A Day in the Life:

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Does anyone out there know the A64, the dual-carriageway ring road south of York?

Because if you don’t know it already then it would be best if you never make its acquaintance and, if you do, make sure that it isn’t on a Saturday morning in the summer because the queues can stretch halfway back to Leeds meaning that those West Riding day-trippers are going to be spending a good two or three hours staring at the grass in the central reservation as the road narrows from two lanes to one and tempers get frayed into the bargain.

Anyway, bit of a rush this morning so must move on. Here’s the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Coffer Peach Tracker for Aug sees ‘weaker performance from restaurants, stronger from pubs’. Contrasts with Whitbread comment Tuesday

• Aug Tracker: Overall, wet-led pubs best, restaurants < pubs + London good but more in pubs than restaurants. Capacity still an issue

• Aug Tracker says overall ‘Britain’s managed pub + restaurant groups saw sales growth slow in August.’ Restaurants performed least well

• Aug Tracker: LfL sales +0.6% with total sales, including impact of new openings, up 4.3%.  London better (esp. pubs) than rest of UK

• Aug Tracker: Total sales +5.0% out of London, +2.4% inside M25. Shows some capacity in regions but poor London restaurants. Peach’s Peter Martin reports ‘the sector remains in growth mode, but it seems both the weather and holidays abroad played a part in making this August only marginally better than last.’ The Tracker points out the August numbers follow steady but sustained like-for-like growth of 1.1% in July, 1.7% in June and 2.1% in May and Martin adds ‘more people flying abroad for holidays this year – with Gatwick Airport reporting its busiest ever August bank holiday weekend – will have had an effect on August trading. The fact that the retail sector had a poor month with sales actually down on last year won’t have helped some restaurants either.’

• Aug Tracker: Says Aug weather ‘nothing to write home about’ but says it was against a cold August 2014. Pubs therefore recovered somewhat. Peter Martin writes ‘this year we seem to have seen a corresponding recovery for pubs and more modest progress for restaurants.’ The Tracker adds that ‘drink-led pubs, which account for about a third of the Tracker sample, saw collective like-for-likes up 2.8% on August last year’.

• Morrison’s H1 numbers. H1 LfLs ex fuel’VAT down 2.7%, Q2 down 2.4%. Says goal is ‘making the core supermarkets strong again’.

• MRW H1: Total sales down 5.1%, UPBT £141m (v £216m), UEPS down 35% at 3.73p and H1 dividend 1.5p v 4.03p last year

• MRW: Says net debt down £254m to £2.1bn, announces closure of 11 more supermarkets today. Andrew Higginson, Chairman, reports ‘during the first half, the team has made good progress in starting the turnaround journey. Whilst the management team need time to settle in, make the changes they see as important, and build trading momentum, I believe the team will deliver much improved profits and returns for shareholders.’ CEO David Potts reports ‘Morrison’s will be an organisation that listens. During the first half, the new Executive and leadership teams have been listening hard to colleagues, customers, suppliers and shareholders. They tell us there is a lot for us to do.’ He adds ‘the immediate priority is to deliver a better shopping trip to stabilise trading performance. Our six strategic priorities will then deliver improvement in the core
supermarkets, where we have the greatest opportunity. It will be a long journey. We approach the challenge with energy, confidence and many strengths, particularly our strong balance sheet and cash flow, which enables investment in improving the customer shopping trip.’

• MRW re outlook: Says ‘customers and colleagues are beginning to notice improvements, but the turnaround will take time’. The group reports ‘as previously guided, we expect underlying profit before tax will be higher in the second half of 2015/16 than the first.’

• Morrison’s sells M Local stores for £25m in cash to team led by Mike Greene + backed by Greybull Capital LLP. Morrison’s will retain five M local stores, which are either on forecourts or will be converted to small Morrisons supermarkets and CEO David Potts reports ‘convenience is a large and growing channel in UK food retailing. Morrisons learnt much from its entry into the market, but M local was unable to scale. However, we remain open to other opportunities in convenience in the future. I would like to thank all the Morrisons colleagues for their hard work and dedication to M local.”

• M+C reports Hippo Inns, JV between Rupert Clevely + Enterprise, will open first site in Oct, The Signal in Forest Hill

• Liverpool City Council has decided to consult on a Late Night Levy

• The FSA has agreed that the service of rare burgers in food outlets is unacceptable unless a food safety management plan is in place.

• Fuller’s has held its first graduation ceremony for Chef’s Guild scholars for those who have completed the company’s qualifications. Many operators have complained recently that there is a shortage of quality candidates for their kitchens.

• Employment group Manpower has said that the National Minimum Wage is sending ‘shockwaves’ through the labour market. A survey of firms suggests that that the jobs market was at its least optimistic for three years this month and some employers are said to be scaling back their hiring plans.

