Langton Capital – 2019-03-18 – PREMIUM – Domino’s, Pat Val, JDW, RTN, discounts, contactless & other:

March 18 2019

Domino’s, Pat Val, JDW, RTN, discounts, contactless & other:



I had something of a moral dilemma over the weekend.

Our Bearded Dragon – it’s ours when things need paying for, our daughter’s at all other times – has started shedding its skin.

And that’s healthy, I’m told, but the books say to help it along with an old toothbrush.

But I was 200 miles away in London last week. I couldn’t source a toothbrush, so ‘use one of your brothers’ I advised. They’re not home right now, we’ll remember to replace them and that’s what happened only our daughter used a green one – and my toothbrush is green – and, now here I may be mistaken, I think she’s just put it back where she got it from.

So, what do I do?

Do I replace all the toothbrushes, or do I keep schtum on the basis that a bit of lizard dandruff isn’t likely to kill anyone? Or do I keep quiet on the basis there’s only a one if five chance that I’ll be the one eating lizard or what…?

Well, I was inclined to the latter but lost control of the situation over the weekend when the cat got out the bag & every toothbrush in the building was ruthlessly culled. It was probably for the best. On to the news:


Executive Summary:

• KPMG, administrator to busted cake company Patisserie Valerie, has announced that the black hole at the centre of the company is as much as £94m, well over double the previous estimate of £40m.

• This raises the prospect that the company, which had retained earnings of £63m as at its H1 to 31 March 2018, had never made a profit – certainly not on a cumulative basis & after asset write-downs.

New news…

• A progress report from KPMG suggests that assets have been overstated by £94m

• Cash & debtors were overstated by £50m plus, there were unauthorised bank overdrafts and creditors were understated.

• Other assets were overvalued by around £23m.

• KPMG believes that it can raise around £17m from disposals. CAKE was valued at around £450m shortly before its shares were suspended.

• A number of the group’s subsidiaries will be able to make payments towards creditors, but the PLC will not.

• Former executive chairman Luke Johnson is the PLC’s largest creditor having loaned it £13m (emergency funding & to pay wages) in the weeks following the suspension

Ongoing situation:

• The SFO continues to investigate former CAKE CFO Chris Marsh and a number of regulators are investigating the roles that Grant Thornton (former auditor) & other advisors played in the affair

• KPMG will not release the report compiled by PwC into the group’s accounting irregularities. It cites legal privilege. The FT says the report names five individuals and one supplier as central to the problems. Ex-chairman Luke Johnson is not named.

• KPMG will compile its own report into the behaviour of directors prior to the administration.

• KPMG says ‘it will be necessary for the Company to consider whether there may be sufficient grounds to establish potential legal claims against a number of parties.’

Langton comment:

• As anyone with a hangover who then bangs his head on a cupboard door knows, it’s always possible to make a bad situation worse.

• And much more than doubling the size of the Black Hole at CAKE does qualify as worsening the situation, not least because it dwarfs the £63m in profits that the group reckoned it had made cumulatively in the years to H1 / 2018.

• Certainly, the group may have got its head above water financially from time to time but, cumulatively and after asset write-downs, it has never made a profit.

• And, as assets were ‘only’ overstated by £23m, more tangible losses amounted to £71m – still considerably more than the £63m the company had ever earned cumulatively in profits

• Perhaps given the implications that this has for the numbers before, at the time of and after the IPO, there’s little wonder that the lawyers are licking their lips.


• Following the release of its H1 numbers on Friday, JDW hosted a meeting for analysts.

• The group reported that LfL pub profit fell by 4.4%. Margin was 7.1%. Wages had the greatest impact on margins.

• Food performed more strongly than bar sales. Current trading (positively impacted by the weather) is very strong.

• The group would not comment on the Morning Advertiser suggestion that it has put up prices five times in two years saying the comment was based on a very small sample.

• JDW denied that it had put wages up in response to strike action saying only 19 people had been involved in industrial action

• The group is comfortably ahead of where the National Minimum Wage will be next April. It may still edge wages higher

• The group is selling a further 16 pubs. These are all freehold. The company’s estate is now 60% freehold

• The impact of IFRS16 has not yet been calculated. It will depend upon how the policy is interpreted. JDW will update at its finals.

• LfL sales growth will taper downwards as the year progresses. Overall the group is not changing FY guidance. JDW shares rose by a little under 3% on Friday.

• Conclusion. Great company, distracted by Brexit, doing some odd things re suppliers, cutting popular EU products, costs rising, fantastic LfLs but now very low margins make the company vulnerable to both supermarket competition and any economic slowdown.


• RTN hosted a meeting for analysts after announcing its FY numbers on Friday.

• Some 70% of EBITDA now comes from ‘growth areas’ – i.e. pubs, concessions & Wagamama.

