Fuller’s, more on price rises, VAT, Sterling, Brexit & other:

A DAY IN THE LIFE:

People are a complicated bunch, aren’t they?

But is it just me or is energy and intellect occasionally inversely correlated? I ask because I find myself having to cope occasionally with energetic idiots against whom I can’t find anyone with a bit of a brain to raise a voice in opposition.

Or maybe I’m just wrong. On to the news:.

FULLER, SMITH & TURNER H1 NUMBERS:

• Fuller says it has turned in ‘a good performance in changing times’ w. adj. EPS +6% at 32.4p & H1 dividend +5% at 7.25p

• FSTA H1: Group reports adj. PBT +6% at £22.8m with EBITDA +9% at £36.3m. Debt is 3.0x EBITDA (2015: 3.0x)

• FSTA H1: Managed LfLs +3.4% with operating profits +6%. Tenanted LfL EBITDA was down 2%.

• FSTA H1: Says ‘craft beer brands showed strong growth’ w. total beer volumes +4%.

• FSTA H1: Group acquired 2 new managed pubs in H1 & added 16 hotel rooms. It has added Sierra Nevada beers to its range.

• FSTA H1: Current LfL sales (to w33) are +2.6% implying a recent slowdown. LfL profits at tenanted pubs down 2%. Total beer sales are still +5%.

• FSTA H1: CEO Simon Emeny comments ‘we have had a good start to the year and our Managed Pubs and Hotels, which represent the largest share of our profits, have yet again led the way with a rise in like for like sales that has outperformed the market.’ He says ‘trading since the period end has been good and as expected, with comparisons to last year being heavily influenced by the 2015 Rugby World Cup. For the first 33 weeks, like for like sales in our Managed Pubs and Hotels grew 2.6%, Tenanted Inns like for like profits declined 2% and Fuller’s Beer Company volumes fell 5%.’

• FSTA H1: CEO Simon Emeny comments ‘there is no doubt that the UK economy is facing some significant challenges. The impact of increases in business rates and the National Living Wage, combined with uncertainty around the UK’s departure from the EU, make for changing times ahead. However, Fuller’s has a long-term, strategic vision, a solid balance sheet and a predominantly freehold estate, which is well-invested and supported by excellent, engaged team members and dedicated, skilled management. These are the qualities needed to continue to delight and excite our customers, provide a good return for our shareholders and attract the best new recruits to our business.’

PUB, RESTAURANT & DRINKS PRODUCERS:

• Majestic Wines is ready to raise prices in 2017 if necessary to combat the weak sterling and a potential duty rise.

• The VAT Campaign, BBPA and ALMR all agree that Brexit could free the UK up to reduce the unfair levels of VAT faced by the hospitality industry.

• Last weekend’s televised sport boosted beer sales in UK pubs, per Vianet, whose iDraught system provides detailed breakdown of pint per hour consumption. England’s victory over Scotland at Wembley on 11 November saw sports pubs enjoy a 5.8% increase in sales versus the same day last year, while the match at Twickenham on Saturday 12 November saw a 4.1% increase in beer sales on the same day last year for sports pubs, with non-sport focused pubs registering a 1.98% increase.

• Innis & Gunn is extending its crowdfunding investment opportunity after reaching £1m target in just 72 hours.

• Asda must be wishing for sales to return to the heady heights of its August 2015 ‘nadir’ after posting another big slide in Q3 earnings (-5.8% in the three months to September). New chief executive Sean Clarke, who took over on 11 July, said: ‘We have lowered thousands of prices, improved hundreds of own-brand products and invested in more hours for colleagues on the shop floor – so it’s encouraging to see more customers shopping with us in stores and online.’

• McDonald’s is to roll out in-store mobile ordering as well as extending its table-service offer to boost growth. CEO Steve Easterbrook reports ‘ordering should be the most enjoyable experience but at McDonald’s it can be one of the most stressful points in time.’ He continues ‘bringing out service staff on to the dining floor does change the atmosphere.’

• Tesco boss Dave Lewis has warned suppliers not to try to push through ‘illegitimate price increases’. Definitions unclear. The FT reports Lewis as saying ‘we buy virtually everything for our own label so there isn’t an ingredient or a commodity out there that we don’t have very good insight into.’ He adds ‘we’re naive to the fact that there’s inflationary pressure. You see it already in some categories. Pork has been affected much sooner.’

• Sodexo yesterday reported FY numbers to end-Aug 2016 saying revenues rose by 2.2% & organic growth was +2.5%. The group said its on-site organic growth was +2.4% ‘despite a tough economic environment in Remote Sites and a difficult situation in France.’ CEO Michel Landel reports ‘Sodexo continues to grow as a result of solid growth in North America, the UK (On-site Services) and Benefits and Rewards Services. We achieved this growth despite a tough environment in the commodities markets affecting the Remote Sites business and the impact of a difficult situation in France.’ He concludes ‘we are confident in the future, and for Fiscal 2017 aim for around 3% organic revenue growth and between 8% and 9% growth in operating profit, excluding the currency effect and exceptional expenses of the Adaptation and Simplification program.’

