Gym Group, M&S, Tesco, Booker, London hotels & other:

A DAY IN THE LIFE:

If we haven’t got a particularly big house, and we really haven’t, then why is it that we get Tyne Tees TV in the kitchen and Yorkshire in the lounge.

I mean I thought they worked off the same aerial.

Maybe they don’t but, when I’m having my breakfast, I can hear about the latest shooting in Leeds or whatever then, if I wander through to the front room, I can hear about the problems being caused by sheep in the town centre in Alnwick or mud on the road in Hawes.

Well I guess it makes life interesting.

And I can choose which weather I want to have for the day ahead. Anyway, time for the news:

US RESTAURANTS & READ-ACROSS TO UK:

Gloomy comments Stateside:

• 4 Jan: NPD Group says ‘a restaurant industry that struggled with weak sales and traffic in 2016 shouldn’t expect much improvement in 2017.’

• 4 Jan: NPD ‘expects restaurant industry traffic to remain stalled in 2017’. It sees a shift from dine-in to quick-service

• 4 Jan: NPD says there are ‘more restaurants than visitors.’

• 6 Jan: Nation’s Restaurant News says Netflix growth is increasing competition for customers’ time & money.

Company comments in US:

• 6 Jan: Ruby Tuesday says Q2 (to Dec) LfL sales down by 4.1%. CEO says ‘results of Q2 were disappointing.’

• 11 Jan: Chipotle expects LfL sales to fall 4.8% in Q4. This would still mark best for 5 quarters. Admittedly it was hit by an E.coli outbreak in Oct 15

• 11 Jan: Chipotle LfL sales down 15% on 2yrs ago.

• 11 Jan: Shake Shack is increasing prices ahead of ‘wage hikes’

• 11 Jan: Kona Grill reports Q4 LfL sales down 4.1%. Says sales were ‘weaker than anticipated’ & blames ‘weak retail traffic, inclement weather & influx of new competition’.

Above in context:

• Some consistency here

• Companies spinning it with ‘as you know, things are currently very tough…’

• But did we? Really?

Implications for UK:

• Overcapacity, price-gouging, mediocre product (featuring high-rent units, costly labour & a less-than-relevant offer) will pay-back negatively in any kind of slowdown

• We should look more critically at ‘0 to 60’ superstars: Ed’s, Bill’s, Five Guys, Strada etc.

• Consider RTN’s volte face, JDW’s pub sales, slowed expansion, Jamie’s closing 6 etc.

• Expensive, entitled offers may fall foul of a more discerning (a.k.a. penny-pinching) consumer

• This is still a growth industry – there’s a critical difference between ‘simple’ and ‘easy’

• Saying ‘back winners’ is simple. But it’s not easy

PUB, RESTAURANT & DRINKS PRODUCERS:

• Casual Dining Group, which operates the Café Rouge, Bella Italia & Las Iguanas brands, has reported Xmas LfL sales +4.7%. Total sales during the 5wks to 8 Jan were up by 10.8%.

• Shares in Hong Kong bar group Bar Pacific jumped 1,300% on debut yesterday. The operator, which has 32 bars outside the city centre, is now valued at some $449m. The valuation rose by $416m on the day.

• Moody’s has said that McDonald’s decision to sell a majority stake in China Business is Credit Positive. It says ‘the new partnership will pay a total consideration of up to $2.8 billion to acquire McDonald’s mainland China and Hong Kong businesses’ and adds ‘once the deal closes, CITIC Limited and CITIC Capital will have a controlling stake of 52%, while Carlyle will have 28% and McDonald’s 20%.’ Its analysis concludes ‘the sale is credit positive for McDonald’s because it should help to limit the company’s earnings volatility given that the royalty stream from a franchisee is based on gross sales and not earnings, and that all operating costs and capital requirements are the responsibility of the master franchisee.’

