Marston’s, Compass, McDonald’s, food prices & other:

A DAY IN THE LIFE:

So, with the BBC leading on ‘Chessington Penguin Mass Murder Mystery’, are we in the silly season regarding the news or what?

Because it was a fox, wonnit?

The bloomin’ thing was probably taking a break from killing Brumby ducks & chickens up in Yorkshire and, if a World of Adventure is foolish enough to admit such an animal, it should hardly be surprised to find that all it has left in the morning will be a few feathers and the odd greasy spot.

Anyway, more numbers today and more results tomorrow than we can shake a stick at. On to the news:

MARSTON’S Q3 TRADING UPDATE:

• Marston’s has this morning updated on Q3 trading being the 42wk period to 22 July 2017 and our comments are set out below:

• Trading – Destination & Premium:

• Marston’s Premium & Destination pubs have increased LfL sales by +1.3% in the 42wks to date

• Sales are +0.5% LfL in the last 12wks ‘which continues to be ahead of the market’

• The group says ‘as previously guided, operating margins are slightly below last year in line with our expectations.’

• Marston’s says ‘with regard to the cost outlook for 2018 our guidance remains unchanged from that provided at our Interim results in May.’

• The group says ‘we remain on track to meet our growth targets for 23 new pub-restaurants and bars in the current financial year in addition to eight lodges.’

• Trading – Taverns:

• LfL sales in the 42wk period are +1.9% at Taverns. This is ahead of the 1.1% reported at H1

• The group has seen ‘growth of 2.4% in the last 12 weeks of the period, principally reflecting the benefits of the warm weather in June.’

• Trading – Leased Pubs:

• Leased profits per pub +2% for the 42wks

• Trading – Beer Company:

• Own brewed beer volumes were up 4% in the 42wks. They were up 1% at H1 (which excluded Easter)

• The above number is ‘reflecting the continued good performance of our underlying business and the benefits of the acquisition of Charles Wells Brewing and Beer Business.’

• Marston’s says the integration of the business is proceeding as planned.

• Balance Sheet, Cash Flow & Debt:

• No comments at this stage

• Conclusion & Outlook:

• Marston’s CEO Ralph Findlay reports ‘we remain encouraged by our continued market outperformance and focused on delivering sustainable growth and maximising return on capital in an evolving market place.’

• He says ‘our transformed pub estate continues to deliver positive like for like growth across all three divisions.’

• Mr Findlay reports ‘we benefit from an operating structure which spans food-led destination and wet-let community pubs, accommodation and brewing, maintaining a good balance within our brand portfolio and broad consumer appeal.’

• Re Charles Wells, the business ‘is bedding in well, further underpinning our leadership in the UK ale market.’

• Overall, the CEO concludes ‘we are on track to complete our new-build and lodge expansion plans.’ Mr Findlay says ‘we remain confident of delivering further profitable progress for the full financial year.’

• Langton Comment: Marston’s has reported relatively robust trading over the period of good weather in June and has reported reassuring numbers for the year to date.

• Margins will be a little lower and cost pressures remain as previously reported.

• The group’s shares trade on around 8.5x this year’s earnings and yield some 6.2%.

• There are wider economic concerns regarding the consumer but, in previous slowdowns, the market for ‘affordable treats’ has remained relatively buoyant whilst large-ticket spending has come under pressure.

• Marston’s has an attractive, well-managed and well-maintained estate of largely freehold properties and its shares are not trading on a demanding rating. The company, overall, is selling product that the consumer would like to buy at a price they are prepared to pay.

GAME DIGITAL – A DESPERATE EVOLUTION:

Transient Tech

• Technology is Darwinian and physical video games face extinction.

• MP3 files heralded the decline of CDs. Now, Game Digital (GMD) can’t shift physical video games.

• Although GMD is moving towards a growth area in eSports, this is because its hand has been forced.

GMD: Short leases & eSports

• Operationally, GMD is in a precarious position. It is, however, financially stable and cash generative, with a healthy balance sheet (£69m net cash as of January).

• GMD has ‘over 220 lease events to manage by the end of 2018’.

• So even if it is desperation and not inspiration that drives GMD’s bold pivot towards eSports, at least it has a solid financial base from which to do so.

Game Digital (GMD): falling sales, existential crisis?

• GMD shares have fallen by more than 92% from its 2014/2015 high of 360p to just 26.75p today.

• As physical game sales decline, GMD is left with a lot of excess space to fill.

• ESports could be the answer but it might be too early. GMD is changing not because it sees an opportunity but because it has to fashion one.

• This strategy is essentially an emergency manoeuvre with considerable execution risk. Newer entrants to this part of the market arrive unencumbered by legacy issues.

