A Day in the Life:

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I think there’s a good reason why you never hear the words ‘subtle’ and ‘dog’ used in the same sentence.

That’s in the absence of the word ‘not’ of course and it’s because dogs simply lack the good grace to disguise their feelings when they’re either hungry or when they think that you’re being boring.

I mean, re the latter, they’re pleased to see you, naturally. They can’t help showing their happiness, they’re a pack animal after all but, after a little while, if they’ve checked out your hands, sniffed your pockets and don’t think that you’ll be going near the fridge anytime soon, they’ll turn their back on you and walk off to check something more interesting.

And there’s no point getting upset about it because that’s all a part of the deal. You’re going to see your dog’s bum disappearing haughtily out of the room from time to time and anything that keeps that marginal dollop of dog drool off your trousers has to be good news, hey?

Anyway, there are other things to feel narked about this morning after all. The sun’s shining, we’re stuck in an office and it’s a work-day. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• No news headlines re bashed up Pizza Express restaurants despite Unite protest last night. PE said to be keeping 8% of tips pool. Unite has previously written on its website ‘you have just had a good meal with excellent service. You want to show your appreciation by leaving a tip. But leave that tip on a credit card at Pizza Express and it will deduct an 8% ‘admin charge.’ It calls upon the public to sign a petition declaring this unfair saying ‘the Restaurant Group, owners of Chiquito and Garfunkels dropped its 10% admin charge a few years ago. If they can do it why can’t Pizza Express? Your waiter and many kitchen staff are likely to be earning the national minimum wage (NMW) of just £6.50 p/h – barely enough to survive on. They rely on customer tips to top up low wages.’ Many waiters in London are earning between £15 and £20 per hour inclusive
of tips. Apparently ignoring the fact that credit card companies charge card taking companies a fee, Unite goes on to say ‘Pizza Express says it’s not profiting from the fee, but with more than 430 restaurants across the UK, our members working for the chain, estimate that it could be pocketing a cool £1 million. It can’t cost that much to transfer credit tips into workers’ pay packets.’

• Over 400 Londis retailers have signed up to its new retailer package Londis 2020, aimed at unifying terms and standards across its estate.

• The value of UK gin exports rose 37% to £394m from 2010 to 2014, helped by the opening of 73 new spirit distilleries. Environment secretary Elizabeth Truss has talked of her ambition to see the UK’s gin industry match whisky exports, which topped £4bn in 2014.

• The difference between the price of supermarket milk and bottled water is at its widest point in more than a year, according to the Grocer.

Leisure Travel:

• PPHE Hotel Group has flagged a 12% revenue rise and improving margins and profitability in its H1 results for the six months to 30 June. Improved occupancy across the Netherlands, Germany and Hungary led to an estimated €140m in sales, and PPHE is anticipating further strong trading ahead of expectations in the second half of its financial year. Its interim results are expected on 27 August.

• More from PPHE: Commenting on the performance, Boris Ivesha, President and Chief Executive Officer, PPHE Hotel Group Limited said: ‘We are pleased to announce that as a result of strong trading during the first half and the significant progress against our strategy we expect our half year results to be ahead of the Board’s expectations.’

• An AirBaltic flight due to fly from Oslo to Crete had to be grounded for five hours after both pilots failed an alcohol test. Norwegian newspaper Dagbladet reports that police had been tipped off before the plane’s departure by a passenger who suspected the crew had been drinking.

• SeaWorld, which operates at 11 sites across the US, has reported a drastic fall in Q2 profit from $37.4m to $5.8m. The company has suffered from declining attendance figures following negative publicity brought about by the documentary Blackfish.

• SeaWorld attributed the poor performance to ‘the timing of Easter, record levels of rainfall in Texas and continued brand challenges in California.’

• Intercontinental Hotels Group is reportedly evaluating bids for Canadian group Fairmont and Mövenpick in Switzerland. The group’s board has recently denied reports they were in talks over a merger with Starwood Hotels & Resorts.

