Langton Capital – 2018-01-18 – Whitbread, discounts, trends, distilleries & other:
Whitbread, discounts, trends, distilleries & other:
A DAY IN THE LIFE:
Bit busy this morning so let’s move straight on to the news:
WHITBREAD Q3 TRADING UPDATE:
Whitbread has this morning updated on trading for its Q3 and our comments are set out below:
• Whitbread reports ‘group UK like-for-like sales growth of 0.3% reflecting recent tougher market conditions’
• It says ‘Premier Inn UK third quarter growth of 5.0% [was] driven by investment in new hotel capacity’
• WTB adds ‘Costa UK strong third quarter growth of 7.2% [came] from new stores and Costa Express expansion’
Premier Inn & Restaurants: :
• In hotels & restaurants, Whitbread comments that its ‘total sales growth [is] ahead of the market in the UK at 5.0% in the quarter’
• It saw ‘flat Hotels like-for-like sales.’ It says this ‘reflects recent market weakness’
• Hotel growth has been ‘driven by investment in new hotel capacity with good return on capital.’
• Occupancy has remained >80%
• In the UK, WTB says ‘Premier Inn has performed well and continued to win market share with total sales growth in the third quarter of 5.0% (YTD: 6.0%).’
• It says ‘room openings in the current year have been significantly more weighted towards the first nine months’.
• It says ‘during the third quarter, there were signs of market weakness, most notably in London, with year-on-year declines in both occupancy and average room rate.’
• WTB says ‘market weakness in London was partly driven by the relatively high level of recent new capacity, which is expected to moderate in the year ahead.’
• WTB says ‘whilst overall International sales fell due to completing the exit of underperforming hotels in India and Southeast Asia, Premier Inn’s first hotel in Germany continues to perform well, providing us with confidence to extend the network.’
• Whitbread reports Costa saw ‘good UK revenue growth of 7.2% in Q3 driven by strong performance in growth channels’
• It says ‘UK equity store like-for-like performance reflects the general retail market conditions’ – This is now negative
• WTB says ‘UK Costa Express continuing strong performance with Q3 total sales growth of 20.4%’
• Re the domestic market, WTB reports ‘Costa continued to take advantage of the growing coffee market in the UK with 7.2% total revenue growth in the third quarter (YTD: 7.9%) and (0.1)% like-for-like sales (YTD: 1.0%).’
• It says ‘this expansion was delivered through a targeted investment programme to open new stores in high footfall locations’
• Costa reports ‘performance declined in traditional high street stores reflecting weakening footfall, with trading on the high street expected to remain subdued in the near term.’
• ‘Costa Express has continued to perform exceptionally well in the UK’
• Internationally, WTB reports ‘there are significant opportunities in Costa Express and Costa China to build businesses of scale with strong return on capital. To achieve this, it is expected that investment will increase over the next year.’
Debt, balance sheet & cash-flow:
• Little comment
• Whitbread Chief Executive Alison Brittain comments ‘we have made good progress in executing our strategy and have grown group sales so far this year by 6.8%.’
• Ms Brittain says ‘this growth, combined with the results from our group-wide efficiency programme, means that we are on track to achieve expectations for the full year.’
• Re Q3 at Premier, she says ‘our performance in the quarter moderated as the budget hotel market weakened and we had a particularly challenging October.’
• Q4 ‘s ‘performance so far has been encouraging and reflects a return to year-to-date performance.’
• WTB CEO Brittain says ‘our Costa high street stores in the UK are highly profitable and generate strong returns. However, the well-publicised weak retail market footfall is negatively impacting our high street stores’ like-for-like performance and we expect this to continue for some time.’
• Overall, WTB says ‘we remain committed to delivering our strategy to invest in the attractive structural growth opportunities in the budget hotel market and the growing coffee markets, in both the UK and internationally.’
• Whitbread’s Premier Inn has slowed and, while restaurants are now growing, Costa is in small LfL decline.
• The UK economy is facing well-documented headwinds.
• Sterling has weakened & costs have risen but the silver lining, the surge in inbound tourist numbers, does not seem to be sufficient to fill all of the new hotel capacity in London.
• This may change but it will take time. Hotels are rarely demolished & WTB and others will simply have to trade through any supply-led slowdown in trading.
• Whitbread’s shares have bounced recently and, at around 15x this year’s earnings, they are not prima facie cheap. Today’s update will cause some to reflect on this and, despite the fact that WTB has an impressive freehold estate, good brands and international ambitions, the shares could come under some pressure.
PUB, RESTAURANT & DRINK PRODUCERS:
• Discounts. Three categories 1) 50% off mains. Zizzi, Café Rouge, Prezzo 2) 2-4-1s. Pizza Express, Bella Italia 3) other 40% off mains (Harvester),41% off mains (nice round number, Pizza Hut).
