Langton Capital – 2020-02-21 – JAB Holdings, labour, Dom’s US, Itsu, Accor & other:
JAB Holdings, labour, Dom’s US, Itsu, Accor & other:
A DAY IN THE LIFE:
Rather scarily, I estimated the other day that I’d been from York to London and back around 700x by train over the 18yrs or so since Langton left Switzerland to relocate in the UK – and that’s a large number of trips.
Over the time I’ve known it there have been at least five different train operators. Virgin has had a go, GNER had a bash, there was a private company whose name I forget when we first came back (it was the worst of the lot) and HM Government (which is currently running the line) has had two attempts.
And, I have to say, the government is making a good fist of it. Perhaps the best attempt of all and it did do both times. Virgin was OK but the first one left us stranded at King’s Cross on a couple of occasions and kicked us out at Grantham or Peterborough more than once.
And GNER was pretty competent though my memories there are coloured by the fact that I bought the wrong ticket once (there are dozens and dozens on offer) and got kicked off somewhere along the line because I couldn’t bring myself to pay £100 for a full-fare ticket to finish my journey.
It was at that point that I learned he guards personally pocket 5% of any penalty fares they’re able to levy. As Charlie Munger says, show me the incentives and I’ll show you the outcome. On to the news:
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THE GLOBAL GIANTS – JAB HOLDINGS. Privately owned industry investment company. 21 Feb 2020:
• JAB Holdings, a Luxemburg company, owns a minority stake in Reckitt Benckiser as well as majority stakes in food & drink companies Dr Pepper, Peet’s Coffee, Douwe Egbert’s, Green Mountain, Panera Bread, Krispy Kreme, Au Bon Pain and Pret a Manger as well as fashion brands Jimmy Choo, Belstaff & Zagliani.
• It is a true industry giant but, as a private company, it is able to avoid the degree of scrutiny that would be afforded any listed company of the same size. See Premium Email for further information.
PUBS & RESTAURANTS:
• Fourth Hospitality has added its voice to those operators and advisors suggesting that the government’s proposed immigration changes will make life more difficult for the hospitality industry.
• Fourth says ‘considering 42% of employees in the hospitality industry come from the EU, the majority of which are hourly paid, commanding an average hourly rate of £8.85 (an equivalent average full-time salary of £18,400) and 11% from the Rest of the World (ROW), commanding an average hourly rate of £9.40 (an average equivalent full-time salary of £19,500), the legislation is set to have a significant impact on the sector.’ There will be legislation brought forward to limit or ban immigrants earning less that £25,600 per annum.
• Fourth Hospitality says overseas staff make up as much as 75% of back of house staff levels in the restaurant sector. Quick Service restaurants have 61% overseas staffing. Poland, Italy, Portugal and Romania provide 11%, 7%, 6% and 5% of UK hospitality staffing respectively.
• Fourth says ‘this latest announcement on immigration brings much cause for concern across all sectors in the hospitality industry. This move will undoubtedly add further fuel to the fire in the industry’s ongoing fight to attract and retain the best employees.’
• Home Secretary Priti Patel has said that any shortfall should be filled by the 8m plus ‘economically inactive’ adults in the UK. This number includes carers, homemakers, students and the sick.
• Domino’s Pizza Inc has seen its shares increase 25% after the pizza chain beats its quarterly US LfL sales targets with a rise of 3.4%. Chief Executive Officer Ritch Allison commented: ‘We certainly still saw a lot of aggregator, promotion, and advertising activity out there. But a lot of the things we did internally worked nicely in the quarter’.
• The Institute of Economic Affairs has said that zero hours contracts are a benefit to both employees and the companies that employ them. The IEA says ‘flexibility is good for employers because it allows them to match supply to fluctuating demand, especially in sectors such as health and social work, education, hospitality, or delivery driving, where demand can be erratic.’ It adds ‘this flexibility is also welcomed by many employees. People do not have to take any work that they are offered, nor can they be prevented from working for more than one employer.’
• Texas Roadhouse has reported Q4 and 53wk numbers to end-December saying that revenues in the quarter rose by 19.7% to $725m with net income up 40.7% at $42.7m. The group says Q4 saw comparable restaurant sales increase 4.4% at company restaurants and 3.4% at domestic franchise restaurants.
• Texas Roadhouse says its margin rose 117bps to 17.1% ‘as the benefit of the 53rd week, a higher average check, and labour productivity were partially offset by wage rate and commodity inflation.’