Other Leisure:

• Ladbrokes reports H1 numbers, revenues +1.3% to £585.4m, PBT down 43.9% at £24.7m and EPS down 44.2% at 2.4p.

• Ladbroke reports H1 dividend cut to 1p from 4.3p last H1. Says ‘results in line’ + outlines new organic strategy. Says revenues would have been +4.2% were it not for the World Cup comps from 2014. UK retail revenues +1.2%, digital revenues +6.9% but European revenues down 2.1%.

• Ladbrokes says its £78.9m exceptional costs are ‘within previously announced range’ but reports statutory loss. CEO Jim Mullen reports ‘our first half results reflect the challenge facing Ladbrokes. While we have some encouraging customer trends, we need to reset the business and invest. The results clearly show why we need to change and why we need to do so quickly.’ He adds ‘in July, we set out an organic plan to create a better business in 2017 with clear targets. While doing this removes the short-term thinking that had come to dominate our actions, we recognise it does create short-term impacts on our profitability.’ The group has announced its proposed merger with the Coral Group and says this ‘represents an exciting opportunity for the business.’ Mr Mullen adds, however ‘with completion some way away, the focus for me and
my team must be on the here and now of delivering on our organic plan, building a better Ladbrokes and driving performance towards our 2017 targets.’

• Apple received the largest number of transacting customers ever on its App Store in July thanks to record-breaking figures from China. Apple claims to have paid out US$8bn to developers in 2015 alone and boasts over 1.5 million apps on its Store.

• Google is to reshape itself into a holding company called Alphabet which will have a structure more similar to Berkshire Hathaway. A streamlined version of the current Google will sit within the structure as Alphabet’s largest subsidiary. CEO Larry Page wrote of the development: ‘As Sergey [Brin, co-founder] and I wrote in the original founders letter 11 years ago, “Google is not a conventional company. We do not intend to become one”’. ‘As part of that, we also said that you could expect us to make “smaller bets in areas that might seem very speculative or even strange when compared to our current businesses”. From the start, we’ve always strived to do more, and to do important and meaningful things with the resources we have.’

Finance & Markets:

• UK retail sales rose in July, driven by warm weather early in the month. BPC/KPMG say sales some 2.2% higher

• B of England MPC member David Miles reports he sees a ‘reasonable case’ to vote for higher interest rates. Speaking to Bloomberg News, the outgoing member said ‘it was a perfectly reasonable case…but it wasn’t a compelling clear-cut case one way or the other for me’.

• Money Advice Trust warns home owners to prepare for rise in interest rates. Says there is a “short window” to organise finances. Rates in the UK last actually rose in 2007 at year in which, The Economist points out, the Chinese economy was half the size it is now.

• World markets: UK up on bounce in commodity stocks. Europe higher, US also up and Asia higher in Tues trading

• Oil price up yesterday to close a little over $50 per barrel

• Eurozone investor confidence slipped in August to 18.4 from 18.5 a month earlier

• US Atlanta Fed chairman has told Atlanta Press Club that an interest rate rise is close. Economy is said to be clearing all major hurdles. The fear that inflation could pick up towards the end of the year suggests a rate rise may happen as soon as next month.

• China has devalued its national currency, the yuan, by 1.9% to lowest rate against US$ in c3yrs. The world’s second largest economy recently reported a drop in exports and a fall in producer prices.

• Greece has reached a bailout deal with its international creditors, according to a Greek finance ministry official.

Retail Roundup from Nick Bubb:

Card Factory; The H1 pre-close update today from Card Factory reports better than expected LFL sales growth of 2.7%, with total sales up 8% after the 800th store was opened (in Reading) and full-year profits said to be on track, but the big excitement is about the planned cash return to be announced with next month’s interims. Card Factory’s great rival WH Smith has a pre-close update next week and bulls of the Travel Division will be encouraged by today’s news that Heathrow saw a 4.7% jump in passenger numbers last month.

