A Day in the Life:

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Find previous emails at https://www.langtoncapital.co.uk/daily-notes/ 

So evolution – the kind re flora & fauna rather than the UK market for pubs & hotels – is a cruel beast in that, one could say, it’s ultimately given us what we deserve.

Hence we have greedy dogs or we have dead dogs.

Canines don’t get up in the morning and think ‘it’s efficient for me to wolf (no pun intended) my food down – and I’ll just have to live with the opprobrium of being thought a greedy beast’ they rather just get on with it.

They don’t stop to apologise and, whilst that’s all well and good, what does it say about the human race?

We could conclude, somewhat arrogantly, that we are different or we could say, perhaps more realistically, that we periodically try to be different. And there’s Bill Gates’s war against malaria to keep you warm at night you don’t have to go as far as human trafficking or the market in blood diamonds to prove to yourself that we often don’t try too hard, I mean just look at the stock market.

So writes a person who had a less-than-good day yesterday. When it goes well, all’s sweetness and light. On to the news:

The News:

Pub, Restaurant & Drinks Producer News:

• Barclaycard data for September shows spending growth rose 3.7% compared to 3% in August, although this is still down 4.8% year on year. Barclaycard, which processes almost half of all credit and debit transactions in the UK, said that pubs, off licenses and sport shops all enjoyed y-o-y increases thanks to trade brought in by the Rugby World Cup.

• Barclaycard: Shopping for new rugby shirts helped pushed spending on clothing up by 8.1% y-o-y, while men’s clothing performed particularly well, up 30.5% in September. Entertainment spending grew by 12.8% year-on-year and pub spending increased 11.6%, while restaurants logged their 26th month of consecutive double-digit growth with a 12.6% increase.

• Barclaycard: Respondents to the survey appeared optimistic regarding their household finances, ability to live within means, and their ability to spend more on non-essential items. Some 73% have no concerns about their ability to live within their means each month, while 58% are confident in their ability to spend more on discretionary items.

• McDonald’s reports Q3 numbers, says ‘included a benefit from comparison to the 2014 China supplier issue’. Revenues +5%, LfL +4.0%

• McDonald’s Q3: Says ‘consumers have more choices than ever about where to dine, and our operational growth-led turnaround is focused on appealing to customers in the areas that matter most to them – great-tasting, high-quality food, convenience and value.’ Investors may be looking at the numbers, however.

• McDonald’s Q3: Says it achieved ‘positive comparable sales in all segments’, sales +5% or +7% in constant currencies.

• McDonald’s Q3: Says consol. op. income down 2% but +10% in constant currencies. EPS 140c up 28% (+44% in constant $$s)on last year

• McDonald’s Q3: CEO Steve Easterbrook says ‘I am encouraged by our operating performance for the quarter, with positive comparable sales across all segments, including the U.S., as well as sales recovery in China following the prior year supplier issue. I am confident in the fundamental strength of the McDonald’s System and our ability to drive initiatives that are focused on delivering the greatest benefit for our customers.’

• McDonald’s Q3: US LfLs +0.9% ‘the segment’s first quarterly comparable sales increase in 2yrs’. Internat. lead markets +4.6%.

• McDonald’s Q3: Sees ‘strong performance in Australia, U.K. + Canada + positive results in Germany.’ Op profit +5% in const. currencies.

• McDonald’s Q3: LfL sales +8.9% in High Growth Markets segment led by China bounce back. Op. profit + 68% in constant currencies. CEO Easterbrook concludes that the ‘third quarter marked an important step in the Company’s global turnaround – the reorganization of our business from a geographically focused structure to business segments that combine markets with similar characteristics and opportunities for growth.’ He says ‘as we begin fourth quarter, comparable sales are expected to be positive in all segments. While still in the early stages, we believe our turnaround plan is starting to generate the change needed to reposition McDonald’s as a modern, progressive burger company.’

• Christopher Wren, the new artisan gin created by Tom Nichol and the City of London Distillery, launches in the Harrods next week. Nick Fleming, Buyer at the store said ‘The Christopher Wren Gin shoots straight into the premium quality ranks and will appeal to the most discerning gin connoisseur.  We are delighted to be the first store in London to stock this exquisite gin.’