• Tesco has reported its ‘third successful Xmas’ with LfL sales +1.1% over the last 19wks. For the 6wks to 7 Jan group sales were up by 0.3% LfL with UK group sales up by 0.7%. CEO Dave Lewis says ‘we are very encouraged by the sustained strong progress that we are making across the Group. In the UK, we saw our eighth consecutive quarter of volume growth and delivered a third successful Christmas.  Our fresh food ranges proved particularly popular, outperforming the market with great quality, innovative new products and even more affordable prices. Internationally, we have continued to focus on improving our offer for customers in challenging market conditions.’

• Tesco’s Lewis concludes ‘we are well-placed against the plans we shared in October to become more competitive for customers, simpler for colleagues, and an even better partner for our suppliers, whilst creating long-term value for our shareholders.’

• MKS updates for Q3 (13wks to 31 Dec) saying total UK LfL sales were +1.3% with food +0.6% and clothing etc. +2.3%. CEO Steve Rowe says ‘I am pleased with the customer response we have seen to the changes we are making in line with our plan for the business.’

• MKS CEO says ‘in Clothing & Home, better ranges, better availability and better prices helped to improve our performance in a difficult marketplace. We also continued to substantially reduce discounting, including over Black Friday.’ Steve Rowe says ‘our Food business continues to grow market share with customers recognising our product as special and different.’

• MKS cautions ‘our Q4 reported numbers will be adversely affected by sale timing and a later Easter’ but it says ‘the business remains focused on delivering the strategic actions announced last year.’

• SSP has stepped forward to reopen and run Ed’s Easy Diner in Debenhams in Manchester just two months after closing.

• Booker saw like-for-like non-tobacco sales grow by 5.1% and tobacco sales fall 1.3% in Q3, making for 3.2% increase in like-for-likes. The group’s retail side – consisting of Premier, Budgens and Londis – are performing well, with internet sales up 10% to £333m, while Booker India ‘continues to make good progress’. The group remains on course to meet expectations for the year ending 24 March 2017.

• Charles Wilson, Chief Executive, said: ‘Booker Group continues to make good progress with like-for-like non-tobacco sales up 5.1%.  Our plans to Focus, Drive and Broaden Booker Group are on track.  Budgens and Londis are making a solid contribution to the Group.  We continue to help our retail, catering and small business customers prosper through improving our choice, prices and service.’

• JDW reports that it bought back 150k of its own shares for cancellation at 895p on Tuesday

• Enterprise Inns managed partnership co Frontier Pubs (a JV with Food & Fuel) has announced that it is opening 2 new pubs. Peter Myers, Commercial Director for Food & Fuel reports ‘our first two sites have been well received by customers and we’re very excited about these two London openings. With the demand for craft beer continuing to rise, and taking into consideration the locations of these sites, we’re confident they will be very successful.’

• Immigration minister Robert Goodwill says HMG considering extending £1,000 per person levy on EU nationals working in the UK. The IoD has said the levy would hit businesses dependent on skills from abroad.

• A new report by Oxford Economics (OE) commissioned by the BBPA has found that the beer and pub industry contributes some £23.1bn to the British economy. The figures ‘make clear the case for a further beer duty cut in the Budget on 8 March’, according to the BBPA, which wants to protect the nearly 900,000 people employed in the industry. The BBPA argues that a further duty cut would help encourage investment, protect jobs and improve confidence.

• Brigid Simmonds, BBPA Chief Executive, commented: ‘Our sector supports almost 900,000 vital jobs, and it is particularly important that we can go on boosting employment, especially for younger people, which is why the BBPA is calling for a further cut in beer duty in the Budget. Three historic beer duty cuts since 2013 have brought huge benefits, created jobs and encouraged investment, but our rate of duty is still many times higher than that of our neighbouring countries. As we leave the European Union, we need a tax system that encourages investment more than ever before, and we will be working hard to encourage the Government to secure further reductions on 8 March.’

• Novus Leisure will acquire Rocket Restaurants from 3Sixty Restaurants on 30 January, per MCA.

• The Portman Group has criticised the idea of banning alcohol marketing to reduce underage drinking put forward in the US-based Addiction Journal. A spokesperson for the Portman Group said. ‘Regardless of the rise in online marketing channels, official UK government statistics shows that underage drinking has fallen to the lowest levels ever recorded, whilst in France an alcohol marketing ban has been accompanied by two decades of increasingly harmful drinking among children. Banning alcohol marketing is not a solution to underage drinking.’