Game Digital: Given the vibes about continued weak trading conditions in the industry, there was some nervousness about what Game Digital would say today in its pre-close update, but, surprisingly, there is no profit warning for y/e July. Despite a 6% drop in the games markets in UK/Spain in H2 (as hardware prices tumbled), Game managed to increase total gross sales by 1%, thanks to other channel growth and the gross margin mix was healthy, so full year adjusted EBITDA will be in line with expectations and management are talking positively about prospects for the new-year.  

BRC Retail Sales figures for July (4 weeks to Aug 1st):
The BRC outcome for June (the 5 weeks to July 4th) was rather better than expected, at +1.8% LFL, thanks to a big lift to supermarkets at the end of the month from the hot weather, but that always looked likely to be a blip and the overnight figures for July show that disappointing Food sales dragged back the overall outcome, which came in at +1.2% LFL. Food Retailers had a very easy comp of -4% LFL from last July, but still look to have come in about 2% down LFL this July, given continuing price deflation, with the cooler weather for the rest of July not helping matters. However, Non-Food retailers had a good month and must have been c4% up LFL overall, led by Furniture retailers (again the best performing sub-sector). July saw a continuation of strong Online Non-Food sales growth, up 14.7%, driven by robust performance across Fashion, Home and Health and Beauty. Online sales
contributed 1.7 percentage points to the growth of total Non-Food total sales in July.

John Lewis Sales Watch: It’s fair to say that John Lewis saw a bit of pick-up in July, helped (ironically) by the aforementioned cooler weather, so how is August going so far? Well, the hot weather and the Tube Strikes in London will have conspired against it last week in terms of Store trading, even if Online trading stayed strong. Ahead of Friday’s official sales figures, we would expect to hear that sales were c1%-2% down LFL in w/e Aug 8th (a bit below the c2.5% LFL cumulative growth seen in H1), to get H2 off to a weak start.

News Flow This Week: After today’s burst of activity, the only other scheduled company news this week is the interims tomorrow from the motor dealer Lookers.

Weekend Press:
The big story in the Sunday papers was that Carphone Warehouse has revealed that a sophisticated cyber-attack on its IT systems may have seen a breach of the encrypted credit card information of up to 90,000 customers. In other news, the Mail on Sunday flagged that Tesco will cast off its “junk” status if it is successful in the sale of over £5bn in assets, given the pending bids for its South Korean Homeplus operation and its Dunnhumby consumer data business. The Sunday Telegraph had an article about the shifting shape of shopping, looking at how retailers are responding to the increasing pressure related to Online “click and collect” and returns. Finally, the Sunday Times had an interview with Majestic Wine’s impressive new boss Rowan Gormley, noting that he wants to refresh the look of the stores, making them “less about shopping and more
about having some fun while you’re doing it”.

Trade Press: The main news headline on the front page of “Retail Week” magazine on Friday was “Retailers fear Sunday hours red tape nightmare”, flagging that retailers believe that the new Sunday trading rules could create a bureaucratic quagmire. RW also had an interview with Malcolm Walker of Iceland and an overview of the new Harvey Nichols store in Birmingham. The Editor of RW thundered “JD Sports leaves the competition stumped” in his column. The Editor of Drapers in his column lamented the closure of so many Central London roads last Sunday because of the “Ride London” cycling race. The main news story in Drapers magazine was the extra margin pressure put on suppliers by Arcadia.

Grocer 33 Watch: The decisive winner of the widely followed Grocer “33” weekly supermarket pricing survey in the Grocer magazine on Friday afternoon was again…Asda: their £51 basket was £4.25 cheaper than Morrisons in 2nd place and Asda was the cheapest on 18 of the 33 lines in the survey. The Waitrose basket of £60.29 was well over £9 more expensive than Asda…but the Waitrose store in Gillingham in Dorset came top of the separate Grocer “Mystery Shopper” survey on “Service and Availability”.