• M&C writes that Burger & Lobster is opening its latest London site today in Ludgate Hill and will debut in the Middle East in Kuwait next month.

• BrewDog intends to feature more drinks from other brewers in its bars after saying British craft breweries are ‘at the top of their game’. The group is also looking at importing US beers, improving its food offer and rolling out a quality artisanal coffee service with the help of Dear Green Roastery and BrewLab in 2016.

• An ALMR survey of its members indicates that, while the rules on tips need updating, new legislation is not necessarily the best way of introducing change. Commenting on the findings, chief executive Kate nicholls said: ‘There is appetite for practical reform to update the Code of Practice to reflect the increased use of credit cards and the changing consumer and employment culture – and over two thirds of our members were supportive of proposals to strengthen the Code. But we have not found any evidence which suggests new regulation is required to deliver that.’

• Chapel Down has launched a crowdfunding campaign on Seedrs to tap into the craft beer market with its Curious Drinks subsidiary. The Kent-based wine producer seeks financing for a new brewery in Ashford, which will also include a restaurant and shop.

• CEO Frazer Thompson commented: ‘We see a lot of parallels with lager. Yes lager. The world’s favourite beer now reduced to a sad fizzy yellow liquid – a testament to big brewer blandness, where market research wins over passion and corporate cardboard trumps taste. Where the only thing that changes seems to be the advertising. Where it’s big news if the logo font is upped a point.’

• The latest Waitrose Food and Drink Report has found that consumers are increasingly flexible over meal times and seek a casual experience. Waitrose said grazing options in its stores have soared, with a 23% increase in sales of food from in-store wine bars, juice bars and bakeries. Consumers also appear to be more independent in terms of following food advice.

• Tesco has completed the disposal of Homeplus.

• Scottish retailers have seen carrier bag usage drop by 650 million units since the 5p charge was introduced last October. The move has also generated funds of about £6.7m for charity. Sainsbury’s, which stopped selling single-use bags altogether, reduced use by 100%, while Morrisons, the Co-operative Group and Waitrose have recorded a reduction of 80% and Asda has seen usage fall by 90%.

ONS figures show UK retail sales grew for the 29th month in September thanks to the Rugby World Cup.

Holidays & Leisure Travel:

• Cruise line operator Carnival has partnered with China State Shipbuilding Corporation (CSSC) and China Investment Corporation (CIC). The partnership will focus on developing a multi-ship domestic cruise brand for the Chinese market.

• Interval Leisure Group is in talks to buy Starwood Hotels & Resorts Worldwide vacation ownership business for between $1bn and $1.5bn. Interval Leisure currently has a market cap of just over $1bn.

• Easy Hotel has announced that ‘further to the announcement on 7 October 2015, the Group’s Benelux franchisee has secured financing for the proposed 107 room easyHotel Brussels project and, as a consequence, the Group has received repayment of its €3.3 million security deposit and has been entirely released from any future step-in obligation.’ It adds ‘the hotel is expected to be opened by early 2017 as the first easyHotel in Belgium’ and CEO Guy Parsons adds ‘this is an exciting opportunity for easyHotel as it gives the brand a strong position in the highly concentrated Brussels hotel market. I am pleased that our Benelux franchisee has secured this financing and the hotel will be a great addition to the easyHotel network.’

Other Leisure:

• Wm Hill Q3: Reports group net revenues down 9% in Q3 (v World Cup) with year to date 3% lower

• Wm Hill Q3: Says operating profit is down 39% in Q3 and down 22% in the year to date. Win margin lower. Says period has suffered from a ‘swing from outstanding gross win margin in Q3 2014 to a less strong gross win margin in Q3 2015’.