• Texas says 11 company restaurants, including two Bubba’s 33 restaurants, and three international franchise restaurants were opened during the last quarter of the year. CEO Kent Taylor says: ‘we are very pleased to end the year on a strong note, highlighted by our double-digit revenue growth and improved restaurant margins in the second half of the year. Fourth quarter comparable restaurant sales grew 4.4% at company restaurants, which represents our 40th consecutive quarter of growth. This is certainly a credit to our operators, who for 10 straight years have found ways to continue to grow sales. In addition, our healthy cash flow allowed us to increase our quarterly cash dividend to $0.36 per share in 2020 which is our seventh straight year of increasing our dividends by double digits.’
• As regards the current year, Texas Roadhouse says ‘we are off to a solid start in 2020, with comparable restaurant sales growth of 6.4% for the first seven weeks of the year. In addition, our development pipeline remains strong and we continue to target at least 30 company restaurant openings for the year.’
• Itsu has added vegan meatballs to its rice bowl range. It is sourcing the product from Meatless Farm.
• Incite Marketing has remarked that competitive socialising is providing grounds for optimism on the highstreet, while retail and casual dining continues to struggle.
• Several British winemakers, distillers and retailers have called on the chancellor to cut the alcohol duty in his next budget to help boost business.
• Zonal’s Acquire has reached £2bn worth of orders on its platform since its launch four years ago.
• Independent cafes in California’s environmentally friendly neighbourhood, Bay Area, are participating in a pilot program that could lead to compostable cups.
• Fred Sirieix has stated that the Government is ‘demonising’ the hospitality industry following the announcement of its post-Brexit immigration plans.
• It has been announced that the old Brussels stock exchange building is to be renovated, with the top two floors to be turned into a beer museum set to open in 2023.
• Lidl will invest more than £1bn in new stores over the next two years as it targets 1,000 stores in the UK by 2023.
• India’s largest food delivery startup Swiggy has raised $113m in its Series I financing, with Prosus Ventures leading the round. The new round values Swiggy at about $3.6 billion.
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HOLIDAYS & LEISURE TRAVEL:
• Hoseasons has doubled its TV budget for 2020 after crediting its turn of year TV campaign with an 8% spike in January bookings.
• Accor reports revenue up 3.8% in 2019 to €4.05bn, with EBITDA up 5.9% to €825m. Accor now has a portfolio of 739,537 rooms in 5,036 hotels, and a pipeline of 208,000 rooms in 1,206 hotels. Sébastien Bazin, CEO, said ‘This is all the more outstanding against a difficult macroeconomic background and in light of our successful transformation’.
• The Turkish Government plans to scrap visas for UK and EU tourists from next month in a move to increase its ‘tourism potential’. British visitors currently have to pay £27 for a visa online which allows stays of up to 90 days in a 180 day period.
• The global airline industry has lost an estimated $29.3bn due to the outbreak of the coronavirus.
• Hyatt Hotels has announced Q4 2019 revenue up to $321m from $44m in Q4 2018. The group however, reported adjusted income down to $49m for the quarter from $69m in the same quarter last year.
• Host Hotels & Resorts has seen RevPAR increase 1.9% in Q4, with the group repurchasing 35m shares at $609m throughout the year. James F. Risoleo, President and Chief Executive Officer, said: ‘We executed large, value-enhancing strategic capital allocation transactions in 2019 as we capitalized on favorable market conditions to sell 14 properties for $1.3 billion and returned $1.1 billion to stockholders through dividends and share repurchases’.
• The US hotel industry has seen occupancy increase by 0.8% to 55.1%, with ADR up 1.4% to $126.06 and RevPAR rising 2.2% to $69.47, during the month of January.
• Fleet St Communications has found that the number of major investments in esports doubled from 34 2017 to 68 in 2018, with a total of $4.5bn being pumped into the sector.
FINANCE & ECONOMICS:
• The ONS has said that retail sales rose by 0.9% in January. This is the largest increase since last March. See Nick Bubb below.
• Lloyds Bank’s numbers yesterday highlight just what a massive boost to spending has been supplied by cumulative PPI claims over the last decade or so.
• Sterling lower at $1.2894 and €1.1945. Oil lower at $58.73. UK 10yr gilt yield down 3bps at 0.58%. World markets lower and Far East down in Friday trade.