• Lidl has posted record sales over the festive season yesterday, up 10% year-on-year for the 2016 holidays, with sales of vegetables and Prosecco performing well. The group has ongoing expansion plans in 2017 and Lidl UK CEO Christian Härtnagel commented: ‘Going into 2017 we are absolutely focused on saving our customers more money than ever before, which we will be demonstrating through our brand new ‘Big on Quality, Lidl on Price’ campaign. We also remain fully committed to our ongoing expansion plans, which will see the opening of up to 50 new stores next year, along with two new regional distribution centres, creating thousands of new jobs up and down the country.’

LEISURE TRAVEL & HOTELS:

• The ALMR has warned that Bath and North East Somerset Council’s proposed ‘tourist bed tax’ will introduce an extra layer of cost for hospitality businesses. ALMR Chief Executive Kate Nicholls said: ‘At a time when businesses are facing tightening margins and increased property and wage costs, and when pubs already pay a third of turnover in taxes, any additional costs burdens could have a hugely detrimental effect on revenue streams for retailers and undermine Bath’s economy.’

• VisitBritain is forecasting a 1.5% year-on-year increase in the volume of inbound tourism visits to the UK in 2017 to 36.7m and predicts a 1.1% rise in spend to £22.3bn. The national tourism agency is optimistic about the year ahead, predicting 38.1 million visits (+4.0%) and £24.1bn in visitor spending (+8.1%).

• STR’s preliminary December 2016 data for London, England, shows supply up 2.7% year-on-year and demand up 10% on 2015’s weak December. Occupancy rose 7.1% to 80.1% — its highest actual occupancy level for any December on record — and average daily rate grew 7% to £149.02, while revenue per available room increased 14.5% to £119.41, although figures are flattered by November 2015’s terrorist attack in Paris.

• Las Vegas continues to see increased tourist demand from the UK, with arrivals by the air from the UK up 11.8% to almost 390,000 passengers in 2016 as airline capacity grows.

• Stansted’s busiest ever December of 1.85 million passengers helped the airport end 2016 in record-breaking fashion, with 24.3 million passengers using the airport over the twelve months. The top five countries reporting the strongest growth were Italy (+429,895), Scotland (+333,940), Spain (+251,995), Poland (+169,354) and Germany (+154,814). The most popular destinations were Edinburgh (+214,336), Berlin (+124,112), Glasgow (+119,069), Rome (+84,920) and Faro (+79,865).

• A 4.4% increase in December helped Heathrow to a record of 76 million passengers in 2016 thanks in part to traffic from emerging markets in the Middle East and Asia. Annual passenger numbers handled by Heathrow grew by 1% over 2015 while aircraft movements were up by 0.2% to 473,231. However, domestic passenger numbers fell by 9.6% to 4.6 million in 2016 while key routes to North America saw a decline of 0.5% to 17.1 million and those using Africa routes dropped by 4.1% to 3.1 million.

• RMT will be balloting London Underground (LUL) staff for more strike action ‘over a breakdown in industrial relations’.

OTHER LEISURE:

• Gym Group updates on FY trading, says earnings will be in line with consensus market expectations.

• Gym Group reports 15 new gyms opened in the year, membership +19.1% on the year with a ‘strong balance sheet’ and net debt of £5.2m. CEO John Treharne reports ‘this has been another year of rapid progress growing the number of sites in our estate by over 20% and achieving our financial goals. Our 2016 openings are performing well.’ He says ‘our pipeline for new sites in 2017 is the strongest we have ever had with strong cash generation to fund future openings’ and concludes ‘we remain excited about the growth opportunities that our low cost model brings and look forward to continued profitable progress in 2017.’

FINANCE & MARKETS:

• B of England boss Mark Carney has said the immediate risk posed by Brexit to the UK economy has declined. He told parliament the overall level of risk was still “elevated”. He reiterated calls for a period of transition.