• Restaurant Group’s Frankie & Benny’s has got in on the discounting act. It is offering 50% off mains and a free iced cream.
• Frozen food company McCain has produced a foodservice report suggesting that turnover growth will slow amidst Brexit uncertainty. It says ‘as new trends come and go, changes to what consumers eat, where they eat, and how they eat take place. Operators take influence from fresh new cuisines, bold new flavours make it on to menus, and new dining options emerge. Technology also has a big influence.’
• McCain reports ‘with so many changes happening it can be hard to pick out the opportunities that will work for your business, and those that will make headlines and then disappear, so we’ve rounded up a few of the key ones that we believe can help caterers stay hot and ahead of the competition in the next year.’
• The company says ‘every year as new trends come and go, changes to what we eat, where we eat, and how we eat take place. Venues take influence from fresh new cuisines, bold new flavours emerge on menus, and our taste buds turn to the wealth of wonderful new choices available. However, it’s not just the food that’s changing. With new technology allowing meals to be ordered with the touch of a button, venues trying out different design concepts, and with every peak and trough of the economy, the way we eat often changes just as frequently as what we eat. With so many changes happening, it can often feel difficult to keep up with the fast pace of the foodservice industry.’
• McCain suggests value will be big in the coming year. It says convenience will remain important and technology will also have a major influence on food trends. Informality will remain important. It says ‘take for example the spread of cashless and waiter-free payment options, with many fast-food and casual dining locations now providing the option for customers to pay by card via touchscreen apps. 2017 even saw the UK’s first no-cash venues open, with two new London branches of a popular salad chain only accepting payment via in store touchscreen interfaces or a dedicated mobile app.’
• TGI Fridays’ CEO Karen Forrester has said that there will be no slowdown in the pace of openings. Ms Forrester believes the brand could reach 150 sites in the UK.
• Nestle is to introduce a pink (ruby) chocolate. Ruby KitKats, which will be sold initially in Japan and South Korea. They will be available later in the UK.
• Arcadia (Topshop etc.) owner Philip Green seems to have enhanced his popularity by imposing a 2% discount on his suppliers on orders already placed. The group tells suppliers it has ‘absorbed significant costs in technology, distribution and people’ and it would like its suppliers to pay for it. Arcadia is telling the press it has done this ‘in order to remain competitive in the global market.’
• US operator Buffalo Wild Wings Inc. has said that LfL sales in 2017 were down 1.6 percent to 1.7 percent. BWW is being purchased by burger operator Arby’s.
• WKS Restaurant Group, which is the largest El Pollo Loco franchisee in the US, has bought Pennant Foods Corp. Pennant has 52 Wendy’s in Southern California.
• The number of distilleries in Britain has more than doubled over the past five years to 315, with 49 of those opening up in 2017, per HMRC.
• Cognac exports grew for the third year running in 2017, hitting their highest ever levels in both volume (+10%) and value (+14%) despite frost early in the year. Figures from the Bureau National Interprofessional du Cognac (BNIC) show around 197.4 million bottles of Cognac were exported from the region in 2017 – almost 98% of its total production – resulting in a turnover of €3.15bn. ‘The historic presence and ongoing investment of our brands in the United States make the strong performance of Cognac exports to this market possible,’ said Patrick Raguenaud, president of the Bureau National Interprofessional du Cognac (BNIC).
• Transparency and integrity are key traits that retailers and brand owners must adopt if they are to retain the loyalty of the next generation of consumers, according to shopper insight firm HIM. Blake Gladman, content and innovation director at HIM, explained: ‘Transparency is of genuine concern for consumers and the lack of it can be detrimental to a brand’s success. Almost one in three (31%) say they have switched to another brand that was more transparent or environmentally/socially responsible. Now more than ever, consumers are looking for authentic brands who will court them with transparency, simplicity and evidence.’
• Pret a Manger and Wagamama are the latest companies to signal they will stop automatically providing plastic straws, with paper alternatives to be offered instead. Theresa May recently called plastic waste one of the ‘environmental scourges of our time’, with some 3.7 million tonnes of the material used by the UK every year.
• BrewDog has secured a site for its first airport bar and has another in the pipeline.
• A survey of 2,000 people, commissioned by Young’s Seafood, suggests that some 70% of consumers would opt for British-made products if given the choice.
• Nomad acquires Goodfella’s Pizza from 2 Sisters Food Group for £200m.
• Books and toys retailer The Works reports record Christmas performance with LfLs up 6.3% in the 12 weeks to 24th December.
HOLIDAYS & LEISURE TRAVEL:
• Chinese investor Dalian Wanda Group is to sell its interest in One Nine Elms in London for £59m
• After raising £2.1m, Snaptrip.com has acquired Last Minute Cottages. The funding round was led by Bestport Ventures attracting new angel investors such as Matthew Witt, former CEO of Active Hotels.
