Current trading, over-expansion, Marriott, Brexit & other:

A DAY IN THE LIFE:

So it’s hard to remember, with the mercury falling and the mist rolling in from the fields, that it was nearer 30 than 20 degrees last week and one of our biggest problems chez Langton was how to get the radiators to turn off.

And, with that in mind, a few hours’ concerted effort and a couple of visits from the plumber have ensured that they’re now no longer heating a sweltering house but, when called on to function in their normal fashion – probably over the weekend when it should be around ten degrees with drizzle – it will be fingers crossed time.

But, try as I might to explain the seriousness of the situation to the dog, he doesn’t seem to have taken it on board. Because he’s alright. Laying there in his thistle-burr infested and cow-pat encrusted fur coat he’s lovely and warm and, as long as we feed him, he couldn’t give two hoots about the weather, hot or cold. On to the news:

CURRENT TRADING; WHO ARE THE WINNERS & LOSERS?

Background – costs:

• There is little inflation but 0% LfL won’t be enough to hold margin

• Because what inflation there is, is the ‘wrong sort’

• Utilities are OK but wages (esp. National Living Wage) are a problem

• Occupancy costs & F&B costs are benign – but the latter will rise as Sterling falls

Outlook for margins:

• Don’t worry, say some Brexit supporters, inflation won’t resurface, margin will take the strain

• To operators, this is more of a problem than a solution

• Passing on price rises has been tough – but there could be a concerted push in this direction

• In the absence of price rises, LfL growth will be necessary

Late summer trading:

• Weather was good – here 

• But overall trading was sluggish – here – August was +0.6%

• We’ve since heard Shepherd Neame is doing 8.2%

• M&B has chipped in with 1.8% (incl. 3.7% for drink)

So who, then are the losers?

• It’s worth saying the Coffer Peach Tracker didn’t include the August Bank Holiday

• This was very good meaning PLC updates could in aggregate exceed the ‘average’

• Wet sales were good, London was good

• Retailers maintain the High Street was reasonable but retail parks were not

• Casual diners look as though they are lining up amongst the losers

• Ed’s (per Sky) is looking for cash and others with tired brands may also be struggling

Money, mouth etc.

• Pubs are currently > casual diners & there’s less of an over-supply problem with the former

• New entrants have more energy etc. than incumbents

• Established, non-vibrant casual diners are in the wrong quadrant

• If they are over-represented on retail parks, then that won’t help, either

PUB, RESTAURANT & DRINKS PRODUCERS:

• Ed’s Easy Diner is looking for new financing with the help of KPMG after efforts to put in place a mezzanine finance package fell through per Sky. The restaurant chain has 60 sites across the UK and recently announced a partnership with SSP that will see at least ten more in travel hubs.

• Red Hot World Buffet slid into administration following negative PR around employment tribunal claims and falling sales, writes Propel.

• Goldman Sachs Merchant Banking Division has sold its 30% stake in Spanish restaurant chain Grupo Vips to private equity firm ProA Capital. Grupo Vips operates a range of restaurant chains in Spain and Portugal including Vips, Ginos, Starbucks, Fridays, and Wagamama. The deal sees the group’s capital increase by €41.5m with the conversion of B preference shares by its majority shareholders and the provision of €12.5m by ProA Capital. Grupo Vips plans to spend €25m in 2016 and 2017 on accelerating its expansion.

• IWSR figures point to a decline in blended whisky volume sales in the travel retail market, although malt whiskies performed well. Overall the travel retail market contracted by -3.3% during 2015, due in part to a poorer performance of the top hundred brands, the International Wine & Spirits Research said in its report.

• Three former Tesco executives have denied charges of fraud by abuse of position and false accounting in relation to the retailer’s £326m accounting scandal.

• A new development course has been launched for hospitality sector. WorkOut is to take place over 36hrs in November at Hothorpe Hall, Leicestershire.

• Shares in German IT investor Rocket Internet rose by >10% yesterday as losses at its investment companies narrowed. The Berlin-based investor has more than half a billion dollars riding on food delivery company Delivery Hero.

LEISURE TRAVEL & HOTELS:

• STR has reported the US hotel industry saw occupancy +0.2% in the week to 17 Sept. Rate was +4.1% and REVPAR +4.3%. It reports ‘among the Top 25 Markets, Orlando, Florida, posted the largest year-over-year increases across the three metrics.’ REVPAR there was +22.5%.

• PwC reports that regional hotels in the UK could see record growth in 2017 but it says London properties will continue to struggle.

• PwC reports occupancy in London could fall by 0.8% to a 5yr low of 80% as demand fails to keep pace with increased supply. PwC says it has a ‘cautious’ outlook on the future of the sector following the Brexit vote. The accountant says ‘while the full impact of the UK vote to leave the EU will not be known for some time, economic growth is expected to slow.’ It continues ‘a weak pound should provide a boost to inbound leisure travel, but security concerns, tight corporate travel budgets, above average supply growth (especially in London) and consumer and corporate uncertainty could create an unfavorable backdrop.’ PwC nonetheless maintains ‘hospitality and tourism is a key sector for growth, employment and overseas earnings in the UK. How the industry responds to current challenges and additional economic uncertainty will be a key barometer of
economic prospects in the post-Brexit British economy.’

