Langton Capital – 2015-11-05 – Daily Wrap: JDW, new restaurant capacity, Sharm disruption, deflation & 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:
• JDW closed at its lows yesterday and has given up another 10p or so this morning.
• At the time (c10am) there has been no RNS to suggest that the group has been buying its own shares back.
• It said yesterday (re its reduced rate of new openings) that it had ‘other uses for its money’.
• Certainly it is buying in freeholds where it is the existing tenant & where it gets the opportunity but, if it’s not buying its shares back at a price down 10% in just over a day, what does that suggest for the rest of us?
• We remains supportive re JDW but, as there is a lack of obvious catalysts and the bears seem to be in receipt of a steady flow of ammunition, we’re keeping our heads down for the time being.
London restaurants, oversupply etc.:
• David Coffer, Fleurets, Harden’s and the evidence of our own eyes have suggested that there is a lot of capacity going on in London.
• Mr Coffer said that even tall trees cannot grow to the sky.
• Rents have reacted accordingly. Inside the Circle Line is fast becoming a no-go area for other-than trophy buyers (or renters) of ‘must-have’ sites.
• But the truth is, you don’t need to be in Soho. Or in Knightsbridge or The City or wherever because, though it’s good to perhaps have a flagship, good returns can be made in the inner-outer boroughs and areas such as Shoreditch, Bermondsey, Hoxton etc.
• And, increasingly, in Stoke Newington, Lewisham, Kilburn etc.
• The number that jumped out at us in the Morrison’s statement was the comment that 2yr deflation now amounted to some 5.3%.
• Because that’s a lot and, for the consumer using MRW (and, to be fair, its competitors), it represents a major windfall.
• IGD says the UK grocery market is worth £177bn (year to March 2015).
• If other operators have behaved in line with MRW, that suggests the consumer is spending c£9bn less on groceries than he/she was 2yrs ago.
• The PPI ‘scandal’ has thus far put £33bn in the pockets of consumers but, arguably, this has been often spent on big-ticket items.
• Furthermore, PPI, one would hope, is a one-off whilst the consumer’s grocery savings could be permanent – or at least stretch over a number of years.
• This, once the consumer has become a little bit more confident, should be helpful for small ticket retailers such as the UK’s pubs, clubs and restaurants
• McDonald’s is going to sell ‘better burgers’, Burger King is selling booze.
• Evolution continues at a pace and, whilst the pubs etc. are going into breakfasts and coffees, it probably pays to remember that few operators trade in a vacuum and that competitive responses from even the most unwieldy of operators is always likely.
• And this, spreadsheets find hard to model.
• The Sharm news is not good for tour operators.
• Whilst the Egyptian market is not amongst the largest in Europe, it is nonetheless important re winter sun, etc., and, as such, any re-scheduling of flights etc. that becomes necessary after the UK flying ban, could be costly.
Random information, hopefully not all of it useless (re most leisure operators etc.):
• US$ a little stronger on the back of the Fed suggesting it will grasp the nettle in December. Oil price & some other commodities down both 1) on the news & implications re global growth and 2) on the basis that the non-US$ price of the commodities involved would have risen if the US$-denominated price didn’t fall.
• Sterling nonetheless up against the Euro.
• Pig prices now extremely low, down c38% over the last 12mths.
• Precious metal prices down a little on, well, your guess is as good as mine.
• MRW’s negative LfL Q3 was apparently the 15th negative quarter on the trot.
• Interesting to see that even M&S has seen its food margin decline. Waitrose has recently reported slower and even negative LfL sales progression suggesting that the battles happening further down the food chain are having something of an impact.
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. JD Wetherspoon finishes day at lows. Downgrades likely. Co yet to reassure that it can turn margins around
2. Chilango co-founder Eric Partaker says Mexican restaurant group will continue overfunding indefinitely after passing £1m target
3. Latest Harden’s London Restaurant guide points to fastest ever rate of new site openings per M+C. Openings > closures by c3 to 2.
a. Harden’s says average price per dinner at restaurants in 2016 guide is £50.51 vs £49.46 last year.
4. McDonald’s is to trial a premium range of burgers called the Signature Collection across 28 sites around London + Manchester
5. UK service sector growth accelerated last month, with the Markit/CIPS service sector purchasing managers’ index up from 53.3 to 54.9.
6. Store owners have bought into Halloween more this year, with increases in-store events, activities + promotions over past few weeks
7. Poll by Grocer finds that 43% of 2,000 UK adults would support legislation banning promotions on high sugar food + drink
8. Morrison’s updates on Q3 trading. Total sales ex-fuel down 2.0%. Down 2.6% LfL (down 5.1% including fuel).
a. MRW Q3: Says ‘we are improving the shopping trip and serving our customers better.’ Has seen ‘good progress during the quarter’
b. MRW Q3: Says deflation ex-fuel was 2.2% for Q3 vs last year and ‘is now 5.3% on a two year basis.’
c. MRW Q3: CEO David Potts says ‘the business is moving at pace on the long journey towards improving the shopping trip for customers.’
d. MRW Q3: Re outlook, says ‘as previously guided, we expect that underlying profit before tax will be higher in H2 than H1’.
9. UK gov. suspends flights to Sharm el-Sheikh amid fears that Flight 9268 downed by bomb. Tour operator disruption will be considerable
10. Kuoni reports Q3 numbers says has ‘posted strong organic turnover growth of +8.0% in the important third quarter.’
a. Kuoni has announced that Zubin Karkaria, currently head of VFS Global Division, is to be its new CEO. Group board to be reduced in size
11. Fed Chair Janet Yellen has told congress US economy is ‘performing well’ and could cope with a December interest rate rise