More on JDW, EU labour, mobile ordering, costs & other:

A DAY IN THE LIFE:

The Sunday Times yesterday had a banner ad saying that its Style section would have 76 pages of ‘shoes, bags & jewels’ and, whilst I know that was meant to encourage me to buy the paper, it very nearly put me off altogether.

Because I think you can get your shoes for twenty quid from any half-decent supermarket, you can get bags for life for five pence and you don’t need to have any jewellery at all. And that didn’t take 76 pages at all, did it.

Now if the paper had wanted to devote 76 pages to the history of The Mighty Hull City and had wanted to wax lyrical about their 2-1 (somewhat hesitant) demolition of Swansea and how they were going to survive relegation and challenge for Europe next season, now that would be a different matter. On to the news:

JD WETHERSPOON – H1 NUMBERS, ANALYSTS’ MEETING:

• Following the release of its H1 numbers Friday morning, JD Wetherspoon hosted a meeting for analysts and our comments thereon are set out below:

• Headline Numbers:

• JD Wetherspoon points out that its H1 numbers are better than last year (and a little better than expected) partly because of the disposal of underperforming pubs, lower interest charges and a muted impact from higher statutory wage minima (as the group had already raised wages)

• Cost increases in the period were ‘modest’. This will be more marked in H2 and FY18.

• JDW believes that it faces in the region of £24m of incremental costs. These result from government action and comprise NLW, business rates changes, energy levies, apprenticeship levies and excise duty changes.

• Not included above are commodity price increases, utility price rises and the like.

• The group says that it will need LfL growth ‘slightly ahead of inflation’ in order to stand still in terms of profits.

• On the ground, JDW continues to perform well.

• Staff retention numbers, cleanliness scores, customer awareness stats etc. are all looking positive

• The group is launching a ‘from table’ ordering app this week

• Repairs are undertaken on a pre-emptive basis. Costs here are up on last year

• Trading outlook:

• Current LfLs are running at +2.7%. This is likely to moderate. The group expects perhaps 1% to 2% for the rest of the year.

• Comps will then get tougher.

• The group is cautious for H2 and FY18.

• Operating margin for the year ‘should be between 7% and 7.5%’

• Balance Sheet, Debt & Outlook:

• JDW has undertaken a number of freehold reversions. Some 54% of the estate is now freehold

• This positively impacts the P&L given that rental costs are about 6% and finance costs are perhaps half that number

• The group has c1,000 hotel rooms

• Reinvestment capital spending has been stepped up. It will run at c£60m p.a. this year and next

• The group opened two units H1 and shut 22. For the full year it will open ‘between 10 and 15 units’. The same will be the case in FY18. There are no further planned closures

• Langton View: JDW has sounded a note of caution for the rest of this financial year and for FY18.

• However, we would suggest that it is very well-positioned to prosper (if only relative to its competitors) given its brand recognition and value offer.

• The group has said that there may be room for c1,200 to 1,500 JDW outlets in the country. At an opening rate of c10-15 p.a., this should keep the company busy for the next half century or so.

• Margins are edging up. This despite heavy repairs costs & other actions.

• Overall, whilst JDW’s shares are not ‘cheap’ per se, the group is an excellent operator of the assets that it already has – and it will buy more. It now owns freehold more than half of its estate and more cash, over the years, is likely to be channeled in this direction.

• The group will not be immune should the economy (and particularly consumer spending) slow. But JDW is best in class and, if its shares weaken further, then will become very attractive.

PUB, RESTAURANT & DRINK PRODUCERS:

• The chairman of Stonegate Pub Company has told a conference that the hospitality industry is the third largest employer in the UK. Speaking at the Perceptions Group to mark National Apprenticeship Week, Ian Payne said: ‘We employ 13,000 as one company, and the hospitality sector employs 1.5m people – that’s how big we are and we should never forget how important our jobs are to the UK’s industry and economy.’

• Stressing the importance of the hospitality’s labour base to the UK economy, Payne suggested that greater recognition of the industry’s career opportunities is required.