• Marriott has completed its acquisition of Starwood Hotels & Resorts Worldwide ‘creating the world’s largest and best hotel company.’ The group says ‘Marriott now offers the most comprehensive portfolio of brands including leading lifestyle brands, a significant global footprint, and leadership in the luxury and select-service tiers as well as the convention and resort segment.’

• Marriott Chairman JW Mattiott Junior says ‘throughout our nearly 90-year history we have never stopped searching for innovative ways to serve our guests. With the addition of Starwood’s strong brands, great properties, and talented people, we have dramatically expanded our ability to provide the best experiences to our customers. We also welcome the tremendous responsibility as the world’s largest hotel company to be a good global steward, providing new opportunities for our associates and building the economic strength of the communities we call home.’

• Marriott boss Arne Sorenson has said that the ‘rise of nationalism and parochialism’ could be a threat to the international hotel industry. Mr Sorenson told the FT ‘if the political voice which is increasingly audible around the world basically says ‘we’re going to close our borders and take care of our own’, that could have a profound impact on travel — and, by the way, a profound impact on many aspects of economic performance in countries around the world.’

• Season-to-date bookings are up 4% year-on-year and bookings for winter were up 14% year-on-year in August, according to figures from GfK.

• Tui has reportedly asked Citigroup to start the sale of specialist holiday arm Travelopia in a deal that could be worth as much as €600m. Travelopia is made up of over 50 brands offering specialist luxury, adventure, and education holidays, and has annual revenue of €1.5bn and EBITDA of €48m.

• A poll of 1,962 suggests that UK consumer awareness of Abta is growing, with nearly three quarters now regarding Abta membership as essential or important.

• Jet2.com has banned three disruptive passengers and is refusing to fly three others back to the UK from Tenerife after the group brought ‘illicit alcohol’ on board.

• The IEA has said that it does not see travel price spikes in response to terrorist and other incidents as either unethical or exploitative. It says ‘the key point is that prices are merely messengers that tell us something about the underlying reality of aggregated decisions of customers.’

OTHER LEISURE:

• Bet365 revenues rose 5% to £1.55bn in the year and operating profit increased from £406m to £456m to 27 March.

• Yahoo has reported that hackers stole information on c500m users in 2014. It is just disclosing the breach now.

FINANCE & MARKETS:

• B of England’s Kristin Forbes has said she does not see a case for further interest rate cuts post the Brexit vote. Forbes said yesterday ‘the initial effect on the UK economy of the referendum has been less stormy than many expected.’ Ms Forbes adds ‘looking forward, I am not yet convinced that additional monetary easing will be necessary to support the economy.’

• B of England Financial Policy Committee reports ‘the financial system has demonstrated resilience to spikes in uncertainty and risk aversion.’ It says ‘core financial markets functioned effectively despite initial sharp price moves and particularly high volumes of transactions relative to normal levels in some markets. Bank funding conditions remained broadly stable.’

• Bank says nonetheless ‘the United Kingdom faces a challenging period of uncertainty and adjustment.’ It says ‘heightened uncertainty about the near-term macroeconomic outlook and the United Kingdom’s future relationship with the EU is reinforcing domestic risks.’

• B of England governor Mark Carney has suggested that the Bank has little left & says the government should now take decisive action. In a speech in Berlin on climate change, the governor said ‘long-run prosperity was never in the gift of monetary policymakers. As the tenth anniversary of the start of the crisis approaches, a consensus is growing that escaping this low-growth low-inflation trap will require a rebalancing between monetary, fiscal and structural policies. The last are the most important.’

• Boris Johnson has said in New York that Article 50 will be triggered early next year. Downing St suggests he has overstepped the mark

• World markets: UK & Europe up yesterday & US also higher. Far East up in Friday trading. UK markets now challenging 2016 highs

• Oil: Brent Crude changing hands at $47.25 per barrel

• Euro zone consumer confidence rose in Sept to bring to an end a 3mth falling streak

YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:

• M&B FY update, co says sales picked up in the last 8wks (to 17 Sept) with LfL numbers coming in at plus 1.8%

• M&B. This is the best result for some time and, though aided by the weather, will be taken positively

• M&B says the numbers represent ‘a continuation of the improved trend both over time and relative to the total eating-out market’

• M&B – relatively good number, albeit ‘supported by favourable weather in recent weeks.’ Margins will be lower

• Greene King Leisure Spend Tracker concludes the ‘last days of summer lead to increase in leisure spending.’

• Tracker: ‘Leisure spending increased in August as households took advantage of both the school holidays & the end of the summer weather.’

• Tracker: Says spend rise ‘driven by greater spending [+10%] on Eating Out and Drinking Out.’ Other Leisure spend was down 10%

• Christie & Co Insight Report suggest market activity in pubs sector ‘was relatively subdued during H1 with little M&A activity.’

