Langton Capital – 2016-03-03 – Whitbread, input prices, LfL sales measures & 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:
Whitbread – sluggish trading?
• The group has great brands in Premier Inn & Costa
• But both are facing headwinds in the near term (Costa) and the medium term (Premier Inn)
• Costa’s growth slowed materially in Q4. The group put this, with good reason, down to the warm winter weather and reduced retail foot-fall.
• It says there has recently been some improvement. It will give further detail at its April FY numbers – but there may remain a little concern until the situation is clarified
• Premier Inn has a slightly bigger issue in that the UK hotel cycle, particularly in London, is past its peak.
• Not to put too fine a point upon it, London is in a downswing and the regions, though there will be a lag, may follow
• This isn’t to say that hotels per se are a ‘bad business’ as they are not. And Branded Budget Hotels arguably remains the place to be.
• The sub-sector can fish in the mom & pop B&B pool in addition to which it may aspire to take share from 3-star operators in a downturn
• Hence we could, with equal conviction, wax lyrical about short term problems or about the group’s medium-and-longer-term strengths
• Both of which would be valid but, as far as the market is concerned, both the EPS for FY17 and beyond and, perhaps more importantly, the rating attached to earnings, will be under review.
Coffee market – great but was greater?
• Still in growth, even over a mild winter, but there are some issues.
• We tend to agree with WTB CEO Alison Brittain that we are ‘social animals’ and that coffee shops appeal as a meeting place to abstemious Britons
• But online shopping is causing a problem for the High Street and, if the BRC is correct in saying that a third of retail jobs could disappear over the next four or five years, then retail footfall is likely to be diminished
• This will impact coffee sales.
• Added to which the success of coffee is hardly a secret.
• Pubs are pushing it, Gregg’s is pushing it, Pret and EAT are doing likewise and Starbucks is arguably on the up (or at least no longer sliding).
• In addition, a number of independents are threatening to out-Costa Costa leading the market leader to suggest that, just maybe, it will roll out more of a food offer
How to measure growth, LfL or total sales?
• If like for likes edge down but an operator adds units, isn’t it still growing?
• Well yes. Dividends aren’t paid out of LfL sales but rather out of total cash flow.
• A company that sells the least well-performing 50% of its units may see LfLs step up – but it will still be a smaller company.
• Whitbread made this point twice today.
• It said that REVPAR will fall when new rooms are opened at existing hotels – but total income will rise (and even LfL sales – for the hotel in question – will move better.
• It also said that LfLs were not the only string to their Costa bow. The company is still opening units and to say that it is ‘not growing’ would be misleading.
• Whilst the above new metric beds in, however, markets may be tempted to shoot the messenger.
• Oil price looks to be holding relatively comfortably above the $36 mark.
• Oil’s medium term up-trend looks to be established. Higher highs and higher lows indicative of a change in direction.
• Oh volatility, where art thou? A number of soft commodity 1yr price charts are beginning to resemble flat lines. Cattle prices, down 11% over a year, haven’t done much for six months. Similarly Robusta Coffee prices, though down 18% on a 12mth, are looking flat and Soybean prices, though down a massive 22% over the last year, have done relatively little over the last 6mths.
Random information, hopefully not all of it useless:
• Travis Perkins suggests that big-ticket sales remain strong. Says in today’s release ‘after a period of market weakness in the third quarter of the year, the Consumer division returned to good growth in the fourth quarter. This was predominantly driven by strong kitchen and bathroom sales in Wickes’. Perhaps it’s the last of the PPI money getting spent?
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Whitbread – Q4 Trading Update. Costa slows on warm winter but group still ‘on track’ to hit targets.
a. WTB Q4 update: Premier Inn LfL sales rose by 2.2%, Restaurants were up by 2.3% and Costa was up 0.5%
b. WTB on 50wks: Premier Inn LfL were up by 4.4%, Restaurants were 1% ahead and Costa was up by 3.0%
c. WTB: ‘’Premier Inn has continued to win UK market share’ and adds ‘total occupancy remained high’
d. WTB acknowledges ‘market has continued to show a divergence in performance in the quarter between the regional and London hotel markets’
e. WTB: London REVPAR down, says seein a ‘softer hotel market’ in the Capital.
f. WTB says has beaten competitors in restaurants. Costa impacted by warm winter but group remains upbeat
2. Domino’s Pizza FY numbers, says ‘e-commerce continues to drive an excellent group performance’
a. DOM FY: System sales +15.8% at £877m, LfL sales +11.7%, underlying EPS 35.7p, dividend 20.75p vs 17.5p last year
b. DOM FY: Group says ‘UK performance continues to underpin growth with 9 successive Qs of double-digit LfL sales’
3. Morrisons is back in the FTSE 100 following a strong share price performance, while Sports Direct has dropped out.
a. FT reports that grocers are the most shorted stocks across European stock markets. Energy stocks are the second most.
4. Ladbrokes reports Coral figs for 16wks to 16 Jan. Says revenues +16% at £333.3m. EBITDA £62.4m (+14%).