• Institute of Economic Affairs director Chris Snowdon has spoken on BBC Radio Kent saying that alcohol duties should be sharply reduced. He concedes there are negative externalities associated with drinking and as a consequence an alcohol tax is justified but says this tax should be kept at a minimum level, only bringing in enough revenue to cover the costs associated with drinking. The IEA concludes this is not currently the case, alcohol taxes bring in a huge surplus and could be reduced by more than half.

• Research from M&B points to a growing ‘breakfast out’ trend, with over a third of those asked eating breakfast out more than once a month. Jo Hudson, from M&B said: ‘It has been clear for some time that eating breakfast out is a new and growing trend and that we are perfectly placed to take advantage of the movement. We have been concentrating much of our effort on breakfasts right across the group in 2015, fuelling the nation first thing in the morning.’ JD Wetherspoon has also been investing heavily in breakfast sales and updates on trading tomorrow.

• D&D is setting up an events and outside catering business with Lena Bjork, founder of Inn or Out.

• The Restaurant Group’s Brunning & Price brand has bought three new sites and intends to acquire another ten in 2016.

• Tasty has reported a 24% rise in first half sales to £17.1m. Pre-tax profit was up 36% to £1.3m. The group opened six new Wildwood sites in the six months to 28 June and now has 40 Wildwoods and Wildwood Kitchens, and six Dim Ts.

• BBPA has produced guidance booklet for pubs ahead of rugby world cup. It says ‘staffing requirements are crucial’. BBPA goes on to say ‘consideration should be given to door supervisors and staff should be fully briefed’ and adds ‘pubs should also work closely with local police and licensing officers to consider any issues that might arise.’ CEO Brigid Simmonds concludes ‘it is important that people’s enjoyment of the Rugby World Cup takes place in a peaceful manner, and this guidance is a great resource for publicans seeking to make the most of this sporting highlight without compromising on standards.’

Holidays & Leisure Travel:

• Thomson and Island Cruises’ commercial manager Phil Gardner is leaving Tui and joining Thomas Cook. Gardner will step into the role of head of merchandising, a position that Thomas Cook UK & Ireland director, Salman Syed, said ‘is key in continuing to improve our core proposition and focus on communicating it in the most relevant way to our customer.’

• Lufthansa canceled 1,000 of its 3,000 short-haul and medium-haul flights yesterday.

• Ryanair has increased its full year profit expectations by some 25%, sending its shares up 10% on Wednesday to a record high.

Other Leisure:

• Goals Soccer yesterday became the latest operator to suggest more consumers were abroad in Aug than domestic players would have liked. Goals reported re its just-started H2 ‘sales for the first nine weeks of the period have been challenging in the UK with like-for-like sales over the summer holiday period declining by 10%. This is due to tough comparable trading in the weeks following last year’s successful World Cup and a significant increase in both league and casual teams cancelling over the holiday period. The board consider this to be market-driven, as team organisers struggled to find sufficient players for their game to go ahead, as players took advantage of the strong pound during a period of poor UK weather to holiday abroad.’ It concluded ‘however with the lack of visibility, having just commenced our September campaign, the board is adopting a more
cautious view on the full year outcome and is therefore revising its profit before tax guidance for the current financial year to a range of £9.3m-£9.8m.’

• Sportech has announced that it has teamed up with Viggle in order to purchase fantasy sports assets, specifically DraftDay. Sportech CEO Ian Penrose reports ‘we are delighted to have expanded our product portfolio in the US into the rapidly growing Daily Fantasy Sports sector, in association with industry partners Viggle and MGT.’ He continues ‘our recent strategic moves include delivering transactional technology into an increasing number of Professional Sports Venues in North America through Bump 50:50, and selling our iGaming interests in New Jersey for nearly £11m earlier this year, generating a profit of approximately four times our investment for three months of operational activity. By combining and capitalising on the well-established operational business assets of DraftDay, Sportech and Viggle, the new company is well positioned to become a significant
player in the explosive fantasy sports market.’

Finance & Markets:

• World markets: UK sharply higher yesterday, Europe also up. US down in later trading + Far East mostly down in Thurs trade

• Oil lower at around $47 per barrel

• UK manufacturing sector had weak July per ONS. Says output down 0.5% v same month year earlier. Overall production, which also includes mining and quarrying and utilities, was up 0.8% over the same period.

• UK trade deficit worsened in July to £3.4bn from £2.6bn in June. Trade in goods worsened to £11.1bn v £8.5bn in June

• NIESR has suggested UK growth probably slowed in 3mths to end August. Suggests growth of c0.5% v 0.6% in 3mths to end-July

• Chinese inflation has risen to a 1yr high of 2% on the back of higher food costs

Retail Roundup from Nick Bubb:

Super Thursday Watch: After the deluge of news at 7am, please spare a thought today for the hard-working Retailing analysts who have to fit in the Dixons Carphone Q1 conference call at 7.30am, the Home Retail Q2 conference call at 8am, the Next interim results meeting at 8.45am, the Morrison’s interim results meeting at 9.30am, the Dunelm finals results meeting at 10.30am and the John Lewis Partnership interim results conference call at 11.30am. Oh and there is also a Darty Q1 conference call at 8am…Phew! For what it’s worth, we will be focusing on going to the Next meeting and joining the John Lewis Partnership call.