• UK retail sales growth jumped to a 14-year high in October as colder weather boosted clothing sales and pushed the seasonally adjusted volume of sales up 1.9% month-on-month. Total volumes were 7.4% higher than the same month a year ago — the fastest annual growth since April 2002, and far higher than had been expected. Sales were boosted by strong growth in clothing and footwear as the end of unusually mild autumn weather — two degrees Celsius above normal — encouraged people to invest in winter clothing.

• USA same-store restaurant sales fell 0.6% in October in what proved to be the worst month for the restaurant industry in more than three years, per the latest MillerPulse survey. Same-store sales were weak for both the quick-service and casual-dining segments, which registered a flat performance and a 1.4% fall respectively, with an emerging trend of weak traffic appearing to drive the numbers.

• Frozen food suppliers claim Brexit is ‘bad for business’, with 68% of BFFF members voting that it will have a negative impact.

• Poor harvests of olive oil looks set to raise prices for shoppers after Christmas.

LEISURE TRAVEL & HOTELS:

• Speakers at The Co-operative Travel Consortium conference say that Eurozone holiday price rises of more than 10% would have a marked effect on next summer’s trading.

• Steve Campion, managing director of agency Travelbubble and price comparison site Holiday Discount Centre, said prices were currently up 5%-10% before warning: ’Holidaymakers are resilient but if sterling does lose a lot of value against the euro and there are increases in excess of 10%, there will be reduced volumes of travellers.’ Monarch Travel Group head of trade sales Simon Garrido added: ‘If costs rise that’s got to be paid for out of margin or passed on to the customer. A lot of business is hedged, but that will inevitably come to an end.’

• MPs belonging to the British Infrastructure Group are urging the government to halve air passenger duty in next week’s Autumn Statement. The group claims the tax hampers post-Brexit Britain’s ability to trade outside Europe and impairs the nation’s ability to extend UK business links to the ‘farthest reaches of the globe’. The tax is set to rise again in April to £150 for some long-haul flights, but the BIG says in a report it should be cut by 50% and then abandoned altogether.

• US hotel data for the week ending 12 November 2016 shows a 1.6% rise in occupancy to 65.3%, as average daily rate rose 3.3% to $122.70 and RevPAR grew 5% to $80.16.

• Thousands of travellers flying away for Christmas could be eligible for compensation for disrupted flights, per Bott & Co, which is forecasting more delays this winter.

• The US hotel industry is expected to undergo continued but muted performance growth in 2017, according to STR and Tourism Economics’ final forecast of 2016. ‘As supply eventually outpaces demand, rate will determine the level of RevPAR (revenue per available room) growth the industry experiences for the next several years,’ said Amanda Hite, STR’s president and CEO. ‘Given the continued lack of pricing power being displayed, we expect performance to weaken a bit for the final quarter of 2016 then decelerate more in 2017 as hoteliers become less confident in pushing rate. Nonetheless, demand is still growing to all-time highs, and RevPAR will continue to reach record levels.’

• British Airways has confirmed it will charge travellers up to £20 for using a credit card on flight bookings from 14 December 2016. The current fee is a flat £5 per person per booking for both consumer and trade credit cards.

• The US Embassy in London is to be converted into a luxury 137-room hotel complete with shops, restaurants, a spa and a 1,000-capacity ballroom by Qatari-backed investors.

OTHER LEISURE:

• Study, The Price of Football, has reported that the cost of attending Premier League football has fallen. The study of 223 clubs found that more than two thirds of ticket prices across the UK either fell or were frozen for the 2016-17 season.

FINANCE & MARKETS:

• Fed chair Janet Yellen has indicated the US Fed could raise interest rates “relatively soon”. The Fed last raised rates in December last year.

• Mortgage lending in October rose month on month but fell year-on-year to £20.6bn for the month. The CML reported ‘housing market sentiment is holding up well, with demand still strong. This has led to a pickup in approvals, as expected.’ It did not major on the y-o-y fall.

• Dancer and former MP Ed Balls has said that the Bank of England should no longer be independent due to growing ‘popular discontent’. He adds ‘we need a more nuanced approach to central bank independence in this brave new world.’

• World markets: UK, Europe & USA up yesterday & Far East mostly higher in Friday trade.

• Brent down a shade at around $46.30 per barrel.

• Sterling down vs strong US$ at around $1.24. Up a little vs Euro at nearly 117c.