• As such its shares represent an interesting punt but are arguably too risky to form a core holding in any portfolio.

PUB, RESTAURANT & DRINK PRODUCERS:

Food costs still on the up:

• Latest CGA Prestige Foodservice Price Index shows food prices +8.8% in the year to June. This is slightly down on May’s 9.0% but is still more than 3x the rate of inflation as a whole. The May number was the highest in 9yrs.

• Prestige reports fish prices +20.8% in a year. Fruit prices +13.6%.

• Prestige says ‘there are tentative signs that inflation in some other food and drink categories could also be starting to ease a little, but uncertainty surrounding Brexit negotiations is likely to keep the value of the pound low and general foodservice price inflation high in coming months. Other macro issues, like fluctuations in oil prices affecting transport and production costs, are also set to continue working against the foodservice sector.’

Today’s numbers:

• Compass Group has seen organic revenue growth of 3.9% in Q3 results ended 30 June 2017. Revenue growth in North America led the way with an increase in organic sales of 7.1%, European sales however lagged behind falling 1.3%. Compass Group stated that it had had ‘a good third quarter and our full year expectations remain positive and unchanged.  North America is performing strongly and we anticipate further progress in Europe and Rest of World in the fourth quarter’.

• McDonald’s has reported Q2 numbers to end-June saying ‘we’re building a better McDonald’s and more customers are noticing.’

• McDonald’s CEO Steve Easterbrook reports ‘for the quarter, we delivered our strongest global comparable sales and guest count results in more than five years.’

• McDonald’s reports global comparable sales +6.2% in Q2. Systemwide sales were +8% in constant currency terms. Diluted EPS was up some 36% at 170c.

• McDonald’s reports ‘comparable sales for the International Lead segment increased 6.3% for the quarter, led by continued momentum in the U.K., strong performance in Canada and Germany and positive results across all other markets.’

• McDonald’s CEO Easterbrook reports ‘I’m confident that we’re on the right path to continue positively impacting sales, guest traffic and customer satisfaction as we work to bring the biggest benefit to the most people in the shortest possible time.’

• Hawthorn Leisure has increased group EBITDA by 10.1% to £9m in the year to 25 Dec 2016. This is the 312 stong pub chain’s third year of ‘significant growth’.

• Domino’s Pizza Inc. has increased same-store sales by 9.5% in the second quarter ended June 18. This was the group’s 25th consecutive quarter of LfL sales growth,  with CEO Patrick Doyle describing Domino’s performance as ‘another outstanding quarter for our domestic business’. Despite these results the company’s shares were down 3% in early morning trading Tuesday.

• Domino’s shares in the US fell by more than 8% on the back of what were considered disappointing numbers.

• Chipotle is sticking to its guidance of comparable restaurant sales growth in the high single digits this year after reporting better-than-expected profits during the three months to 30 June. Net income for the quarter was $66.7m, 161 per cent higher than the $25.6m income during the same period a year earlier, and better than the $62.3m that analysts surveyed by Bloomberg had expected. Comparable restaurant sales, however, fell short of forecasts, clocking in at an 8.1% gain, compared to expectations for a 9.5% boost.

Openings, closures, pressure on landlords to cut rents?

• Prezzo has placed 27 of its sites up sale, roughly 10% of the group’s estate. The group has also reining in its new openings.

• Most rental agreements are upward-only. Hence closed or sold units do not put immediate downward pressure on rents. The law was probably written by property owners. However, new leases will have to reflect the fact that more units are being put back on the market. This is effectively pushing on a piece of string. And it is still possible (indeed maybe probable) that the pressure from relatively well-funded newcomers will outweigh retrenchment decisions being made by some incumbents. Restaurant Group, Prezzo and Ed’s have put units on the market. Some are boarded up. JDW has also been trimming its estate. All operators have a tail but, with JDW selling up to 10% and Prezzo doing likewise, this is a little more than that.

• Itsu has secured its first US site in New York, opening next year.

General news:

• Diageo’s spirit innovation company Distill Ventures has claimed ‘non-alcoholic’ drinks are producing the most exciting innovations in the drinks industry. The trend of lower alcohol consumption in the UK has placed a greater emphasis on ‘non-drinkers’. Distill Ventures said ‘As drinking trends change, and people are looking for drinks that add to, or even define their experience, bars and restaurants need to pay as close attention to their non-alcoholic drinks, as they would their wine or cocktail lists, and even their food menus’.

• The chief executive of the BBPA, Brigid Simmonds, has welcomed a new report by the London Mayor, on how to encourage London’s Night Time economy. Brigid Simmonds said ‘This is a welcome report, which not only acknowledges the importance of London’s night-time economy, but the key role that pubs play.  In London, our pubs and breweries support around 90,000 jobs and add £3.5 billion to the capital’s economy, each year’.

