Langton Capital – 2015-10-23 – Daily Wrap: Rugby, online selling, King’s Cross & other:
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:
Rugby proved (and proving) to be a bit of a boost:
• Don’t forget that the super-late August Bank Holiday will have bolstered September sales but, even with that in mind, it appears as though the Rugby World Cup could have been positive for retailing.
• Various measures have had September looking good.
• ONS has Sept sales for food retailers +1.0%, for non-food retailers +4.1% and for online retailers +13.6%.
• Men’s clothing apparently sold well whilst in licensed retailing, wet-led pubs have had their day in the sun whilst food-led units and restaurants performed less well.
• Re deflation, keep in mind the fact that discounting is still with us and the ONS recorded a 3.6% YoY decline in shop prices which, apparently, is the joint weakest reading on record.
Online selling, a race to lose money?
• Sometimes the game takes over.
• And arguably it shouldn’t as the result should be what matters but, when various CEOs etc. take online penetration, home-delivery, click-and-collect sales and the like as KPIs, they will rush headlong towards their perceived goal.
• And that shouldn’t be surprising. If you paid Wayne Rooney to win corners he’d be less inclined to put the ball in the back of the net but, surely, its profitability that counts?
• And 1hr delivery, what’s all that about?
• If you ask the consumer ‘would you like a Tesco-shop-sized van to pitch up outside your house every few hours to top up your shopping?’ you may say yes but, at the end of the day, it would be unlikely to net the retailer much of a margin.
• Put MRW into this mix (and now ASDA) and you have a company that, arguably, is willing to say ‘this is what we’ve got; it’s high quality & cheap and if you want it, then come and get it.’
Mario Draghi, what a tease:
• Interest rates; could go up, could go down.
• Not one to be out-foxed in the out-foxing department by his opposite number at the Fed in New York, Mario Draghi has said that interest rates could go up or down.
• Well, to be fair, they can’t go down by much but the market (very much in a bad-news-is-good-news mood) was much heartened by his suggestion that QE could be stepped up on the Continent.
• And, whether the central bankers both sides of the Atlantic succeed or fail in steering the current ‘recovery into its fifth or is it its sixth year, they can’t be accused of not having read their text books.
• Because keeping liquid funds both in the system and moving from point A to point B is both 1) extremely necessary and 2) the goal of much current manoeuvring.
• Certainly much of the boom was arguably of their own making but, though the individuals have changed in all cases, the response of the authorities to the credit crunch has been co-ordinated and, arguably, correct.
• Hence the scale of the help that is being heaped on the market is testament to just how foolish markets were in the period 2002-07.
• There’s not a lot that we can do about that now but it helps to put the regulatory response into some sort of context.
Langton investigates…King’s Cross development:
• You might’ve noticed King’s Cross is changing.
• The buzz was unmistakable when we visited the nearby food market last Friday, on our way to check out the new Drake & Morgan site which has opened close to the German Gymnasium.
• A 67-acre King’s Cross estate is the largest of its kind being redeveloped in Europe, and should house 2,000 new homes, 20 new streets, 10 new public squares, 26 acres of open space, and 30,000 people by 2016. Commentators assert that it is likely to be worth more than £5bn ‘when it is completed in five years’ time.’
• Taking a walk around the area, it is easy to see how far King’s Cross has come. Gone are the tottering drunks and insalubrious night life elements, replaced by calming water fountains and a quirky swing set within a human-sized birdcage. One man with flecks of grey in his hair was having a go as we walked past, briefcase off to the side, surrounded by a vibrant mix of students, backpackers and businesspeople.
• When the University of the Arts London moved in to the Granary Complex in September 2011, a variety of trendy restaurants, hipster bars and artisanal coffee shops followed. Even now some of the City’s sharpest operators are moving in to an area that is only set to get bigger with the imminent construction of Google’s new UK headquarters. Drake & Morgan has just opened a new Refinery site just up the road from Vinoteca and Notes, with Caravan and Camino short walks away. It looks like a canny opening. Other operators must surely be contemplating the move.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• Bit of a downer on DIY, housing etc. Slightly comparing apples with oranges here but, in the last couple of days, shares of Travis Perkins, SIG, Howden Joinery, Foxtons and others have taken a bit of a beating.
• No change to the oil price. Seems to be stuck (for the moment) at around $48 a barrel.
• Nice to see McDonald’s back in LfL growth in its home market. Brit group CEO Steve Easterbrook is either lucky or good – and he may be both.
• MERL – PDMR selling. Probably not too much to be read into this as PE ownership will have been spread to a number of individuals some of whom, for perfectly understandable reasons, will be inclined sellers of the stock.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Barclaycard data for September shows spending growth rose 3.7% compared to 3% in August, still down 4.8% year on year
2. McDonald’s reports Q3 numbers, says ‘included a benefit from comparison to the 2014 China supplier issue’. Revenues +5%, LfL +4.0%
a. McDonald’s Q3: Says it achieved ‘positive comparable sales in all segments’, sales +5% or +7% in constant currencies.
b. 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
c. McDonald’s Q3: CEO Steve Easterbrook says ‘I am encouraged by our operating performance for the quarter, with positive comparable sales across all segments’
d. McDonald’s Q3: US LfLs +0.9% ‘the segment’s first quarterly comparable sales increase in 2yrs’. Internat. lead markets +4.6%.
e. McDonald’s Q3: Sees ‘strong performance in Australia, U.K. + Canada + positive results in Germany.’ Op profit +5% in const. currencies.
f. McDonald’s Q3: LfL sales +8.9% in High Growth Markets segment led by China bounce back. Op. profit + 68% in constant currencies
3. ALMR member survey indicates that, while the rules on tips need updating, legislation is not necessarily best way of introducing change
4. Scottish retailers have seen carrier bag usage drop by 650 million units since the 5p charge was introduced last October.
5. Cruise line operator Carnival has partnered with China State Shipbuilding Corporation (CSSC) and China Investment Corporation (CIC)
6. Wm Hill Q3: Reports group net revenues down 9% in Q3 (v World Cup) with year to date 3% lower
a. Wm Hill Q3: Says operating profit is down 39% in Q3 and down 22% in the year to date. Win margin lower
7. Merlin Human Resources boss Tea Colaianni has sold 500k shares in the company at an average price of around 378p