• This 70% comes from 45% of the group’s units by number. This speaks to the performances at both ends of the estate

• The company says that its ‘investment in price’ is now over. Margins may stabilise though RTN expects £24m of cost headwinds in the current year.

• Debt is up to £291m or 2.2x EBITDA. The group is not yet ready to update on the impact of IFRS16, which will require the capitalisation of the group’s leases (other than concessions, in all likelihood)

• CEO Andy McCue says the group must 1) deliver on Wagamama, 2) grow concessions & pubs and 3) turn around the leisure business.

• But Mr McCue will not be the person to do it as he is to leave the company for personal reasons – though he remains on board ir order to help facilitate a smooth handover. There is no news on the new CEO.

• Around 30% of the leisure sites contribute no EBITDA. Between 70-80 sites are earmarked for disposal. Over 40% of the estate has break-clauses or terminations in the next 5yrs. It may not be the ‘right’ 40%, of course.

• There is ‘some flex’ with landlords. But leases are still upward-only.

• Current (10wk) LfLs are +2%. Wagamama is +9%. The statement is silent on whether the 9% Waga performance is pro-forma included within the 2%.

• The group would not be drawn on price versus volume or delivery versus eat-in.

• Dark kitchens will ‘play a part’ going forward. RTN is experimenting with virtual brands.

• The Waga US business is ‘under review’. It has potential but is loss-making & sub-scale.

• Conclusion: Execution remains key & who will drive the co & how this will be done is somewhat unclear. Delivery in growth but is margin-negative, legacy sites on leisure parks a problem but pubs & concessions good & shares not expensive. IFRS16 will change many numbers materially, not destroying Wagamama’s DNA will be a challenge, much depends on the upcoming CEO hire.


• More from the Archives, thoughts on over-confidence, arrogance & how bullying bosses can be the ‘ideal’ fraud victim plus perhaps a book review.

• Later in the week. Archives, reviews & whether the Pat Val debacle could change the behaviour of auditors, non-executive directors etc.


• Domino’s Pizza Group has ‘strongly refuted’ allegations made in the Sunday Times that the group has misled the City over the ’state of relations with the powerful franchisees who run most of its 1,100 stores’.

• Domino’s says ‘the Company has been clear and transparent that it has been in commercial discussions with franchisees, which are continuing.’

• The Sunday Times reported yesterday that ‘David Wild, received a letter from a group of angry store owners last week. It warned that comments suggesting a resolution to an ongoing dispute could be found were “extremely misleading”, because Wild and the board were “at total odds with the franchisees”’.

• Franchisees are lobbying for a greater share of profits. The Sunday Times reports ‘in a letter sent before Domino’s results last week, the franchisee association said it had “repeatedly raised concerns about the lack of any medium and long-term” strategy for the brand. It said the franchisees were suffering a “dramatic drop” in profitability and warned that the current way of sharing profits was “unacceptable and unsustainable”’.

• We’re two pay-days (soon three) & a February heatwave after Christmas now but still the discounts are coming. Anyone would think they were becoming hard to take off for some operators. Café Rouge 25% off food, Bella Italia 40% off mains, Prezzo 40% off mains & delivery co Graze offering 50% off customer’s first three boxes.

• As a part of its buyback programme, Whitbread Friday bought back another £4.55m worth of its own shares tat 4990p to put into treasury.

• Fuller, Smith & Turner has appointed Adam Councell as Finance Director with effect from 27 August 2019. The group reports ‘Adam is currently Group Finance Director at Restore PLC – the document management and relocation company.’ It says ‘Adam is an operationally strong accountant who has experience of M&A and restructuring. He is a good team player, thrives on fixing complex organisational challenges and is described as intellectually curious.’

• Fuller’s reports new CFO is ‘a strategic thinker.’ The group recently announced the disposal of its brewery for £250m. The market remains interested in further developments. Acquisitions, share buybacks and / or debt reduction remain the group’s primary choices.

• EI Group has bought back 104,600 shares at 206.7p for cancellation.

• Research from the banking trade body UK Finance has found that contactless payments increased 31% in 2018, accounting for one in three card payments.

• The US based MOD Pizza is opening its 10th UK site in Coventry later this month.

• Greggs has announced plans for the roll-out of hot self-serve cabinets across the UK.

• The UK drinks market has seen a reduction in the consumption of still wine by 3m nine-titre cases in 2016-17, data from IWSR has found.

• NPD has reviewed its The Future of Foodservice study published in 2010, finding that they had correctly forecast that breakfast sales would outstrip that of other meals times in the following ten years. NPD commented: ‘Morning meal (breakfast and AM Snack) has shown consistent traffic growth over the last several years. The only foodservice daypart with year-over-year growth. Bottom line is that a restaurant breakfast or morning meal serves a variety of needs. It satisfies the need for convenience at one of the busiest times of our day, is less costly than other restaurant meals, and is readily available to us’.