• Wm Hill Q3: CEO James Henderson says ‘Q3 was always going to be a tough quarter given last year’s World Cup’. He adds that comp win margins were high and additional gambling duties have cost the group £23m this year. He says, however, ‘overall, I am pleased with the strategic progress we are making across the business, particularly around Project Trafalgar and the William Hill brand in Australia.’ He says ‘in Retail, we saw 3% growth in turnover, excluding the impact of last year’s exceptional shop closures. We have a strong focus on gaming content, including more new game launches, and saw year-on-year gross win (after adjusting for exceptional closures) turning positive in September.’

• Merlin Human Resources boss Tea Colaianni has sold 500k shares in the company at an average price of around 378p

• Private equity firm TDR Capital has taken a minority stake in rapidly-expanding Euro Garages in a deal valued at £1.3bn.

• Amazon reported a surprise profit of $79m (£51.3m) for the second quarter in a row thanks largely to higher sales in the US. Its shares went 10% higher as total net sales jumped 23.2% to $25.36bn.

Finance & Markets:

• The European Central Bank will ‘re-examine’ its €1.1 trillion quantitative easing programme this December. The ECB is buying some €60bn of bond purchases per month to prop up Eurozone inflation.

• World markets: UK + Europe up yesterday. US up later + Far East up in Fri trade.

• Oil little changed again at around $48.35 per barrel. Tried to go higher then fell back.

• Preliminary confidence figures lower in Eurozone in Oct. Shows negative 7.7 vs negative 7.4 in Sept

• South Korea’s economy grew by 1.2% quarter on quarter in the three months to September.

Retail Roundup from Nick Bubb:

Overall View: Well, Mike Sharp may very well insist that he is jumping and hasn’t been pushed, but the fact is that the shares have been stuck around the 70p-80p mark for a long time (notwithstanding a couple of spikes down and up) and long-term shareholders are entitled to grumble that Debenhams has not been a great investment over the last 4/5 years…

Kantar and Nielsen Watch:
We only had time on Wednesday to give a brief overview of the latest Nielsen and Kantar Grocery market share figures (for the 4 and the 12 weeks to Oct 10/11th), but ahead of today’s Sainsbury presentation it’s worth noting that Kantar again had them performing the best of the “Big 4” over the last 4 weeks, with gross sales up by 1.0% and that the worst performer was poor old Tesco, with gross sales down by 3.0%, with Asda down 2.4% and Morrisons down by 0.5%. Although Nielsen was gloomier than Kantar about the last 4 weeks for the industry, it does not provide detailed figures for the main protagonists for the 4 weeks, but it is instructive to see that over the longer 12 week period Nielsen was also gloomier than its big rival about both Asda and Sainsbury (gross sales -4.2% and flat respectively, vs -3.0% and +1.1%), but less gloomy about Tesco and
even more bullish about Aldi and Lidl. Finally, just to show that panel surveys like these are never entirely accurate, we note that the last 4 weeks in question averaged +1.2% gross for Waitrose according to their own weekly figures (see below), but Kantar said that they were up by 3.3%…

Planet ONS Watch: Life on the infamous Planet ONS was pretty good last month, because the ONS Retail Sales for September were unexpectedly strong yesterday (Capital Economics had pencilled in a 0.4% increase in “month-on-month seasonally adjusted retail sales volume”, but had forgotten that the August figures were not adjusted for the late Bank Holiday, so the +1.7% growth caught them out). In terms of the sales value figures, not seasonally adjusted, September was +3.4%, after +0.9% in August, but this was skewed by improbably big 5.8% growth for “Small Retailers” (“Large Retailers” were only up 2.8%, less than the BRC +3.9% gross measure for September). In terms of the 3 big sub-sectors, Predominantly Food Retailers were up by 1.0%, Predominantly Non-Food Retailers were up by 4.1% and Non-Store Retailers were up by 13.6%.