• The number of people smoking in England has dropped to below 17%, marking the lowest ever rate on record

• B of England’s survey: ‘The annual rate of activity growth had slowed overall as uncertainty rose following the EU referendum.’

• UK government borrowing fell in August per ONS to £10.5bn from £11.4bn a year ago. No clear Brexit impact

• Other tweets: Fed might put rates up in Dec, one year after they ‘hiked’ them to 0.25%. Does anyone else look at rates & conclude ‘this is ludicrous’?

• OECD looking for 1% GDP in UK 2017, Treasury guess = 0.7%. If trend was 2.5%, then that’s around £40bn flushed down the loo

• Sky reports Ed’s Easy Diner is in search for cash. Tried sale last year (c£100m) & didn’t happen. Now is closing units…

• Ed’s Easy Diner’s owners said to favour re-fi over sale. But will they be the masters of their own destiny on this one?

• MAB numbers ‘good’ but wet >> dry (weather benefit), London was flying & Aug Bank Holiday also a bonanza

• MAB. Good to see group back in growth but margins will be down & group is said to be discounting some prices

• Coffer Peach Tracker for Aug lacklustre. But data said not to include Aug Bank Holiday. Clue in the name, surely? Will boost Sept numbers

• Elpida guy now on MAB board (as well as 2 Piedmont reps). Does little to dispel concerns re non-normal board & share register

RETAIL NEWS WITH NICK BUBB:

• Sports Direct: The big news today is that the embattled CEO Dave Forsey has resigned with immediate effect. In these circumstances, the usual debate is whether he jumped or was pushed, but, even though he was Mike Ashley’s right-hand man, it looks like he has simply done the honourable thing, given the recent criticisms of him in the Sports Direct working practices report and the likely outcome of the corporate governance review. Slightly bizarrely, the beleaguered Mike Ashley himself, who didn’t do much to defend Dave when he appeared before the Select Committee of MPs, says in the statement that “I feel like I have lost my right arm, but I do hope to have the opportunity to work with Dave again in the future”. Perhaps inevitably, as he obviously really runs the show, the Deputy Chairman, one Mike Ashley, is stepping up to the plate to succeed Dave as CEO, although
Karen Byers, the tough UK Retail boss, has been promoted to the role of Global Head of Operations and Sean Nevitt has been promoted to the role of Global Head of Commercial, both with immediate effect…

• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis did surprisingly well last week, given the hot weather, even though Fashion sales were poor, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for w/e Sept 18th flags that Fashion Store LFL sales were 8.4% down. And, despite a boost from Homewares and Lifestyle sales, total Online sales were actually down by 1%…

• Toy Watch: Given the current craze with Pokemon, it is a relief to report that traditional toys still sell and that The Entertainer, “the fastest growing multichannel High Street toy retailer in the UK”, has posted strong annual results for y/e January. The Entertainer, which now has 126 stores across the UK, saw its seventh consecutive year of growth and reached a record pre-tax profit of £8.1m (before the exceptional cost of £1.2m on the building of its new distribution warehouse in Banbury), even though LFL sales were only broadly flat, given the tough comps from a number of consumer crazes in 2014 such as Loom Bands (remember them?), the “Lego Movie” and “Frozen”.

• Trade Press (1): The front cover of Retail Week magazine today is a selection of photos of speakers and attendees at the recent “Retail Week Buzz” conference, with the headline “Setting retail’s new direction”, flagging a feature on the highlights from the Tech and Ecommerce event. In terms of news stories, RW highlights the profit falls at Next and John Lewis in the first half and the news that Sports Direct has launched an “independent” review of its working practices, but it also flags that the toy chain The Entertainer has hailed a year of “momentous” growth (see above). In his column, the Editor toes the party line that “John Lewis takes short-term profit pain for long-term gain”, but also notes the “space race” at Next and CEO Simon Wolfson’s comment that “taking new space is one of the
few ways to mitigate losses from negative like-for- like sales”.

• Trade Press (2): The front cover of Drapers magazine today is a photo of Shop Direct’s “digital dynamo”, the ecommerce director Jonathan Wall, flagging a feature on how he is pioneering personalisation on the website. There is also a feature on the Drapers Independents Awards, with all the winners and celebrations from the champagne reception. In her column, the Editor says that the winner of the recent Drapers Independent Awards (The Hambledon in Winchester) stood out for its innovative approach to merchandising and marketing and also announces the launch of the Drapers Digital Festival next April. The main News story is that “the fashion industry came together in support of London Fashion Week, as a positive mood and an uplift in international buyer attendance quelled concerns around the implications of Brexit”.

• News Flow Next Week: As September draws to a close (already?), Tuesday brings us the interims from mighty Boohoo and Card Factory. On Wednesday, we get the Sainsbury Q2 update, as well as the MySale finals and the Moss Bros interims. Then the GFK Consumer Confidence survey for September is out first thing on Friday.