A Day in the Life:

Why do they make those little milk containers that you get with your coffee on planes and trains so hard to open?

I mean the little pot things can be nearly impossible but the tiny sachets are even worse and, if you add in the pressurisation factor when you’re in an aircraft, it means that opening the thing with your teeth can end rather explosively.

In fact it’s amazing just how far a fraction of a fluid ounce of milk can go when it’s under pressure and exposed to the air via a set of teeth accompanied by a violent tugging motion.

It can seemingly drench clothing, upholstery, laptops, passing toddlers, you name it and, with that sort of staining power, all I can say is that it’s probably a good job it’s white rather than blood red. On to the news:

The News:

PUB, RESTAURANT & DRINKS PRODUCER NEWS:

• JDW bought back another 70,500 shares yesterday at an average price of 696.9p per share. Total since Jan 2.7m at average of 675p

• Enterprise Inns yesterday bought back 68,159 of its own shares for cancellation at prices between 95p and 97.75p

• Restaurant Group shares fail to bounce. Down over last two days. Hitting recent lows despite plunges in Jan & early-March. Could be that there’s a churn going on in the share register. Holders seeing it as a ‘growth stock’ may be handing shares over to more value-oriented holders.

• Pret (and other coffee shops): just where is the value added? Is it ambience, speed, product or the effort it takes to click on the kettle? As the co for a cup of water. Ask it for a tea-bag. Buy a little sachet of milk & see if anyone would dare charge the constituent prices needed to get anywhere near two quid.

• UK service sector growth picked up last month but remains ‘subdued’ per Markit/CIPS survey. Index at 53.7 vs 52.7 in Feb.

• Services growth. Feb number was a 3yr low and, though any number over 50.0 implies growth, progress said to be ‘sluggish’. Markit reports ‘an upturn in the pace of service sector growth in March was insufficient to prevent the PMI surveys from collectively indicating a slowdown in economic growth in the first quarter.’ It says ‘the surveys point to a 0.4% increase in GDP, down from 0.6% in the closing quarter of last year’ and it continues ‘business confidence remains in the doldrums as concerns about the global economy continue to be exacerbated by uncertainty at home, with nerves unsettled by issues such as Brexit and the prospect of further government spending cuts announced in the Budget.’

• David Roberts, corporate partner at international law firm Olswang, says last year’s secondary sale of Côte to BC Partners for c£250m might mark the peak for casual dining valuations. Speaking to MCA, Roberts said that marketing a business at 10x run rate EBITDA is no longer realistic and added that there are now two types of private equity owners: ‘those that hold assets and those who want to own assets. I can see a valuation gap developing between these two classes.’

• Roberts added that there is a place for crowdfunding in the current environment but that, without further regulation, ‘it will either fizzle out or go out with an almighty bang.’

• Future Shock, a report by the ALMR in partnership with CGA, concludes that technology such as wi-fi is more important in attracting consumers than ever before. With customers continuing to engage and review on social media sites, the best hospitality operators are embracing the newest technology to enhance the overall theatre of the customer experience. ALMR Chief Executive Kate Nicholls commented: ‘Recent years have seen a significant shift in the makeup of the High Street, driven by changes in consumers’ technological and social habits. The High Street has become a social hub with branded dining outlets dominating. The focus of successful High Street operators is on providing the ultimate consumer experience.’

• South Africa’s competition authority has asked for an extension of its investigation into the proposed £71bn merger of SAB Miller and AB InBev for the third time. The watchdog was due to make its decision yesterday but is asking for the decision to be pushed back despite having asked for 15 and ten day extensions to its initial 40-day investigation already. Should the merger go ahead, the resulting entity will be one of the largest consumer product groups in history.

• City Pub EIS Fund has already raised £4m in a second round of fundraising for the eight-strong pub operator, writes MCA. The group set up three new companies in response to new EIS rules stating that money can only be raised under the scheme to buy closed pubs or non-licensed sites and is looking to raise £15m for further expansion.

• Brewhouse & Kitchen has struck a deal with Beavertown that allows it to offer Gamma Ray on draught across its ten pubs. Matt Preisinger, head of marketing, commented: ‘We’re really pleased to be able to offer Gamma Ray on draught across all of our pubs –it’s a fantastic beer and forms an important part of our new beer range across the group, which we’re sure our guests will love… the fact that we have have managed to get this exclusive supplier arrangement in place serves to show our dedication to bringing the most exciting beers to all of our pubs across the country.’