Nick Bubb – nicholas_bubb@hotmail.com

Monday Wrap:

This was produced for distribution yesterday afternoon: 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:

Corporate activity on the up (re many if not most operators etc.):

• The ink has only just dried on the Greene King / Spirit deal.

• GVC and 888 are battling over Bwin.

• Kuoni recently disposed of the bulk of its tour operating business and last week sold its Indian business.

• Las Iguanas has just changed hands & the Press would have Yo Sushi, Moto, La Tasca and various others about to follow suit.

• It would appear that the IPO window may be open. Pret could list. The PE houses are taking the opportunity to exit investments that they had bought on a 3-4yr view and that they still own after 7yrs plus.

• This is not likely to end any time soon and the velocity of transactions could increase before it abates.

Tips, Living Wage etc.

• So Unite believes waiters should keep all of their tips & that employers should administer schemes for free.

• And what about breakages, thefts, till shorts etc.?

• Have cake & eat it rules as the union, understandably, would like to bank the Living Wage without any give back.

• It’ll be interesting to see whether there’s any picketing outside the local Pizza Express this evening and, if there is, whether any waiters (c£20 per hour, no barriers to entry etc.) will put their heads above the parapet to support such action.

TUI, Tunisia, Greece & the price of oil (re TUI, Thomas Cook etc.):

• Events in Tunisia and Greece have prompted some late switches in capacity, basically from the Eastern Med and North Africa to the Western Med and the Canaries.

• Whilst driven by tragedy in the case of Tunisia and by farce in the case of Greece, this has been good for on-the-ground operators in Spain and its islands.

• Unfortunately, the beneficiaries do not number amongst them the quoted UK tour operators.

• Because shifting capacity does not come free.

• Contracts may have been entered into. These need to be exited and new stock needs to be acquired and the prices in each case will move accordingly.

• And then there’s the back-of-house hassle involved in repatriations and the actually work involved in dealing with negotiations etc.

• This will cause both Thomas Cook and TUI to take something of a hit this year and we could not argue against those who suggest that ‘there’s always something going wrong’.

• That’s because, though the market for leisure travel is aspirational and should as such expand more rapidly than incomes, there are so many external variables that it’s always likely one of them will be pointing in the wrong direction at any one time.

• Hence you pays your money. We consider it an attractive industry with less potential for disastrous price wars going forward but we acknowledge that oil prices, currency movements, volcanoes, terrorism and other geopolitical issues will always have a role to play.

• Re Thomas Cook, the Fosun tie up looks attractive. Oil prices are sharply lower and we feel that the current share price represents good value.

Nightclubs still closing, evolution ongoing, change is the only constant:

• Operators cannot sit still and expect their business model to remain unchanged.

• Many ‘closed’ nightclubs will have reopened as nightclubs but some will be gone forever.

• But with bars staying open in some cases until 2am or 3am is this really a surprise?

• The blurring of the lines continues. The Daily Mash puts it well – here

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

• Commodity prices are still flat on their backs. Metals are cheap, the sugar price has cratered (there may be health issues, at least in the West, as far as sugar is concerned) and carbs (wheat, soybean, corn) are cheap.

• On a similar theme, it is interesting to note that the prices of both corn and wheat, see below, tried to go better in the last quarter – partly on the back of weather considerations in the US. The prices promptly collapsed.

Chart in earlier email. 

• We don’t know what it means or what drives it but we’re interested in the price gap between West Texas Intermediate & Brent Crude. Oil isn’t always oil and there must be a reason for the differential but we note that, whilst it was around $11 per barrel earlier in the summer it’s now less than $6. Any suggestions as to what’s going on and/or how to trade the difference would be gratefully received.

• See Muller’s comments on cheap milk. This has continued implications for users such as Premier Foods.