Next: Today’s interims from Next look fine and there is no change in full-year sales and profit guidance, with Next still relying on soft autumn comps to kick in, but there is a surprisingly big focus in the statement on Wage Costs and the impact of the new National Living Wage and a surprising decision to focus on increasing Directory debtors rather than return more surplus cash to shareholders!

Morrison’s: The interims today Morrison’s (which show underlying PBT down 35% to £117m, with LFL sales down 2.7%) are overshadowed by the rather bland strategy review from the new CEO, Dave Potts, about “Making the core supermarkets strong again” and investors may be taken aback by the rather bland Outlook statement “Customers and colleagues are beginning to notice improvements, but the turnaround will take time and require sustained investment in the proposition. As previously guided, we expect underlying profit before tax will be higher in the second half of 2015/16 than the first”.

John Lewis; The interims from John Lewis Partnership look poor, at first sight, with underlying PBT down by 26% to £96m because of much higher pension costs, but the big surprise is that Waitrose held its operating profit, despite -1.3% LFL, and JLP have made a forecast that they expect to see Profit before Partnership Bonus, tax and exceptionals of between £270m and £320m, versus £342.7m last year.

Dixons Carphone: Ahead of today’s Q1 update (for the 13 weeks ended 1 August) from Dixons Carphone the consensus was that group LFL sales would be up by 4% (with the core UK business up by 6%, the Nordics up by 2% and Southern Europe up by 1%), but the ebullient CEO Seb James is able to trumpet that overall LFL sales were up by as much as 8%, driven by excellent 10% LFL growth in the UK, on the back of a continued boom in mobile phone market share

Home Retail: Expectations in the City were low ahead of today’s Q2 from Home Retail (for the 13 weeks to 29 August) and Argos was down by 2.8% LFL, with “sales continuing to be adversely impacted by the performance of a number of key electrical product categories as well as weaker overall market conditions in August”, but Homebase did well, with LFL sales up by 5.9%..

Sports Direct: We noted yesterday that on the analyst’s visit to Shirebrook HQ yesterday afternoon, Sports Direct focused on the new City Centre stores like Leeds and the expansion of the already vast National Distribution Centre, but there was also a surprise presentation by Are Altraja and Anti Kalle, the Sportland founders, on the joint venture in the Baltics. And CEO Dave Forsey also put in a plug for the struggling Premium Lifestyle division, via a look at the new plans for the Flannels and USC chains. Incidentally, we read the other day that the former site of the infamous M&S Lifestore in Gateshead (opened and soon closed back in 2004: hence the nickname “the Deathstore”) is to become a combined Sports Direct and USC unit.

Today’s Press and News:
We haven’t had time to look at all the papers yet, as we have to make our way to the Next results meeting, but there is a lot of focus on Sports Direct’s showdown with investors at the AGM yesterday (“Sports Direct chiefs feel force of investor fury” is the FT’s rather lurid headline) and the Guardian has a photo of the protest outside the AGM about the “Dickensian” working practices of the company. There is also a lot of coverage of the news that Morrisons has, as expected, sold its heavily loss-making convenience store chain for £25m to the colourful Mike Greene, backed by Greybull Capital. And Dave Potts, Morrison’s new CEO, is widely quoted as saying, slightly oddly: “Morrisons learnt much from its entry into the Convenience market, but M Local was unable to scale. However, we remain open to other opportunities in Convenience
in the future”. The Laura Ashley interims provide a fashion model photo opportunity for the Times, inter alia. The FT has a big background article about the opening of Primark in Boston today and there are also a few snippets the news that Waitrose is expanding its successful “Pick Your Own” promotion to 250 extra products.

AGM Watch: Although all UK eyes will be on all the Retail results meetings and conference calls this morning, there are 3 more Retail AGMs being held today (if you’re interested). The Dixons Carphone AGM is being held at 11am at the Hilton Kensington and at the same time the Darty AGM kicks off at the Crowne Plaza hotel near Blackfriars. And then at 12 o’clock the Carpetright AGM is being held in its traditional venue, the HQ building in Purfleet…

World Retail Congress Watch: The prestigious World Retail Congress concludes today in sunny Rome today and Tim Berners-Lee, the inventor of the World Wide Web, is speaking in one of the first plenary sessions this morning, on the subject of “How will the next phase of Internet development impact Retail?” Tonight sees the World Retail Hall of Fame Awards and the talk on the grapevine is that there will be recognition for the South African entrepreneur Christo Wiese, the South American department store group Falabella and the Middle Eastern retail group Alshaya.

