Leisure Wrap & Other:

So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following. As always, contact us if you’d like further details:

Thoughts on inflation, cost pressures etc. (re all operators):

• It’s a break to have a period of time away from the screens, at least on a minute by minute basis.

• An advantage is that some things, which may have occurred gradually over a period of time, leap out at you. We would highlight:

o The oil price has been weak. It was $57 a couple of weeks ago and, though it has (very) recently ‘strengthened’, it’s still now below $50.

o Sterling is unchanged in the short term against the US$.

o It has strengthened against the Euro – after slipping a bit on the Euro rally post the Greek (non) fix.

o The price of most metals prices is flat on its back.

o Wheat, corn, sugar, coffee ditto.

• Against this background – and the living wage notwithstanding – it is hard to see inflation taking off any time soon.

• The BRC-Nielsen comment that prices ‘rose’ by 0.1% last month (more a twitch) has to be taken in this context.

• The suggestion that rises in the price of bread and alcohol were behind this ‘rise’ may be more a case of having to say something rather than necessarily saying something important.

The Living Wage, tips etc. (re most operators):

• If taking 8% of the tips pool to cover admin costs can be called ‘skimming’ then we have to say that we’re surprised that operators don’t take more.

• Some do, of course, to cover till shorts, breakages, National Insurance etc. but this is hardly a crime.

• And it does serve to highlight the fact that many waiters/waitresses etc. earn nearer to £20 per hour than the minimum wage when tips are taken into account.

• Many tips are pooled, of course, but if a waiter covers 8 four person tables that are turned 5x a day with a £20 per head spend and a 12.5% ‘suggested’ gratuity, then some £400 in tips will be generated – admittedly over more than one shift.

• If this is over two 8hr shifts and each waiter ‘supports’ one person back of house, then all the individuals concerned will make £12.50 per hour in addition to their basic wage

• Pity the poor bar staff

Cost pressures, prices & price rises further down the line (re all operators):

• Whilst tomorrow never comes, there may be some pressures that build up over time.

• The Living Wage, as it will probably impact others earning more than but close to the minimum wage, is a feature.

• Also, baking in some cost increases (wages) at a time of benign input cost pressures is potentially a problem if 1) Sterling weakens, 2) interest rates rise and 3) commodity and energy prices also move off their recent lows.

• But, as mentioned and more so for politicians than for most others, tomorrow never comes.

Enterprise Inns’ Q3 update (re pub operators, thoughts on Punch etc.):

• 0.6% LfL income growth y-t-d isn’t knockout but it’s >0%.

• And to be able to announce 8 quarters of back to back LfL income rises is a distinct positive.

• Rents are stable and beer profits have risen – it has to be admitted that the latter could come under some pressure.

• The strategy is on track. The group is staffing up where it needs to staff up.

• This reminds us that Punch is yet to update on its strategy.

• That said, we would be surprised if it did not track that of Enterprise Inns relatively closely.

Thomas Cook & the oil price, a simple question:

• So, if the price of oil has cratered and the share prices of the scheduled airlines have been relatively strong, why is TCG so weak?

• Tunisia will cost and Greece is an issue but, even so, one would expect the core business to be performing well.

• Of course operators concede that perhaps 70% to 80% of any windfall cost reductions have to be passed on to consumers.

• But it’s the Teflon v Velcro issue. When costs rise, they are passed on quickly and when they fall, they tend to stick for a while in the hands of the operators.

Random information, hopefully not all of it useless (re most leisure operators etc.):

• Housing stocks have been very strong.

• Miners have been extremely weak.

• Having just visited Canada (and last summer France, Belgium, Holland, Germany, Denmark & Sweden), one has to concede that Just Eat is operational and very visible in a large number of markets.

• Greece has not gone away.

We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):

1. Enterprise updates on Q3, highlights ‘encouraging trading with like-for-like net income growth continuing’

a. Enterprise says the ‘implementation of [its] strategic plan [is] on track’ and says LfL income cumulative at w44 is +0.6%

b. Enterprise Inns reports ‘our trading performance continues to be encouraging and in line with our expectations’.

c. Enterprise strategic developments: Group says ‘the execution of our strategic plan for the business, announced on 12 May 2015, is on track.

2. BRC-Nielsen Shop Price Index said the cost of food rose by 0.1% last month as rising bread + alcohol costs fuelled food inflation

3. Tips policy in the limelight as Independent conducts survey to determine policy. Unions + others accuse some operators of ‘skimming’

4. Barclaycard reports 50% of UK consumers now confident re economy v 39% a year ago. Political uncertainty out of the way

a. Barclaycard reports younger consumers somewhat less happy about economy than their parents’ or grandparents’ generation

5. HMG to consult on loosening of Sunday trading laws. Powers may be devolved to individual cities, mayors etc.

6. ETM Group yesterday once again cut 50% from food bills to coincide with yesterday’s strike on the London Underground.

7. Adnams chairman Jonathan Adnams said he was looking to further expand the brewer’s retail business and online presence.

8. Traditional tea sales in the UK have declined by 6% over the past five years as consumers turn to herbal and fruit teas.

9. Thomas Cook India has purchased Sri Lanka-based DMC Luxe Asia through its subsidiary Thomas Cook Lanka

10. VisitBritain has reported that overseas visitors to the UK spent a record £1.93bn in May 2015, up 8% on last year

11. Vegas revenue growth aided MGM Resorts’ Q2 numbers but only partially offset slowdown in Macau. Net income down 11%

12. Fitbit, which produces wearable tech gizmos to monitor heartrate, calorie consumption etc., has >3x revenues in Q2

13. Walt Disney shares fell more than 6% after releasing below-forecast revenue figures for the three months to 27 June.

14. World markets: UK up yesterday on mining rally, Europe up, US up but Asia mostly down in Thurs trading

15. Oil price up a touch but much weaker over last couple of weeks. Now trading at around $49.70 per barrel of Brent Crude

16. UK services PMI slowed slightly to 57.4 in July from 58.0 in June. Any reading over 50.0 implies growth

17. Greek PM Tsipras said yesterday that Greece was close to concluding a deal with its international lenders

18. Record June imports responsible for a 7.1% widening in the US trade deficit to $43.8bn. Exports fell for the 2nd month running

19. The UK services sector continues to perform well. The Markit/CIPS purchasing managers’ index fell to 57.4 in July from 58.5 in June.