Langton Capital – 2017-07-11 – Young & Co, JDW, retail sales, slack money & other:
Young & Co, JDW, retail sales, slack money & other:
A DAY IN THE LIFE:
I know that a lot of verbs are also nouns, to love, the love, to hope, the hope, to champion, the champion etc. but I’m a reluctant user of nouns as verbs.
I can just about hear myself saying we’re about to action something but I don’t think I would ever say that we were going to hero our soft drinks or gold-medal our coffees.
But maybe I’m off the pace. On to the news:
60 SECONDS. SLACK MONEY, THE HUNT FOR YIELD & OVER-BUILDING:
Interest rates last rose over 10yrs ago (on 5 July 2007). Slack money got us through the worst of the aftermath of the Credit Crunch but where’s the road back?
• Getting the balance right:
o We didn’t want the financial world to end in 2008
o Hence, we cheered when the Bank of England (and the Fed, ECB etc.) turned on the money tap
o But here we are, ten years later, wondering what’s ‘normal’
• Bond yields down, any old investment beats its (non-risk adjusted) cost of capital:
o Capital, which has pronounced, lemming-like tendencies, has sought yield.
o Spreadsheets have shown returns of 15%, 20% or whatever against a marginal cost of capital, almost always debt, of perhaps 3%, 4% or so
o Sure, these were leasehold assets but hey, a return’s a return
o Until it isn’t, of course. But the music’s playing, you gotta dance…
o Why not max out on new-builds, accept lower returns etc.?
o Now we have a coffee shop on every corner and retail parks, which should have supported 4-6 F&B outlets, are saddled with 12, 15 or 20
• Maybe we were living in a bubble:
o Well, back up a bit. This is not a world without risk.
o Consumers could over-borrow, could see falling real wages & lose confidence
o They may be squeezed by inflation, may hear talk of possible r-r-r-r-rate increases
o Leaving some operators (see earlier ‘Nought to Sixty’ piece), naked when the tide goes out
o Over-expanded players could stumble and collapse at the first hint of tougher times
o Margin-driven operators, perhaps lazy & entitled, may struggle with the new reality
o But relevant operators selling the right product to the right customers at the right price from the right units, will still prosper
o Sound easy? Well, yes, but try it yourself sometime…
PUB, RESTAURANT & DRINK PRODUCERS:
• Young & Co updates at AGM saying that ‘we have had a very good start to the current year and have announced this morning that, in the first thirteen weeks, managed house revenues were up 10.8% in total and up 8.6% on a like-for-like basis.’
• YNGA chairman Stephen Goodyear comments ‘the dry and warm weather in April and the longest continuous hot spell in June for over 40 years has particularly benefitted our beautiful gardens and river based pubs.’
• YNGA reports ‘this year we are benefitting from the four acquisitions made last year.’ It says ‘these additions, along with other investments made in our existing estate last year, will provide a helpful tailwind for continued growth.’
• YNGA says ‘the economic environment is becoming more challenging.’ It points to increased Government costs ‘and the general uncertainty created first by Brexit and more recently by the outcome of the General Election.’ On the whole, however, the co says that ‘consumers, when they do go out, are looking for an experience and going to a Young’s pub is seen as an affordable lifestyle choice – a treat but not an extravagance. Long may that continue.’
• JDW yesterday announced that it had bought back 50k shares for cancellation on Friday. It’s current programme, which commenced on 4 July, has now seen 850k shares retired at an average price of 963p and a total cost of some £8.2m.
• BRC suggests that LfL retail sales rose by 1.2% in June versus May. It says hot weather encouraged spending. Total sales rose by 2.0%. Spend on food was up, driven by inflation.
• BRC reports food sales +3.6% in June with fashion & other sales less buoyant. Non-food was +0.9%.
• The Takeaway Economy Report predicts total spending on takeaways will reach £11.2bn in the next 5 years, growing 13% on current figures. The report, commissioned by JustEat, claims the industry will create an additional 30,000 more jobs by 2021, and that the industry added £4.5bn to the value of the UK economy, with 12.1% of total spending on food being via delivery.
• Consumer spending is near four year lows as stagnant wages and rising living costs squeeze incomes, according to Visa’s Consumer Spending Index. Household expenditure was -0.3% yoy in June, up from -0.9% yoy in May. Ecommerce slowed from 6.8% in May to 2.9% in June as face-to-face spending fell 2.4% yoy. Kevin Jenkins, UK and Ireland managing director at Visa, said that inflation was also forcing consumers to limit spending to essentials, with expenditure on food and drink rising 2%, compared to a “substantial” drop in spending on household goods.