• The Manchester brewery, Joseph Holt has been awarded with a National Pub Aid award, for its support in fundraising for local community charities.

HOLIDAYS, LEISURE TRAVEL & HOTEL:

• Manchester Airport is embarking on a £1bn transformation programme, which will improve facilities and boost international connections.

• Airlines are warning of flight disruption in Italy today ahead of a strike by airport workers.

• The market share for cars using passenger shuttles through the Channel Tunnel increased to almost 58% in the first six months of the year.

• Passengers’ overall satisfaction with UK train services has risen by three percentage points from 80 to 83% over the last year, according to the National Rail Passenger Survey. Satisfaction levels varied widely between train operating companies. Hull Trains and Heathrow Express coming joint top with a score of 97%, while strike-ridden Southern came last of all TOCs (72%), followed by Thameslink with a score of (75%).

• STR reports European hotel industry has seen occupancy +2.1% with rate +4.4% (in Euros. This has led to an increase in REVPAR of 6.5%

• Hilton has signed a franchise agreement with experienced hoteliers Hasançebi İnşaat Turizm Yatırımları ve Ticaret Anonim Şirketi to open the 324-guest room DoubleTree by Hilton Antalya Kemer. The hotel will open in early 2018 and Hilton’s first property in Antalya — one of the largest coastal resorts on the Turkish Riveria.

• Accor is increasing its presence in the home-sharing market by bolting new acquisitions on to its Onefinestay brand. The most recent is Squarebreak, a French home rentals start-up in which it already has a 49% stake and Accor also bought US group Travel Keys in February for c€10m. The hotel group said t will merge the three home-sharing groups under the Onefinestay brand, increasing the number of rentals offered to 10,000 from about 2,500.

OTHER LEISURE:

• Hollywood Bowl reports the successful renegotiation of lease arrangements at two centres, alongside good progress in its refurbishment & rebrand programme. It says it has signed a 25yr extension in Stevenage & has signed a 14yr extension in Tunbridge Wells.

• Hollywood Bowl says it ‘continues to make good progress against the refurbishment and rebrand programme outlined in our half-year results.’ CFO Lawrence Keen reports ‘we are pleased to have further strengthened our property portfolio. We have now successfully completed the refurbishment or rebrand of 55% of our estate and we continue to build strong relationships with landlords right across the UK.’ Mr Keen adds ‘Stevenage and Tunbridge Wells are two of our most popular centres, and the successful renegotiation of their rent agreements reinforces the attractiveness of Hollywood Bowl Group as a key leisure tenant.’

• Games Workshop has more than doubled its profits from just under £17m in 2016 to £38.4m this year and the group has ‘made significant progress on [its] strategic initiatives’.

• Toy maker Hasbro grew its quarterly revenues by 11% to $972.5m thanks to ‘strong consumer momentum’, while net profit rose from $52.1m to $67.7m.

• Amazon will double the size of its research and development team in London by recruiting an additional 450 staff as part of its aim to boost its UK workforce to 24,000 this year. The enlarged team will focus on the technology behind Amazon’s streaming video service, and has been responsible for adding features such as the ability to download movies and TV shows to phones for offline viewing.

FINANCE & MARKETS:

• US dollar now at 13-month low

• Brexit:

o IMF has said the world will not be poorer if or when Euro clearing moves from London to remain within the EU. The IMF reports ‘Brexit is likely to transform the financial landscape, with some market activity migrating to EU-27.’

o Factories are reported to be increasing production at the fastest rate in 22 years on the back of the weak pound. The CBI shows that food & drink manufacturers are hiring workers.

o Labour leader & PM if there was an election tomorrow Jeremy Corbyn says UK will leave single market. Unions are asking him to have a rethink.

• Optimism across London businesses has risen reports Markit.

• Oil price up nearly $2 at $50.60

• Sterling down vs dollar at $1.3015

• Pound unchanged vs Euro at €1.1177

• UK 10yr gilt yield up 7bps at 1.26%

• World markets: UK, Europe & US up yesterday. Far East mostly up in Wednesday trading

YESTERDAY’S LATER TWEETS:

• Later tweets: E-Sports, it’s a real thing. Allows advertisers access to those hard-to-reach Millennials who know how to use ad-blockers. See email

• Glut of numbers today. Stand-outs are Fevertree (better than best expectations. Pricey but shares up) and Dominoes (not the above)

• Fevertree; what price excellence? The notion of ‘too much’ remains elusive. Sees expensive as £2.2bn market cap gets perhaps £150m in sales

• Dominoes strips out impact of ‘splitting’ in order to hit 2.4% LfL growth. Arguably ‘real’ LfL sales are the minus 2.3% the co mentions.