• B of England expresses concerns re rising levels of consumer credit. Hints at action. Borrowing is growing at the fastest pace in 11yrs. Alex Brazier at the Bank says the rate of growth ‘was a very difficult number to ignore’.

• World markets: UK hits another high, Europe up and US also higher. Far East mostly lower in Thursday trade

• Brent up at $55.05 per barrel

• Sterling down against US$ at $1.221 and 115.1c vs Euro

• Interest rates. UK 10yr gilt yield lower at 1.34% (was 1.36%) and US 30yr bond yield also a shade lower at 2.96% (2.97%)

• NIESR has reported that the UK economy is likely to have grown by 0.5% in Q4 last year. The UK economy perhaps added 2% in the year. The NIESR adds ‘consumers face significant headwinds this year and next, not least the increase in consumer price inflation that is a consequence of pass through from the depreciation of sterling in 2016.’

• FT quotes ONS numbers as showing that income inequality is at its lowest level for 30yrs.

• Jeremy Corbyn is reported to have stepped back from his suggestion that income should be capped. He said ‘we cannot go on creating worse levels of inequality.’ Inequality is in truth at 30yr lows.

• Sterling fell again yesterday on news that the UK’s trade deficit had risen. Imports rose more rapidly than exports

• ONS reports volume of exports rose 1.1% over 3mths to Nov. c.f. 2.7% decline in previous 3mths. Markit reported ‘signs are appearing… that the weaker pound is benefitting the economy, especially in terms of rising goods exports.’ It is perhaps to be expected that Sterling amounts (including that of the deficit itself) will get worse before they get better.

• UK trade deficit up to £4.2bn in Nov from £2.6bn in Oct.

• UK industrial production +2.1% in Nov (versus 1.1% decline in Oct)

• Foxton’s reports EBITDA will be c46% down in 2016 vs 2015. Says its ‘reduction in Group revenue for the year reflects the significant fall in sales volumes immediately following the first quarter of 2016.’ Q4 sales revenues were down by 40% on the same quarter last year.

TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS:

• Casual Dining Group, which operates the Café Rouge, Bella Italia & Las Iguanas brands, has reported Xmas LfL sales +4.7%.

• Shares in Hong Kong bar group Bar Pacific jumped 1,300% on debut yesterday

• Moody’s has said that McDonald’s decision to sell a majority stake in China Business is Credit Positive

• Tesco reports ‘3rd successful Xmas’ with LfL sales +1.1% over last 19wks. For 6wks to 7 Jan group sales were +0.3% LfL, UK +0.7%

• MKS updates for Q3 (13wks to 31 Dec) saying total UK LfL sales were +1.3% with food +0.6% and clothing etc. +2.3%

• SSP has stepped forward to reopen and run Ed’s Easy Diner in Debenhams in Manchester just two months after closing.

• Booker saw like-for-like non-tobacco sales grow by 5.1% and tobacco sales fall 1.3% in Q3, making for +3.2% LfL

• JDW reports that it bought back 150k of its own shares for cancellation at 895p on Tuesday

• Immigration minister Robert Goodwill says HMG considering extending £1,000 per person levy on EU nationals working in UK

• Novus Leisure will acquire Rocket Restaurants from 3Sixty Restaurants on 30 January

• VisitBritain is forecasting a 1.5% year-on-year increase in the volume of inbound tourism visits to the UK in 2017

• STR’s preliminary December 2016 data for London, England, shows supply up 2.7% year-on-year and demand up 10%

• Gym Group updates on FY trading, says earnings will be in line with consensus market expectations.

• B of England boss Mark Carney has said the immediate risk posed by Brexit to the UK economy has declined

• B of England expresses concerns re rising levels of consumer credit. Hints at action.

• NIESR has reported that the UK economy is likely to have grown by 0.5% in Q4 last year

• ONS reports volume of exports rose 1.1% over 3mths to Nov. UK trade deficit up to £4.2bn in Nov from £2.6bn in Oct.

• Later tweets: Commodity price-watch, milk price up for 5th straight month in Nov from c20p per litre to nearly 26p. Was 34p couple years ago

• Rising milk price will impact input costs for Premier. Big Q is how much will be passed on. Could be good news. Or bad.