• The Society of Independent Brewers (SIBA) say craft beers that have been bought out by global beer companies should be more transparent about who they are being produced by. They cite Camden Town, Meantime, Sharp’s and London Fields as examples that need more clarity for the consumer’s sake.
• The English Wine industry was valued at a record £132m last year, as turnover grew by 16%. The industry has trebled in value over the last 5 years, benefitting from a wave in popularity of homegrown drinks. A record 64 new wine producers obtained a license to produce wine last year.
• There could be a radical overhaul of employment law following a government review into the ‘gig-economy’ that places new guarantees on the minimum wage. The review will say ‘dependent contractors’ who work at firms like Deliveroo and Uber should receive benefits such as sick pay and holiday leave. The review will outline a structure obliging firms to show that a person working for them can earn at least 1.2 times the present national living wage of £7.50 an hour for over-25s.
• The Gig Economy should pay national insurance on workers’ wages says Matthew Taylor, head of the government’s review into modern working practices
• Just Eat has renewed its warning over a shortage of curry chefs in the UK and has called for the government to loosen immigration rules.
• A report commissioned by the Food and Drink Federation (FDF) states that there is still uncertainty over the future of EU workers who make up 32.5% of the industry’s workforce. Meanwhile, 40,000 of the industry’s workforce are expected to retire over the next decade and 140,000 new workers are required by 2024 to fill the impending skills gap.
• Craft Beer Co is offering half-price drinks in its Clerkenwell site all week in order to celebrate the company’s 6th birthday
• Lidl has set aside £1.5bn to double its rate of expansion in the UK to 60 new stores a year over the next two years.
• One billion 12-sided pound coins have now been minted.
• US comparison website CreditCards.com has found that, in the US, men, north-easterners & baby boomers left tips averaging 20%. Women left 16% whilst southerners & Democrats left 15%.
HOLIDAYS, LEISURE TRAVEL & HOTEL:
• TUI has sold its stake in container shipper Hapag-Lloyd in order to focus on its tourism operations. TUI reports ‘the proceeds will be reinvested in the transformation of TUI as the world’s leading integrated tourism business, focused on own hotel and cruise brands, and to further strengthen TUI’s balance sheet.’
• Positive US hotel sector y-oy results for the ending 1st July, have been reported by the STR. Occupancy climbed 3.8% to 74.2%, the average daily rate grew 2.8% to $127.75 and RevPAR rose 6.8% to $94.80.
• Staycity has announced plans for its new premium brand, called ‘Wilde Aparthotels by Staycity’. Europe’s leading aparthotel operator will open its first Wilde Aparthotel in the Strand in Autumn, containing 106-rooms.
• Heathrow Express has seen a 9% jump in passenger journeys on the non-stop airport service so far this year thanks in part to an increase in leisure travellers.
• Minister have agreed to reduce the cash incentives of bringing spurious holiday sickness claims against tour operators. The travel industry has seen a 500% increase in sickness claims since 2013. Justice Secretary David Lidington said ‘Our message to those who make false holiday sickness claims is clear – your actions are damaging and will not be tolerated’.
• Sebastián Darder, a Majorcan hotelier, has written in Travel Weekly of his surprise upon seeing the dramatic surge in claims for illness from British clients at his property. The number of claims at the 653-room Sol Palmanova has rocketed from just 7 at the end of 2016 to 281 today, while all hotels in Majorca have reported a 700% increase in claims over the past two years.
• Hoseasons has posted a 13% rise in peak summer bookings made in June year-on-year with a shift towards high-end accommodation. Luxury lodge bookings rose 21%, while those for boutique self-catering accommodation with hot tubs increased by 25% year-on-year.
• Hollywood Bowl has opened its 57th centre at The O2 in Greenwich, London, at the former Brooklyn Bowl site. The 12-lane boutique opened mid-June and Steve Burns, CEO at Hollywood Bowl Group said of the unit: ‘We are delighted to have opened our 57th centre at the O2. It is a fantastic addition to the UK’s premier entertainment venue and we have already received some great feedback from customers.’
• Sony shares rose 1.7% after the latest instalment of the Spider-Man film franchise surpassed expectations at the North American box office. Spider-Man: Homecoming raked in $117m (£91m) in its opening weekend, topping industry estimates of $80-$110m — the second largest figure in Sony’s history (behind Spider-Man 3).
