60 Seconds – Is a Bull Trap emerging in Hospitality?

A deteriorating situation on the ground?

• Pressures are building within the UK hospitality industry.
• GNK, RTN, FUL, COM, RIC & TAST have recently warned on profits & analysts have downgraded estimates for MARS, MAB & others.
• Which is odd as the July Coffer Peach Tracker suggests ‘It’s steady as you go for Britain’s managed pub & restaurant chains’.
• The Tracker says both June & July saw LfL growth of 0.6% y-o-y and adds ‘the British are continuing to go out to eat and drink much as they did last year’.
• Is this representative of the industry? Were expectations too high or are there other forces at work?

It’s not plain sailing out there:

• Greene King said that pub co market LfLs declined by 0.7% for the 18 weeks to 03 September and was facing ‘unprecedented industry cost pressures’.
• Fulham Shore adds ‘during the holiday season in July and August the Group has seen a slowdown in trade, primarily from our restaurants in London suburbs.’
• The company continued ‘we believe this is a sector-wide trading pattern and not unique to our brands.’
• Tasty said in its H1 report ‘the sector as a whole has been suffering due to a slowdown in consumer spending since the beginning of 2017 and this is set to continue into 2018.’
• Interestingly, none of the above contribute to the Coffer Peach Tracker.

Ultimately, the sum of the companies within an industry must equal the whole:

• Industry stats should be built from the bottom up.
• The ‘industry’ doesn’t pay dividends or generate cash; the companies within it do.
• The definition of ‘LfL’ (i.e. the treatment of units listed for sale or that are the recipients of capital spending etc.) is important.
• We would suggest the forward indicators look troubling & agree that tough trading will continue into the New Year and perhaps beyond.