICK BUBB:
• Next: Our understanding is that the Next analysts visit to their huge warehouse complex in sunny Doncaster on Thursday went well and that the reason the presentation is not on the company website is because it contained information that was commercially sensitive, eg about pick costs etc. The analysts came away impressed with the efficiency and capital discipline of the Next logistics operation and although the Next share price has barely moved since Thursday, we are struck that the notoriously shrewd “Mr Share Buyback Man” has awoken from his slumbers at Next HQ and waded into the market for the first time since early August. Unfortunately, trading volumes have been light over the last 5 days and he has only been able to pick up c£20m worth of stock, but “every little helps” in the pursuit of shareholder value (during the close season, ahead of the finals on March 19th) and the share
• JD Sports: If you’re wondering why the JD Sports share price easily shrugged off the news on Tuesday that the wretched CMA is minded to block the acquisition of Footasylum, it was easy to overlook the fact that JD made a short current trading update in its angry and immediate response that “The CMA’s provisional decision is fundamentally flawed and demonstrates a complete misunderstanding of our market to an alarming extent, given its six-month review”. JD Sports said that, “after a robust post-Christmas sales period in our key Overseas markets”, PBT for y/e Jan is now expected to be at least equal to the top end of current market expectations, which after adjusting for IFRS 16, range from £403m to £434m. Of course the struggling Footasylum chain is not a big business and it has had to be kept separate from the rest of JD to placate the CMA, but it is interesting that its performance