• The BBC is looking into a cull of its mobile apps as it looks to simplify its online presence to better combat the growing influence of Amazon and Netflix. Currently there are separate apps for the iPlayer, radio, news, sport, music, revision and CBeebies, among others. ‘There is an open question about whether that’s the right way to go about it,’ a source said, speaking to The Telegraph. ‘Netflix has just one app, but Amazon has individual ones for lots of things, so there are different ways to go about this.’
FINANCE & MARKETS:
• The Visa UK Consumer Spending Index fell in June for the second month running. Y-o-y spend was down 0.3% compared with minus 0.9% in May.
• Visa says spending in Q2 was the weakest since Q3 2013. June bricks & mortar spend was down 2.4% whilst e-commerce spend was +2.9%.
• Visa reports spend on Transport & Communication was down 5.8% in June whilst spend on Household Goods was down 3.4%. Recreation & Culture spend was off by 1.2% whilst Hotels, Restaurants & Bars saw spend rise by 4.9%.
• Deloitte reports confidence among British CFOs fell post the general election, with 42% more pessimistic about Q2 prospects
• Deloitte says business sentiment on a “rollercoaster” since the Brexit vote last year. Some 43% of CFOs now believe uncertainty level is “high or very high”, up from 34% in Q1.
• Eurozone investor confidence fell slightly in July.
• Oil price off a fraction at $47.07.
• Sterling little changed at $1.2879
• Pound fractionally lower vs Euro at €1.1305
• UK 10yr gilt yield 3bps down at 1.28%
• UK markets mixed yesterday with 100-share index higher. Europe & US higher with Asia mostly up in Tuesday trade
YESTERDAY’S LATER TWEETS:
• Later tweets: Weak UK data suggests case for higher UK interest rates has been weakened. MPC opines this Thursday. The minutes might be interesting
• JD Wetherspoon is to update on trading on Weds. Co said on 13 June & 3 May that current trading is strong
• Visa Spending Index shows squeeze on spending, says it fell for 2nd month in a row in June ‘rounding off the worst Qtr since Q3 2013.’
• Visa says food spend up but other spend down. Says ‘household goods suffered from a substantial drop’
• Visa says ‘experience sector…has started to feel the impact too. Spend on recreation & culture dropped for 1st time in nearly 4yrs’
• Visa: Sees ‘marked deterioration in household expenditure trends’ with ‘increasingly challenging scenario’ & ‘dampened’ confidence
• JDW pushes on with buyback. Takes spend since 4th July to over £8m. Group updates on trading on Wednesday
• Burger failures arguably down to oversupply (due to slack money, PE frantic search for yield etc.) rather than lower demand
• Vince says time for Brexit rethink. Changing your mind is principle behind Court of Appeal, regular elections, ironically divorce etc
• Theresa May calls on Corbyn to help deliver Brexit. Problem is, he might just do so in ploy to secure 10 unfettered years behind the wheel
RETAIL NEWS WITH NICK BUBB:
• BRC-KPMG Retail Sales for June (the 5 weeks to July 1st): We flagged yesterday that the BRC-KPMG Retail Sales figures would probably show a slight pick-up last month and that was indeed the case, with overall LFL sales up by 1.2%, after -0.4% in May. But apart from the hot weather, which delivered “perfect conditions” for Fashion and outdoor living sales, the BRC also flagged that the earlier fall of the Eid festival this year also boosted Non-Food sales in June, so it would be wrong to get carried away. The exact Food/Non-Food LFL sales split last month was, as usual, buried in the 3-month moving average, which now stands at +3.6% and +0.9% respectively, but although Food was again strong last month, Non-Food did pick up, thanks to all the “outdoor goods” like paddling pools etc. But Non-Food also saw some big declines in “indoor goods”, like TVs, so it wasn’t all plain sailing.
• Marks & Spencer: Ahead of today’s Q1 update from M&S (for the 13 weeks to July 1st), the jungle drums were beating that Clothing LFL sales were likely to be “only” about 1.0% down and, so, despite the desperately soft comps, the bulls will be pleased to see that Clothing and Home sales were indeed only 1.2% down. But on an Easter adjusted basis the fall was 1.8%, which is not so good, even though M&S trumpet the fact that full-price Clothing and Home sales were actually 7% up overall in Q1, on the back of reduced promotions. The bears will seize on the 0.8% fall in Easter adjusted Food sales LFL as evidence of cannibalisation caused by all the Simply Food store openings, although M&S confine themselves to the comment that “We are focused on tightening execution through improving ranging in store and on delivering stronger promotions in a competitive market”. Full year
• News Flow This Week: Tomorrow brings the Burberry Q1 and the ASOS Q3 is then on Thursday.