Debenhams:
Although the press was all over Mike Sharp yesterday and his reasons for stepping down as CEO, the analysts at the results meeting were far too polite, oddly enough, to ask publicly about the motivation for the management news, but the veteran analyst Tony Shiret got a laugh by saying that the company was “a right pig” when Mike Sharp took over as CEO and that he should be congratulated for improving the business! In passing, it is worth noting that Mike’s predecessor as CEO, Rob Templeman, decided back in early 2011 that the heir apparent Angela Spindler would not be a suitable replacement after all, given the fragile state of consumer spending after the financial crash, and that “a trader” should get the job. If he was seen as “an old-fashioned trader” back in 2011, then it’s fair to say that he has learned a few tricks since
then, given the burgeoning Online and multi-channel capability of the business and the growing International presence of Debenhams. But share prices tell a story and although Mike could claim that the shares were little more than 50-55p when he took over as CEO that’s only because of a spell of weakness on the back of worries about early autumn trading. More broadly, the fact is that the shares have been stuck around the 70p-80p mark for a long time (notwithstanding a spike up to 120p in November 2012) and long-term shareholders are entitled to grumble that Debenhams has not been a great investment…

Today’s Press and News: We haven’t had time to see all the papers, but the Debenhams management situation dominates the press today and the FT is in no doubt about what led the CEO Mike Sharp to announce his departure, with the headline “Debenhams chief gives in to pressure”, flagging that “the past few years at Debenhams have made painful reading for shareholders”. The FT also has a follow-up article on the investor unrest and a tart comment from Lombard column.  All the Debenhams news overshadows the news from Mothercare, Travis Perkins and Inchcape, plus the Chinese takeover of Hamleys.

Movers and Shakers Watch: The website RetailInsider.com is publishing its Annual “Movers and Shakers” report on Multi-Channel Retailing today, with a breakfast presentation from Andy Harding of House of Fraser and it’s a shame that this clashes with the Sainsbury analysts presentation this morning. No doubt Amazon and Apple will be top of the tree: more on this on Monday.

John Lewis Sales Watch: As we flagged on Wednesday, last week’s cooler weather helped Fashion trade and so w/e Oct 17th saw gross sales up 4.4% (c2.5% up LFL, ex the impact of the new Birmingham store etc). Total Online sales were 13% up. Over the last 11 weeks John Lewis is now running 2.2% up (a bit over 0.5% up LFL).

Waitrose Sales Watch: Over at Waitrose the going wasn’t as easy, with gross sales only up by 1.1% overall (excluding petrol) in w/e Oct 10th, which would be c1% down LFL. Over the last 11 weeks Waitrose sales are also now running 1.1% up in gross terms (c1% down LFL).

BDO High Street Sales Tracker: this weekly High Street sales index of medium-sized Non-Food chains assembled by the accountants BDO is a useful guide to underlying Fashion store trading momentum (ex-Online) and sales have been pretty poor in recent weeks, despite weak comps. BDO has reported today that last week, w/e Oct 18th, saw flat trading, with overall Fashion store LFL sales up by 0.2%, despite the cooler weather. Total store LFL sales were up by 0.8% (including Lifestyle and Homewares retailers), but overall Non-Store/Online sales were notably strong, up by 32.3%.

Trade Press (1):
The front page story of “Retail Week” magazine today is headlined “Farewell to retail as Price switches to Channel 4”, flagging that Waitrose boss Mark Price is to quit next year after a 33-year career at the grocer and parent John Lewis – and has ruled out a return to retailing. RW also has a front page profile of his successor, Rob Collins (“a John Lewis lifer with big shoes to fill”), noting our view that the future of Waitrose’s relationship with Ocado will be top of his agenda. The Editor-in-chief in his column reflects on the Waitrose CEO news, notes that “As Price exits retail he leaves lessons for all” and thunders that “as a rallying point for decency, courage and common sense Price will be sorely missed”. In terms of other news, RW also flags that Asda has made a “U-turn” on
click-and-collect and that Asos is to launch a Rewards scheme for customers. RW also has a survey of what Retailers should expect from “Black Friday” this year and a profile of “The Englishwoman chairing a historic French luxury brand” (Sharon Flood at ST Dupont).