• US bond rates up again with 30yr yield back through 3% at 3.01%.

• ECB minutes lend weight to argument that further stimulus is coming.

YESTERDAY IN A NUTSHELL – SELECTION OF TWEETS, LIVE TWEETS ON WEBSITE:

• October Coffer Peach Tracker has pub & restaurant sales down 1.0% LfL against Rugby W Cup comps. Weather was similar.

• Tracker: Total sales +1.9% ‘reflecting the fact that leading groups are continuing to open new sites.’

• Tracker: Oct moves backwards as 3mth run of positive LfL sales numbers comes to an end.

• Tracker: London sales much worse than regions in Oct. LfL in capital down 2.5% but only minus 0.5% in regions.

• Trade bosses have warned that pubs could be in for two tough years of trade after Article 50 is triggered

• Shrinkflation. It’s a new thing. Suppliers can say that they’re not putting prices up. Consumer price warriors, beware

• Majestic H1 sales +13%, dividend reinstated. Back in profit, just. LfL at Majestic +5.7% with Naked +26.7%.

• Dart Group managed to generate 21% growth in group revenue to £1.241bn and a 12% rise in profit before tax to £163.7m in H1

• UK unemployment fell by 37,000 to 1.6 million in the three months to September, reaching an 11-year low

• Later tweets: Commodity price pressure, at least in Sterling, is all over the news. Just as price of a couple of bubble commodities start to fall

• Ocado falls yesterday as Amazon-bag-holding investors try to remember they hold the shares.

• Broker report suggests global inflation expectations now at 12yr highs. Bond crash fears diminish slightly

• Ave. earnings +2.3%. Still comfortably ahead of inflation – at least until ULVR summons up courage to try to put price of Marmite up again

• Tracker has LfLs -1.0% in Oct vs Oct last year. Also has year to date +0.6%, which is below inflation. Paddling hard to go backwards?

• Inflation. Just a word, right? Watch it in slow-motion as suppliers, manufacturers, retailer, consumers & employers play pass-the-parcel

• Check today’s email, older emails & blog posts here – http://www.langtoncapital.co.uk/

RETAIL NEWS WITH NICK BUBB:

• Asda PR Watch: Asda didn’t have much to boast about yesterday with their Q3 sales, but the PR team still had the nerve to boast that the -5.8% LFL showed “an improvement in the supermarket’s performance on the previous quarter, which was -7.5% LFL”! On the conference call with analysts in the US, the Walmart CEO, Doug McMillon, said in his introduction that “In the UK, we’re making some progress, but our turnaround will take time. We’re confident in our leadership team there and want to assure you we continue to address this market with urgency”. The CFO Brett Biggs said later “The key priority remains driving an improved customer experience and building sales momentum by simplifying the offer, improving product availability and making strategic investments in service and price. We are moving with pace as we address our customer value proposition in the market”. In the Wal-Mart slide
pack, it said that the -5.8% LFL at Asda was split -4.2% for traffic and -1.6% for ticket and that Asda’s Q3 gross margins were actually up…The hapless Sean Clarke, who took on the role of Asda CEO in July 2016, commented, without any apparent sense of irony, that “Putting customers first and foremost is at the heart of our business.  We have lowered thousands of prices, improved hundreds of own brand products and invested in more hours for colleagues on the shop floor – so it’s encouraging to see more customers shopping with us in stores and online”…

• Planet ONS Watch: We flagged yesterday that in the real world, October was a better but mixed month on the High Street (boosted by the colder weather and the new iPhone, as well as some timing issues), as per the BRC-KPMG Retail Sales survey. But on that strange parallel world, the Planet ONS, it was a much better month, as per yesterday’s Office of National Statistics Retail Sales figures for October. The 1.9% growth in “seasonally adjusted sales volume” month-on-month (+7.4% year-on-year) was much better than the c0.5% growth that the City expected. However, most sensible people only look at the non-seasonally adjusted sales value figures and here the embattled ONS reported that overall growth stepped up from 2.4% to 6.1% in October, boosted by improbably large growth of 14.0% growth for “Small Businesses” (versus just 4.0% for “Large Businesses”)…By product, Predominantly Food was
up 2.9%, Predominantly Non-Food was up by 5.4% and Non-Store was up by as much as 25.7% (!), with total Online sales said to be nearly 27% up…

• News Flow Next Week: Another busy week kicks off on Monday with the Bonmarche interims. Tuesday then brings the Kingfisher Q3 and the AO.com interims, whilst out in the US we get the Signet Q3 and the GameStop Q3. On Wednesday we get the Chancellor’s Autumn Statement and, hopefully, the Arcadia finals from the beleaguered Philip Green. Thursday then brings the Mothercare interims and the Pets at Home interims. And then Friday is…BLACK FRIDAY.