Nick Bubb – nicholas_bubb@hotmail.com

Wednesday 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:

Punch Taverns; post Q4 & M Clark disposal & ahead of FY numbers & strategy update:

• Punch reassured last week that Q4 was in line with expectations & that FY EBITDA should be within the previously guided range

• Yesterday it confirmed the disposal of its 50% share in Matthew Clark for c£100m or around 2x book value or a PER of 13x

• Hence the shares are left trading at around 40% of book. Debt was £1.41bn pre the Matthew Clark sale & some £1.31bn after.

• EV is therefore around £1.59bn (including c£286m of equity).

• EBITDA for FY15 will be around £198m – or some £188m if we remove the Matthew Clark EBITDA (this amounted to £6.2m in FY14 and 50% of an ‘adjusted’ (for unknown reasons) £25.3m in the year to Feb 15 per Conviviality Retail’s IMS).

• On the basis that EBITDA could come in around £195m for the current year (some growth but also some disposals, the New River disposal, for example, generated around £7.3m in EBIT), the group is trading on around 8x EBITDA and debt is a little under 7x EBITDA.

• For the record, the group’s shares are trading on a PER of c5x EPS.

• Hence – and as always – the shares are cheap unless they are not. Issues remain as follows:

o Debt: This could (but should not) balloon. The Oct 14 refinancing saw to that. Debt is high but it is reducing and is (or should be) manageable.

o Trading: This had stabilised – but August is beginning to look as though it was helpful & more importantly see below.

o The Market Rent Only option: We have written at length about the MRO but this does remain something of an issue. Earnings will reduce but, arguably, the quality of those earnings will increase. There are still some unknowns. We would expect an update as to strategy (managed option, franchises, arms-length properties, increased disposals etc.) with the group’s FY numbers on 12 Nov.

• Hence it’s always tempting to present an ‘on the one hand but on the other hand’ analysis. But that adds limited value. We would suggest that, for those able to tolerate the risk, Punch’s equity offers potentially very good value indeed.

National Living Wage – the economic (libertarian) argument gets an airing:

• The Institute of Economic Affairs has said variously that the NLW will ‘backfire’, is ‘unsustainable’ and posits that it will distort the labour market (by reducing differentials).

• The IEA says that employment levels will decrease but, to some extent, it may be missing one of the main points.

• And that is that the NLW, at no cost to the government, helps to head off deflation. That may lead to inflation over the longer run but, as many politicians have said before, there are only two sorts of government, those that get it wrong and those that get out in time.

August, what happened?

• Whitbread and now Goals Soccer have said that August trading was poor.

• WTB suggested that more would-be customers were travelling abroad for their holidays (shares in Thomas Cook rose by only 2.5%) and today GOAL reports ‘sales for the first nine weeks of the period [i.e. July & August] have been challenging in the UK with like-for-like sales over the summer holiday period declining by 10%.’ It says ‘this is due to tough comparable trading in the weeks following last year’s successful World Cup and a significant increase in both league and casual teams cancelling over the holiday period. The board consider this to be market-driven, as team organisers struggled to find sufficient players for their game to go ahead, as players took advantage of the strong pound during a period of poor UK weather to holiday abroad.’

• Summer’s over now but, nonetheless, we await JDW’s Friday update with interest.

• An outlier at this early stage would appear to be Greene King as it yesterday commented that the last 10wks (of the 18wk period to 6 Sept) had been stronger than the first 8wks. It says ‘in the first 18 weeks of the year, like-for-like (LFL) sales in Greene King Retail grew by 1.3% with growth of 1.9% in the last ten weeks.’

• It may be too early to sell pubs & buy tour operators but, as regards the latter, a strong Lates market can make all the difference between an acceptable and a very good year.

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

• Commodity prices, currencies etc. Small rally in oil, Sterling up a touch, commodities still very low with exception of cocoa.

• Whitbread. Interesting to see the scale of the rally following yesterday’s sell off.

• Wetherspoon. Some negative broker comment ahead of FY numbers on Friday. Expect vitriol re NMW, NLW, VAT & other TLAs (three-letter-acronyms) from Chairman Tim Martin. Could be ‘hurt’ by NLW but JDW (there, you see, another TLA) is ahead of the curve on pay and it should also be a major beneficiary if its would-be customers see their pay rise. It would not be surprising to see 1) the group’s shares fall on Friday and 2) the group re-commencing its share buy-back programme.

• Interesting to see the BRC-KPMG August Retail Sales survey yesterday suggest “light at the end of the tunnel” for Food Retailers. Interesting also that the rate of growth of the discounters appears to be slowing and that Waitrose is currently reporting negative LfL sales.