• BHA has suggested that it may take 10yrs to replace EU staff in the UK hospitality industry. Pret has said that only one in 50 applicants was currently British. Replacing EU staff will be ‘very, very tough indeed’ per Ufi Ibrahim, the BHA’s chair. She adds ‘I think it will take 10 years to build a future talent pipeline.’

• Evolution remains key as Brits continue to reduce drinking levels.

• Research from Mintel shows that Brits are ‘actively moderating’ their drinking habits, with more than half of the nation’s beer, wine and cider drinkers claiming they drink less than a few years ago. The decline has been attributed to economic and health factors such as wanting to save money, avoiding weight gain, and improving personal health.

• Costa Coffee is set to more than quadruple its roasting capacity to 45,000 tonnes or 2bn cups a year by opening Europe’s biggest coffee roastery. The £38m site in Basildon, Essex, called Paradise Street, was chosen for its proximity to Tilbury Docks where Costa’s raw coffee beans are imported to. Paradise Street covers the equivalent of more than 30 tennis courts at 85,690 sq ft and can handle 24 tonnes of coffee beans per hour compared to six tonnes at its former roastery in Lambeth.

• Motorway services operator Moto is to invest £14m in its food and beverage offer across its 58 sites, which will see the introduction four M&S convenience stores and seven new Greggs bakery outlets.

• Richoux has opened its first Zintino site on the former Villagio in St Peters Street, Canterbury, writes MCA. Zintino is a value-led concept which focuses on a simple menu of pasta and pizza dishes priced between £6.50 and £10, and will soon be replacing more of Richoux’s Villagio units, with the next site to be replaced in Chislehurst.

• Prezzo is looking to open MexiCo sites in major cities, including London, and has overhauled its offer at sister brand Chimichanga, per MCA.

• A new report by economic experts Oxford Economics (OE), commissioned by the Scottish Beer & Pub Association (SBPA), has found that the beer and pub industry in Scotland employs almost 60,000 people, and contributes over £1.7bn to the national economy every year.

• Monarch Holidays has reported a bounce in holiday bookings to Greece & Turkey. It says Greece is up 70% year to date whilst Turkey is as much as 90% ahead.

• Whitbread boss Alison Brittain has said the company is ‘happy with our structure’. She told the International Hotel Investment Forum in Berlin that ‘Whitbread are very unique and own and manage, either by freehold or leasehold, all of their properties. Brittain believes this is how they manage their service proposition. Whitbread currently have 85,000 new rooms scheduled by 2020.’

• Fairly or unfairly heard in Sainsbury’s yesterday in two separate snippets of overheard conversations. First ‘it’s really bad value, they haven’t even got the offer on’ and second ‘it’s twice the price of Aldi’. Prices edging up, perhaps. The fear of further discounter encroachment seems to have abated.

• UberEats has confirmed its launch in Birmingham, with 100 restaurant and café partners signed up to the platform.

• Mars has said that chocolate prices may rise in the UK unless the country secures a favourable trade deal with the EU. Confectionary could otherwise face tariffs of 30% under international trade rules.

• Tesco chairman John Allan has said that white men are an ‘endangered species’ on the boards of UK companies. He probably wishes that he hadn’t.

HOLIDAYS & LEISURE TRAVEL:

• London hotels continue bounce back as Feb data confirms visitors are back. Merlin said 2wks ago that visitors were spending again.

• STR’s preliminary February 2017 data for London shows a 2.7% rise in occupancy to 77.6% and a 4.7% increase in average daily rate to £132.50. Revenue per available room was up 7.5% to £102.85. STR analysts say London Fashion Week (16-21 February) as a factor in the positive performance.

• UK travellers paid more for hotel rooms overseas in 90% of 100 most popular international destinations last year over 2015, per research released last week. Brexit fears & the fall in the value of Sterling are largely responsible.

• Brexit will have a negative effect on air and hotel costs over the next year, according to the majority of respondents to an ITM study of 100 buyers. ITM found that 70% of buyers feel the EU referendum result will affect cost of flying with 63% predicting it will hit the cost of hotels, however business confidence remains relatively robust. The report showed that traveller security, cost reduction and budget control were buyers’ top priorities for this year.