• Contactless spending in restaurants has more than doubled since the limit was increased to £30 in September last year, according to Visa Europe data. Kevin Jenkins, managing director UK & Ireland at Visa Europe, said: ‘Overall, we have seen 36m contactless transactions over £20 in the first six months; which amounts to nearly £900m. While the number of transactions continues to grow, we are already seeing the next generation payment technology arrive, with mobile and wearable payment services bedding in.’

• Consumers would face higher food prices if Britain were to leave the European Union under two of three likely scenarios modelled by the National Farmers’ Union.

• Brewdog has spent almost £18m increasing production, building new factories, and opening bars around the world last year. Some 41m bottles were shipped worldwide in 2015 as the brewer continued to expand rapidly, and co-founder James Watt commented: ‘We’ve been the fastest-growing food and drinks company in the UK for the last four years… Over the last 12 months we have invested heavily in brewing capacity, the infrastructure and the personnel to enable us to really put a dent in the world of beer.’

LEISURE TRAVEL:

• Sterling showing sustained weakness. Will impact the cost of holidays in resort immediately, brochure prices later.

• Sterling – silver lining alert. Merlin last year was a victim of the strong pound. Said London visitor numbers down. This year, not so much?

• Merlin. Warming to a theme, QHotels says 1m extra holidays will be spent in UK due to travel fears, Butlins says UK holidays are undervalued (perhaps it would, wouldn’t it?) and Hoseasons has said that 7 of its 10 best ever booking days came in the last quarter. Add in a cheaper pound incentivising overseas visitors to come to the UK and 2016 could be a good year for the recovering company.

• Evolution alive & well. Look at the hostel market. Scarcely existed as an investible space a few years ago.

• The US embassy in Grosvenor Square London is to be converted into a Qatari-owned 137-room five-star hotel. The embassy will become empty next year when American officials move to their new location in Nine Elms in next year.

• AccorHotels has purchased Onefinestay, which manages 2,600 properties, for $170m as it looks to enhance its high-end, private rental offering.

• Flights have resumed at Brussels Zaventem airport, 12 days after terror attacks killed 16 people.

OTHER LEISURE:

• The recently merged Paddy Power Betfair gambling firm is cutting 650 jobs in the UK and Republic of Ireland as it targets £50m of savings. The combined group currently has a workforce of around 7,200 people. 

FINANCE & MARKETS:

• The FCA has warned that the search for returns in a low interest rate environment could be exposing consumers to higher losses.

• The Reserve Bank of India has reduced its repo rate (the level at which it lends to banks) for the first time this year, from 6.75% to 6.5%. The cut brings India’s interest rates to the lowest level in five years after February saw a sharp drop in its consumer price index.

• World markets. UK & Europe down yesterday and US down later in the day. Far East markets mostly better this morning

• Oil up a little at $38.50 per barrel.

Retail Roundup from Nick Bubb:

Card Factory: The final results from Card Factory yesterday for y/e Jan showed that it is very far from being a mature business and the shares responded with a rise of over 4%. Total sales were up by 8% to £353m and underlying PBT was up 25% to £82m, with earnings per share up 17% and dividends up by 33%. Impressively, annual LFL store sales growth of +2.8% was towards the upper end of the historic 5 year range of +1.4% to +3.2%. The Chairman, Geoff Cooper, paid tribute to the soon-to-be-retired CEO Richard Hayes (”We are extremely grateful for all he has done and, when he steps down, it will be with our very best wishes”) and said that “I am confident that this track record of success will continue in the years ahead”.

Moss Bros: The final results from Moss Bros were also well received yesterday, with the shares closing over 4% up, on the back of the news that underlying PBT rose by 23% to £5.9m in y/e Jan. Group LFL sales were up 8.2%, with Hire sales (c14% of the total) recovering by 11.7% LFL. And gross margin improved in total for the year by 1.5% to 59.8%, due to lower levels of discounting. Current trading remains good, with group LFL sales in the first 9 weeks of the new-year up by 5.2% and CEO Brian Brick noted that “The broadening of our Hire offer to include lounge suits is underpinning a positive start to the 2016 hire season”.

Grocery Market Share Watch:
The latest monthly Kantar and Nielsen grocery market share data came out yesterday and both companies flagged up the boost from the early Easter, as the 4 week reporting periods ended on the Easter weekend (Sunday March 27th for Kantar and Saturday March 26th for Nielsen). Given this distortion it’s probably not worth dwelling too much on the detail, but Easter was the same date for everyone, and Asda will have been pleased to see that Kantar estimated that their gross sales were “only” down by 2.5% in the period (perhaps boosted by hypermarket shopping for Easter), whilst Morrisons was down 0.1%, Tesco was up 0.5% and Sainsbury was up 1.6%. Amongst the discounters Lidl sailed on with 17.5% growth, but Aldi slowed to be only up 9.5%…Kantar reckoned that total industry sales were up by 1.2% in the period, but Nielsen estimated that total sales growth was a
bit better, at 2.5%.