• SBRY manages to eke out LfL increase. Nowhere near as good as MRW but says ‘well-placed’ in v competitive market

• Langton survey. Walk Baker St Tube to Portman Square (800yds) & see 3 Costas, 2 SBUX, 2 Pret, 2 EAT. Perhaps 25 in total. Saturation? Nah..?

• FTSE100 won’t go down. Today up again (so far). Yesterday made 11th consecutive rise, 9th consecutive all-time record

• Food price rises. Premier, Walkers (Pepsi), Marmite (ULVR) etc. Will Tesco et al be ‘guardians of consumer’ or conspire to reflate?

• Foxtons says 2016 EBITDA to fall 46%. Sales rev in Q4 down 40% in rubbish market. Lettings sees ‘lower levels of new tenant activity’

• Foxtons. Who will shed a tear for London estate agents? Co says 2016 rubbish & 2017 (on current trading) will be worse

• Daily email for free on website. Original & still the best. Now incl. tweets. News, views & analysis. Sign up & no strings. www.langtoncapital.co.uk

RETAIL NEWS WITH NICK BUBB:

• Marks & Spencer: Ahead of today’s Q3 update (for the 13 weeks to Dec 31st), despite the buzz in the market about the chance of seeing a bit of Non-Food sales growth, we thought that M&S would have a better story to tell on gross margin than sales in Non-Food, so the headline +2.3% LFL certainly got people’s attention, but the underlying LFL was “only” +0.8% because of the calendar shift. And M&S Food was only +0.3% LFL on the same basis. M&S themselves weren’t trumpeting the outcome, warning that Q4 will see the Christmas calendar shift unwind and see a late Easter impact, so it will be interesting to hear how CEO Steve Rowe feels on the 8.15am conf call.

• JD Sports: The update today was a bit late in being notified, but there is no sense of any bad news, as management have flagged that full-year profits will be well ahead of expectations again, having manged to maintain the first half +10% LFL sales run-rate through the second half and Xmas period, despite very strong comps.

• SuperGroup: In the middle of everything else today, SuperGroup is holding an analysts meeting at 9.30am for its interim results (which are very good), but they deserve to get a good turn-out, because peak trading over the last 7 weeks saw LFL sales nearly 15% up. CEO Euan Sutherland says “Having traded well through our peak trading period, the Board remains confident in delivering full year underlying profit before tax in line with analyst expectations and in the Group’s long term growth prospects as Superdry becomes a global lifestyle brand”.

• Debenhams: It’s a long time since Debenhams thought it appropriate to say anything about the sordid subject of “current trading”, with investors focused on the upcoming strategic review form the new CEO with the interims in April, but ahead of this morning’s AGM it has come clean and the update for the 17 weeks to Jan 7th is actually rather pleasing, with LFL sales up by 1.0% and gross margin broadly steady, despite the dilutive impact of the swing in the sales mix towards Beauty. There is an 8.45am conf call

• Shoe Zone: We said yesterday that the discount shoe chain Shoe Zone didn’t say in its final results statement where its three “Big Box” trial stores are, but, err, we should have read the whole thing, as the company said the openings were in Launceston, in Cornwall, and in Durham, followed by Kirkstall Bridge, in Leeds. The stores are on average are twice the size of a “Grade 1” Shoe Zone  store, but they are a bit off the beaten track for us…Anybody seen one?

• US News Flow This Week: The pace of UK company updates has picked up significantly this week, but it’s been busy in the US too.  Yesterday’s Signet Xmas trading update was notable for its disappointing performance in the core US business, but the UK business also performed poorly, with overall LFL sales down by 3.7% in the 9 weeks to Dec 31st (down 4.9% at H Samuel and down 2.2% at Ernest Jones). Signet said the UK LFL decline was “driven primarily by fashion jewellery and beads, most notably at H. Samuel, offset in part by higher sales of bridal and watches”. Tomorrow brings the Xmas trading update from GameStop in the US, which will be closely followed by investors in its UK peer Game Digital…