• More than 650 flights will have to be cancelled at the two main airports in Berlin after ground staff have called a 25-hour strike. The dispute has been caused by the union Verdi who are demanding higher wages for 2,000 staff who handle baggage and passengers.

• The ‘sharing economy’ is fundamentally mis-named say incumbents & others.

• The UN World Tourism Organisation (UNWTO) has called for a re-definition of sharing economy businesses such as Airbnb as ‘new platform tourism services’. ‘The name is important. It’s not sharing. It’s business. It’s a service provided through digital platforms.’ said secretary general Taleb Rifai of Airbnb, while John Kester, director of the UNWTO tourism market trends programme, commented: ‘We need to distinguish between exchange without an economic transaction – sharing opinions such as on Tripadvisor – and exchange with an economic transaction, which is a business and should be regulated as such.’

• Speaking at the International Hotel Investment Forum in Berlin, Sébastien Bazin, Chairman and CEO of AccorHotels, said that his company ‘has never, ever been stronger’. He said the company was to push its ‘asset-light’ model. Re online rivals, he said ‘they are very good and what they are doing is legitimate’. He added ‘every time they grow, they take something away from me. They also bring me something, they bring me traffic.’

OTHER LEISURE:

• Everyman Media Group, parent company to everyman cinemas, reported revenue up 45% to £29.6m with adjusted EBITDA rising to £4m (a 132% increase on last year) during 2016. The group opened up a further 4 more cinemas during the year taking their estate to 20 but Everyman acknowledges that, ‘whilst the pipeline for further new venues continues to look strong and encouraging, the opportunities for growth organically are becoming increasingly important for the business.’

• Everyman Media Group CEO, Paul Wise, stated ‘2016 marked a step change in the growth of the business’. The group managed to secure a new loan facility with barclays of £20m that will provide an additional finance stream to help fund further expansion of the brand.

• William Hill has appointed Philip Bowcock as Chief Executive Officer (CEO) with immediate effect. William Hill Chairman, Gareth Davis said: ‘Since his appointment as Interim CEO last July, Philip has driven the business forward at real pace and we have seen important progress across our Online, Retail and international businesses over that time. Our recent results show that William Hill is now in a stronger position and Philip has outlined a clear plan to continue that momentum into the future.’

• Sportech announced on Friday that it has now posted a circular to Shareholders containing the formal terms and conditions of a Tender Offer by which it will buy back 20.5m of its own shares.

FINANCE & MARKETS:

• The US added 235k jobs in February, beating economists’ expectations. The data makes a rate rise on Wednesday more likely

• US reports unemployment rates slips to 4.7%.

• NIESR suggests UK GDP rose by 0.6% in the 3mths to end-February down from 0.8% in the 3mths to end-January. The NIESR reports ‘our estimates suggest the economy expanded by 0.6 per cent in the three months ending in February 2017. Robust consumer spending growth has supported the economic expansion throughout 2016, but there are now signs that this support is beginning to soften. Consumer price inflation is expected to continue to increase throughout the rest of 2017, further reducing the contribution from consumer spending to economic growth. A key question is by how much and over what period of time this domestic economic weakness can be offset via contributions of net trade.’

• ONS reports UK industrial & construction activity slowed in January. The ONS says ‘taking the last three months together, construction and manufacturing both grew strongly, with considerable narrowing in Britain’s trade deficit.’

• ONS data has shown that the average worker took only 4dys off sick last year. Sickness rates were highest in Wales & Scotland and lowest in London

• The UK’s trade deficit was at £2bn in January, in line with earlier estimates. Erratic items in the month swung from a deficit to a surplus.

• Former Chancellor Lord Norman Lamont has called Philip Hammond’s raid on the self-employed ‘a rookie error’. PM Theresa May has called the rise ‘fair’.

• Brent down at $51.02 per barrel

• Sterling up at 121.84 vs US$ but down by over a cent against the Euro at 113.86c.