Trade Press (2):
In his last column, the retiring Editor, Eric Musgrave, says that he heartily recommends the new book “High Street Heroes” by John Timpson to anyone interested in fashion retailing. He also thunders that “Fashion retail is like the conveyor belt in Yo! Sushi: it has no beginning and no end; it just keeps revolving, bringing things round that consumers like or don’t like” and notes that “It is with total confidence and a lot of pleasure that I pass the reins on to my deputy, Keely Stocker”. The main news story is that clothing and footwear businesses are expected to opt for more strategic, targeted discounts on “Black Friday” this year, despite the IMRG prediction that total spend will top £1bn on the day, over 30% up on last year. Drapers also flags that footwear suppliers have welcomed reports of an imminent sale of Jones
Bootmaker and Brantano UK, following months of uncertainty, to the London-based retail investment fund Alteri Investors; the South African clothing retailer Truworths is “dotting the Is and crossing the Ts” on a £300m acquisition of the Office footwear chain and Flannels, the premium fashion retailer owned by Sports Direct, plans to open a three-floor central London flagship in 2016.

News Flow Next Week: Things are a bit quieter next week, with skool half-term etc, but the Carpetright pre-close update on Tuesday will be interesting, in the light of the warning from Travis Perkins, and Shoe Zone also give a pre-close update that morning. Wednesday brings the Next Q3 update, as well as the FNAC bid deadline for Darty, whilst, with the end of the month coming up fast, the monthly CBI Distributive Trades survey and GFK Consumer Confidence survey are out at the end of the week. nicholas_bubb@hotmail.com

Thursday 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:

US$ vs Euro & impact on reporting companies:

• Last week we pointed out that US companies tended to report sluggish numbers whilst those reporting in Euros were able to incorporate the following wind supplied by a weak Euro.

• This should be stripped out in the ‘constant currency’ calculations but, as people are just people, it has perhaps been tempting for some continental companies to step back and bask in good numbers.

• A couple of weeks ago we had Pepsi & YUM reporting that US$ strength was amongst the factors depressing sales numbers. Unilever and others were able to take the opposite view when reporting in Euro.

• Overnight we have had good numbers from Pernod and less-than-sparkling numbers from Coca Cola, for exactly the same reasons.

• Interestingly, Pernod performed well (even in constant currencies) in Europe & the US whilst the RoW, depressed by sluggish (post-bribery-crackdown) sales in China.

Poor August, September recovery:

• Pub & restaurant companies have conceded that Aug was tough.

• Several have said that Sept proved to be markedly better.

• Interestingly, Home Retail yesterday said that sales were “directionally as expected” but it accepted that the outcome was “nevertheless disappointing” because, after a tough August, the expected “step-up” in sales in September had been muted and had left the company more cautious about Christmas trading.

Housing caution. Will small ticket pick up the slack?

• Big ticket spending has been a feature of the current recovery in recent months.

• SBRY, NXT and others have suggested that this should have run its course by the end of this calendar year.

• The date is now being pushed out with some suggesting that consumers may have become permanently more parsimonious.

• Overlay this with the suggestion from Travis Perkins this morning that there may be something of a housing slowdown going on (it said ‘given the recent market weakness we now expect to deliver EBITA growth at the lower end of market expectations’) and there may be some who conclude we run the risk of going straight to jail but of not passing ‘Go’.

• It is to be hoped that small ticket spending picks up shortly but, we are increasingly minded to believe, that can’t be taken for granted.

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

• Evolution. Change is the only constant, blah, blah. Interesting to see Wagamama making more of a move into takeaway. Wouldn’t be surprising to see Deliveroo, Just Eat or whatever also getting more involved.

• DP Poland up sharply yesterday. No new news (co reported H1 numbers on 21 Sep) but group is delivering. Every reason to believe it will continue to do so but 2018 remains the ‘crossover’ year.

• Orange juice prices on the up. Now up slightly on the year.

• Coffee prices weak (return to trend), hog prices also on the slide (ditto). Soybean prices a little off the bottom + sugar staging something of a rally, albeit still down 11% over last 12mths.

• Stock movements yesterday dominated by companies reporting. ARM & MERL on the up, HOME and PSON not so much.

• Someone mentioned the diamond market to me this morning & that made me pause for thought. I mean just how far have we advanced if we still think it fighting (either financially or literally) over shiny rocks?