John Lewis Partnership Sales Watch:
The early fall of Easter complicates the JLP weekly sales picture and last week was “payback time”, with w/e April 2nd seeing overall John Lewis gross sales down by 2.3% on last year (down c4% “LFL”). However, comparing the two weeks of trade around Easter this year versus last year, sales were up 9.4% overall (nearly 8% up LFL) and John Lewis said “we can be very pleased with the way our Easter activity was received by customers”. Electricals was the star performer again last week, up 8.3% gross on last year, “with the communication technology category +22.7% due to newness in Apple products including the iPad Pro and iPhone. Vision and large electrical also had a good week”. Over the two week Easter period, Electricals sales were up by as much as 18.9%. Fashion sales, however, were down by 7.6% gross last week, given the cooler
weather. Over the last 9 weeks, cumulative John Lewis sales are up by 4.3% gross, with Electricals up 9%. Over at Waitrose, sales also looked bad last week; total sales excluding fuel were down 24.1%, but that was heavily influenced by the fall of Easter this year and a more meaningful comparison is that sales were 1.8% above the equivalent post-Easter week in 2015 (only about 0.5% down LFL). Over the last 9 weeks, cumulative Waitrose sales are up by 1.4% up (c1% down LFL).

BDO High Street Sales Tracker: Interestingly, the BDO High Street Sales Tracker for w/e Sunday April 3rd reports that Easter failed to provide a boost to store trading, although Online sales picked up strongly (to be 18.5% up on last year). However, a hefty 9.6% hit to Store LFL Fashion sales pulled overall Store LFL sales down by as much as 9.4% (including Homewares and Lifestyle sales).

Today’s Press and News:
The main focus is on the final results from Card Factory and Moss Bros and, if the FT is any guide, Moss Bros wins out in terms of coverage, with the FT noting that the growing popularity of lounge suits and an increase in rentals boosted profits at Moss Bros last year. The Lombard column piece in the FT flags that Moss Bros is “a heart-warming tale for anyone who believes old high street retail brands have a future. And for George Soros”, but concludes that “the switch from recovery to growth is a difficult one – as countless old retail brands have found to their cost”. The other big story is a job cutting programme at Sainsbury, with the Times flagging that “Sainsbury is on collision course over a training programme that the Unite union claims will threaten about 850 of its members’ jobs”. The latest Kantar grocery market share
figures are also a feature, with the Telegraph Business editorial noting that “Supermarket wars are now a battle on many fronts”. The Retail Week website notes that Debenhams’ veteran Retail Director Mike Goring is to depart, as the stores and Online arms merge. Finally, the stockmarket report in the FT highlights that Tesco slipped 1.7% yesterday, ahead of the final results next Tuesday, with Deutsche taking the stock off its “Buy” list on valuation grounds.

Next Share Buyback Watch: The hard-working “Mr Share Buyback Man” was in action yet again yesterday, picking up another c£5m worth of Next stock (c94,000 shares at an average price of 5296p), to take his post results activity to £25m in total, but he failed to stop the shares falling further, with the price closing at 5250p…

Weather Watch:
With the warm spring-like conditions now prevailing in the UK, Fashion retailers should have no excuses for not selling spring/summer outerwear, despite some “April showers”…but memories about “the weather” are notoriously short-term, so, ahead of tomorrow’s M&S trading update, we turned to the Retail weather consultants Planalytics for their regular monthly overview of how last month’s weather “should” have affected the High Street. And the headline for March this year was “A cool and wet end to winter: cooler temperatures put a strain on spring sales”. Basically, the overall average temperature of 5.8 degrees C in March was 0.7 degrees below “normal” and 0.4 degrees lower than last year. So slightly cooler conditions than both normal and in 2015, alongside an earlier Easter, combined to make March a
pretty miserable month for retailers and outdoor attractions. “Weather driven sales” were slightly down on last year for the month overall, with Sandals at -2%, T-shirts at -2% and spring gardening at -3%, but the Easter weekend comps would have been more challenging…

This Week’s News: The highlight of this week is the much-awaited Marks & Spencer Q4 trading update tomorrow, but before that we get the Topps Tiles pre-close update this morning, whilst tomorrow also brings the Dunelm Q3 trading update. Nick Bubb – nicholas_bubb@hotmail.com