• 10yr gilt yield in the UK up again to 1.24% (was 1.23%)

• World markets: UK up on Friday but Europe lower. US markets up & Far East markets higher in Monday trade

RETAIL NEWS WITH NICK BUBB:

• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda claim its third big win a row, with its basket of £58.35 coming in nearly 13% cheaper than its nearest mainstream rival, Tesco, and even beating the guest retailer Iceland by just over £2. So for the third week in a row Asda also did not have to give out a Price Guarantee voucher. The Sainsbury basket cost £67.05 and the Morrisons basket cost £65.98. As usual, Waitrose was in last place, on a hefty £75 (29% more than Asda), but there was better news for Waitrose in the separate regular Grocer “Mystery Shopper” weekly survey on Store Service and Availability, as its store in Ramsgate did well, scoring 82 points out of 100, although the 60,000 sq ft Tesco Extra in Shrewsbury came top, scoring a very impressive 95 out of 100. The Iceland store in Bishopbriggs in
Scotland came bottom of the survey, with a score of only 54…but Iceland easily topped The Grocer’s separate annual survey of “The Top 50 Independents” (based on sales), with the fast-expanding forecourt operator Euro Garages coming in 2nd.

• Saturday Press: There wasn’t a great deal of Retail news for the Saturday papers to get their teeth into, so the comment from Tesco Chairman John Allan in a session about non-executive Directors at the Retail Week Live conference on Thursday afternoon about white men becoming an endangered species got a lot of coverage. Another Retail Chairman, Charlie Mayfield of the John Lewis Partnership, was the Daily Mail‘s “Big Shot of the Week” and the profile of him (which was illustrated by an appallingly bad cartoon picture of the great man) suggested that he will be succeeded by the new John Lewis boss Paula Nickolds in due course.

• Sunday Press: The beleaguered French Connection was in the spotlight in the Sunday papers, with the Sunday Telegraph running the story “French Connection crisis deepens” at the top of its Business section, flagging that Tuesday’s final results will show losses continuing and cash running down, to the consternation of activist investors. The Sunday Telegraph also tagged on to that French Connection story a forecast from Deloitte that the retail industry will lose £3bn in profits this year from rising costs, whilst the Observer highlighted that Mike Ashley has an 11% stake in the “tired fashion label”. The Sunday Telegraph also noted that Andy Higginson, the Chairman of Morrisons. has stuck the boot in on the Tesco/Booker deal, claiming that Booker has been offered around the industry for the last 2 years and that the CMA will be hard to persuade. That was on the back of an interesting
feature interview with the Sunday Telegraph by the ex-Tesco boss, in which Andy Higginson said that he was attracted to Morrisons by the fact that “it was always the quirkiest of the supermarkets”. The Sunday Telegraph also flagged that Blue Inc landlords have raised serious concerns about the future of the struggling fashion chain. The Sunday Times revealed that M&S is checking out the Whitbread and DFS Chairman Richard Baker to be the new M&S Chairman and also flagged that Emmanuel Osti, the former boss of French cosmetics brand L’Occitane, is fronting an £850m takeover bid for The Body Shop by CVC Capital Partners. The “Inside the City” column in the Sunday Times said that Ocado is a Sell and the “Midas” column in the Mail on Sunday said that Lookers is a firm Hold. Finally, the Business Leader column in the Observer pointed out that the recent controversy about JD Sports’
treatment of its warehouse workers was not mentioned when the company was awarded the “Retailer of the Year” by Retail Week.

• Today’s Press and News: Thin pickings today, although the Telegraph leaps at the fashion model photo opportunity provided by the news that the LK Bennett chain is opening a store in Russia and also has a preview of the Sainsbury trading update on Thursday. And the FT has an article about the ecommerce market in India.

• News Flow This Week: The highlight of this week is the 4-day Cheltenham Festival and the estimable “Honest Nick” is looking forward to bringing you his Tips from tomorrow onwards, but before that the Bunnings/Homebase DIY group has helpfully arranged an analyst’s trip to its Milton Keynes HQ and St Albans prototype store today. Tomorrow also brings the Ocado Q1 update, closely followed on Thursday by the Sainsbury Q4 (for the 9 weeks ending March 11th). In the world of Fashion retailing, we get the much-awaited French Connection finals tomorrow and the Inditex Q4 on Wednesday, whilst the Motor retailing sector gets the Marshall Motors finals on Wednesday (which is also Philip Green’s 65th birthday!). Finally, Thursday brings the latest MPC interest rate announcement.