• Following May’s reshuffle, Michael Ellis MP now has responsibility for tourism after being appointed secretary of state at the Department of Digital, Culture, Media and Sport.
• Ten Entertainment has updated on FY trading saying it has made ‘strong progress in the year towards achieving the Group’s growth strategy’
• Ten says sales rose in the year by 8.9%. Chairman Nick Basing reports ‘very good progress has been made during the period, in line with the growth strategy outlined at the IPO in April 2017. Tenpin is building towards being the ideal hallmark to attract today’s modern leisure customer.’
• Ten says ‘TEG is demonstrating a good growth formula, driven by a combination of organic sales growth, a continuous refurbishment programme and laser-like acquisitions. I am confident that full-year Group adjusted EBITDA will be at the top end of the range of current market consensus.’
• Regal Entertainment Group reports box office revenue and concession revenue down 2.6% and 0.3% for the year ended 31 December 2017. Attendance at the cinema also suffered, down 6.7% compared to 2016, with 197m in 2017. The company state that the overall film slate in 2017 was weaker than the prior year.
FINANCE & MARKETS:
• Apple has emerged as one of the ‘victims’ of the Trump tax changes. Whilst hoteliers etc. will pay less, the tech giant is to pay $38bn in tax on the c$250bn that it holds outside the US.
• US bank Goldman Sachs has also emerged as a loser. It posted its first quarterly loss (of $1.9bn) in 6yrs. It reported a one-time tax charge of $4.4bn due to the Trump tax changes.
• Bitcoin traded below $10k yesterday. It’s now at c$11,250.
• UK balance of estate agents seeing prices rising versus falling rose to plus 8 in December versus zero in November.
• Eurozone CPI comes in at 1.4% for 2017
• Oil up at $69.31
• Sterling stronger at $1.3832
• Pound up at €1.1329
• UK 10yr gilt yield unchanged at 1.30%
• World markets. UK down yesterday on poor results & stronger pound. Europe down & US up with Asia up in Thursday trade.
ADMIN UPDATE, RESEARCH ETC.
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
• We are putting together a compendium of 60-seconds pieces for publication this month at £200 plus VAT, free to clients. Please let us know if you would like a copy.
PRIOR DAY LATER TWEETS:
• Later tweets: UK CPI down but RPI & output price inflation rise suggesting that 1) consumers are worse off than it looks & 2) producers are jacking prices
• Burberry: London tourist boom ended, UK down “high single digit percentage’ up against last year which was ‘boosted by tourist inflows’
• John Lewis see sales continue to lag. Down 4.5% LfL in week to 13 Jan. That’s down a whopping 7.5% in real terms
• Cineworld. Good numbers, massive rights issue & US acquisition. Latter pre-announced but execution risk remains significant
• We in a ‘deconstructed recession’? Some bits (retail, F&B, London housing) finding it tough & others (exports etc) in a much better place
START THE DAY WITH A SONG:
Yesterday’s song was Come On Eileen by Dexys Midnight Runners. Today, who sang:
Walk without rhythm,
And it won’t attract the worm,
If you walk without rhythm
Ah, you never learn
RETAIL NEWS WITH NICK BUBB:
• Halfords: Today’s Q3 update from Halfords covers the 15 weeks to 12 Jan , so it is bang up to date and although the retail environment has been tough, sales for the period were slightly ahead of expectations, with Retail LFL ales up by 2.8%, albeit growth was led by the lower margin cycling business. Halfords says “Our FX mitigation plans remain on track. We anticipate FY18 Group profit before tax broadly in line with current market expectations”.
• ABF (Primark): The update from ABF today covers the 16 weeks to Jan 6th and although there is no detailed split of trading at Primark, the news is that the core UK business saw “strong” LFL sales growth and grew clothing market share significantly
• Asda Watch: Wal-Mart confirmed yesterday the Bloomberg rumour that the estimable Judith Mckenna (the former Asda FD who is currently COO of the US business) is to be promoted to run the International Division of Wal-Mart (which includes Asda, of course), with effect from Feb 1st. It wasn’t clear at first what is happening to the incumbent, Dave Cheesewright, but the news is that he “recently shared his desire to retire from a full-time role” and will after March “serve the company, on a limited basis, with specific projects for a longer period of time”. In the statement the Wal-Mart CEO Doug McMillon said that “It has been inspiring to see her personal growth and the results she’s driven over the years. Her integrity, high expectations and passion for the business and our associates will ensure our continued success in International” and Judith Mckenna herself gushed “Being chosen to
• News Flow This Week: Tomorrow we get the Bonmarche update, as well as the ONS Retail Sales figures for December.