START THE DAY WITH A SONG:
Yesterday’s song was Street Spirit By Radiohead. Today who sang:
I laughed at love ’cause I thought it was funny,
You came along and you moved me honey
I’ve changed my mind, this love is fine
RETAIL WITH NICK BUBB:
• Hammerson: Ahead of Tuesday’s interims, the struggling shopping centre landlord Hammerson has, as expected, announced the sale of the last dregs of its retail park portfolio (bar the Brent Cross retail park). The nine retail parks sold have raised a useful £450m in cash, which represents a net initial yield of as much as 8.7% and a massive discount to the June 2019 book value of 22% (!). Interestingly, seven of the parks have been sold to the Orion fund, which, unless there are two Orions, is also a big shareholder in the beleaguered Intu Properties. We look forward to Hammerson explaining next week why the rest of its portfolio shouldn’t be subject to a 22% asset value discount and focusing on the prospects for Bicester Village, given the loss of its core Chinses shopper traffic…
• Planet ONS Watch: We flagged yesterday that in the real world, as per the BRC-KPMG figures for January (the 5 weeks to Feb 1st), underlying Retail Sales were pretty flat last month, but “seasonally adjusted” life was stronger on the High Street on that strange parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via the official Retail Sales figures for January…City economists (who still treat the dubious ONS figures as the gospel truth) were impressed with the 1.6% bounce in month-on-month seasonally adjusted sales volume (ex-petrol), which was much better than expected. We focused on the reported rise of 3.7% in non-seasonally adjusted sales value year-on-year and noted that the outcome would have looked a lot worse but for the suspiciously strong sales reported for Small Businesses (+7.6%), versus +2.6% for Large Businesses. Unaccountably, the wretched
• BDO High Street Sales Tracker: We highlighted on Wednesday that the John Lewis sales figures for last week (w/e Feb 15th) should have been weak, given the hit to footfall from Storms Ciara and Dennis, despite very weak comps, and today’s BDO High Street Sales Tracker for medium-sized Non-Food chains (which has been reporting surprisingly/suspiciously good progress in recent months) is pretty subdued…In w/e Sunday Feb 16th, Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by 3.9% last week (down 6.7% in Store sales and up by 10.9% in Online sales).
• Trade Press: Retail Week magazine has not been published this week, but Drapers magazine is out today and it is a special Footwear edition, with a guide to autumn design trends. In terms of News stories, Drapers flag that Independent fashion shops in the West and North have been counting the cost of Storm Dennis, industry observers think that Laura Ashley’s owners ‘misunderstand’ the brand and Westfield have delayed the Croydon shopping centre development again. Drapers also look at how the CMA ruling on the JD Sports acquisition of Footasylum could be a watershed for the industry, look at how the over-fifties market is lucrative but under-served and look at how social media reviews are an increasingly vital part of Online shopping, whilst there is also a bullish column arguing that “Arcadia alumni could be the solution Marks & Spencer needs”.
• News Flow Next Week: There is much more UK company news scheduled for next week, kicking off on Monday with the ABF (Primark) pre-close trading update. Tuesday then brings the Hammerson finals and the Hotel Chocolat interims. The finals from CapCo (the Covent Garden landlords) are on Wednesday, along with the McColl’s finals, whilst Thursday brings the Inchcape finals, the Howden finals and the Watches of Switzerland Q3 update. Then, with the end of the month approaching rapidly, we get the monthly GFK Consumer Confidence survey first thing on Friday.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 18 Feb 20 Choice Hotels FY numbers
• 20 Feb 20 Texas Roadhouse Q4 & FY numbers
• 25 Feb 20 Hotel Chocolat FY numbers
• 26 Feb 20 Restaurant Group FY numbers
• 26 Feb 20 Revolution Bar Group H1 numbers
• 26 Feb 20 Wm Hill FY numbers
• 26 Feb 20 SSP Group AGM (no trading statement expected)
• 27 Feb 20 Marriott Q4 numbers
• 27 Feb 20 PPHE FY numbers
• 3 Mar 20 Gregg’s FY numbers
• 4 Mar 20 Hostelworld FY numbers
• 4 Mar 20 Gfinity H1 numbers
• 5 Mar 20 GVC FY numbers
• 11 Mar 20 Sajid Javid Budget
• 19 Mar 20 Everyman Media FY numbers
• 20 Mar 20 JD Wetherspoon H1 numbers
• 24 Mar 20 888 Holdings FY numbers
• 26 Mar 20 Bank of England MPC meeting
• 2 Apr 20 Saga FY numbers
• 9 Apr 20 Hollywood Bowl H1 trading update
• 12 May 20 On the Beach H1
• 13 May 20 Marston’s H1 numbers
• 13 May 20 Stock Spirits H1
• 11 Jun 20 Fuller’s FY numbers
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