• When is saturation not saturation? Apparently when you can exclude the impact of ‘splitting’. Ask Dominoes.

• The nought-to-sixty club: it costs money to join. Five Guys JV in UK reports net loss of £13.4m (2015: loss £8.4m).

• Five Guys UK now has £32.8m of retained losses accrued in the period since it commenced operations in the country.

• Fuller’s first 22wks, LfL +6.6% during the period. Tenanted LfL profits +5%, beer volumes +5%. London booming, weather helped

• Revolution says ‘terrorist attacks in Manchester on 22 May & London on 3 June impacted business’. LfLs now somewhat recovered

• Fevertree says ‘given strong performance in H1, the Board anticipates that the outcome for FY will be materially ahead of expectations.’

• Time Out says sales will grow 13% y-o-y. Digital +25%, print revenues down 3%, venues +59%. Co has ‘seen good progress’

• Banks have been accused of a “spiral of complacency” in lending to consumers who may struggle to repay their debts

• Goals Soccer updates on H1 trading, saying sales rose by 2% with LfL sales +1.4% versus a drop last year of 1.9%.

RETAIL NEWS WITH NICK BUBB:

• Joules: Back on June 6th, in the pre-close update for the y/e May 28th, Joules (which calls itself “a premium lifestyle brand with an authentic British heritage”) said that “As a result of the Group’s revenue growth and improved gross margin, combined with continued cost discipline, the Board anticipates reporting FY17 Group profit before tax comfortably ahead of its previous expectations” and today’s finals report that underlying PBT rose by 34% to £10.1m, on the back of c20% growth in total revenue to £157m. CEO Colin Porter says that “The Board remains confident that the Group’s momentum will continue into FY18, despite the uncertain macro-economic outlook” and the Chairman says “We have seen good growth in the first few weeks of our new financial year and we have had positive early feedback on our Spring/Summer 2018 ranges from our wholesale customers”.

• Halfords: Today’s Halfords AGM will be held in the delightfully appointed Hilton Garden Inn, in Brindleyplace in Birmingham, at 11.30am, but no statement is expected. If they did make a statement no doubt there would be some reference to the expected boost to cycling sales from Chris Froome winning the Tour de France again, but Halfords is not due to give a trading update until 5 September, when it will report on the sales for the 20 weeks to 18 August.

• Motor Watch: Two of the under pressure Motor Retailers have made trading statements ahead of their AGM’s today: Motorpoint (who run big second-hand car supermarkets) say that “Following the encouraging first quarter, the Board remains cautiously confident in delivering a full year performance in line with our expectations” and Vertu Motors (who own Bristol Street Motors, inter alia) say, at greater length, that (despite “softer trading in April, May and June resulting from less favourable market conditions”), at this stage, “the Board expects the Group’s trading performance for the year ending 28 February 2018 to be in line with market expectations” and that it is starting a £3m share buyback programme.

• Grocery Sales Watch: We flagged yesterday that the amount that shoppers spent on groceries during the four weeks ending 15 July was as much as 5.1% higher than a year ago, according to Nielsen, but their great rival Kantar said that based on their panel data the increase was a bit less, at 4.7%, and on a “total till” basis, including Non-Food, the increase was only 4.0%. Aldi/Lidl combined sales were up by 19.7% gross and the “Big 4” were up by 3.1% (Tesco +3.6%, Sainsbury +4.0%, Morrisons +2.0% and Asda + 1.9%). Despite the helpfully sunny weather and all its new store openings, M&S Food sales were only up by 2.5% in the period, according to Kantar. But a week is a long time in Grocery retailing (see below)….

• John Lewis Partnership Sales Watch: A year ago last week was the hottest week of the year, so the comps inevitably affected the 2 businesses in different ways…At John Lewis sales bounced up from a very soft comp, particularly in Fashion and particularly Online, with total trade up by 8.9% up in gross terms (about 7% up LFL) in w/e July 22nd. On a cumulative basis over the last 25 weeks, John Lewis is now running up by 1.6% gross (broadly flat LFL), with one week to go of the first half. Over at Waitrose the weather in w/e July 22nd this year was not so amenable to selling picnic and barbecue fare and against a tough comp total sales were 1.1% down gross (nearly 3% down LFL). Over the last 25 weeks combined Waitrose is now running up by 1.9% gross (broadly flat LFL).

• News Flow This Week: Tomorrow brings the Intu Properties interims, the Inchcape interims and the Bonmarche AGM update. Friday brings the start of dealings in the Quiz IPO, as well as the latest GFK Consumer Confidence survey.