• The British Egg Industry Council (BEIC) has warned that a no-deal Brexit could lead to battery hens eggs being consumed in the UK within a fortnight. BEIC chairman Andrew Joret said: ‘The Government is trampling over all the good work the industry has done to raise animal welfare standards. In a few weeks’ time, consumers could be eating products made with eggs from hens housed in barren battery cages. This is not scaremongering but a real risk’.

• Per Morning Advertiser, Bath Ales hires Georgina Young as its head brewer. Young is currently head brewer at Fuller’s.


• A global Travelzoo traveller survey finds the travelling public will support the industry if it works to address concerns about ‘overtourism’ by promoting alternative travel options.

• Nielsen Ad Dynamics finds Thomas Cook cut its ad spend by 74% in January and February, with radio spend down 50%, print by 83% and digital by 94%.

• expands its summer 2020 programme with nine new routes, including Kefalonia, Nice and Murcia.

• CWT Solutions Group forecasts a 4% drop in average ticket prices to $673 for air bookings in April.

• An investor group has called on Lyft to scrap its proposed dual-class share structure as it prepares to IPO. The proposed structure will see one class get 20 votes per share, while the other will get one vote per share.

• Eurostar has warned passengers to only travel between Pais and London ‘if absolutely necessary’, due to service delays caused by industrial action in France.

• Travellodge is planning to fill potential post-Brexit EU worker staffing gaps with parents who want to return to work. The group intends to create 3,000 new jobs by 2023 and hopes to attract parents by offering flexible hours and school hour roles.

• The ride-hailing app, Lyft Inc will begin an investor roadshow for its IPO today. The group are believed to be aiming to raise $2bn in the IPO, valuing the company at $20bn.


• Sterling up at $1.3286 and €1.1721. Oil little changed at $67.21. UK 10yr gilt yield down 1bp at 1.22%. World markets up on Friday with Far East higher in Monday trade.

• Brexit, politics etc.:

• Mrs May likely to bring her deal back tomorrow – though Chancellor Philip Hammond says the government will not do this unless it believes that it has the DUP and a enough ERG members on board to secure victory.

• If Mrs May wins, then the UK leaves the EU after a short extension beyond 29 March.

• If she loses, there could be a longer extension and a search for compromise and / or a People’s Vote on her (or another) deal.

• The BBC reports the government may have to shell out further tens of millions of pounds to ferry companies if Brexit is delayed.


• JDW H1 profits down 19% despite +7.2% LfL sales growth. Margins under pressure. Great sales performance but tougher comps now

• Restaurant Group reassures LfL sales +2% in last 10wks. Waga up 9% so rest of business maybe still down. Softer comps coming

• EI Group has completed on the disposal of its commercial pubs. Gives details of cash back to shareholders


Last friday’s song was Close to Me by The Cure, today who sang:

I can’t remember anything,

To this very day

Cept the look, the look


• Thematic pieces including Pubs vs Restaurants, Delivery, Experiential Leisure, Crowd Funding, CVAs, Employemnt levels (& costs) etc.

• Occasional ‘deep dives’ into stocks (Pat Val, RTN etc.), trends etc.

• Book reviews. Black Swans, The Honest Truth about Dishonesty, Dark Pools, Lean Start Up, Smartest Guys in the Room, Client Nine, Black Edge, The Billionaire’s Apprentice, Thinking Fast & Slow, Wizard of Lies & many others.

• Accountancy, Audit & other, thrill-a-minute topics

• Behavioural economics. Over-confidence, Hofstadter’s Law, confirmatory bias etc.

• Other. Guest contributions, From the Archive etc.


• Saturday Press and News: The Sky News scoop that the beleaguered Philip Green is planning a CVA process for his crumbling Arcadia empire got plenty of coverage in the Saturday papers, with the FT making the story its front page lead (“Green battles landlords over Topshop rents”) and flagging that there will be “absolute uproar” in the shop property industry if the CVA plan goes ahead. The Times played down fears that Arcadia is planning a wave of store closures, but the Guardian highlighted that store closures and job losses at Arcadia are inevitable, despite the company’s claim that suppliers are being paid on time, and the Daily Mail flagged that Philip Green is in talks with the Pensions Regulator over the hole in the Arcadia pension fund. The FT also had a scoop of its own, namely that #MadMike and Sports Direct have made an approach for the bankrupt LK Bennett fashion chain and
this news was also picked up by the Daily Mail. And the Times noted that Sainsbury’s has hit back at the CMA over its rejection of its Asda merger plan, claiming that the CMA made a series of mistakes in its provisional report…

• Sunday Press and News (1):  The Philip Green/Arcadia CVA story continued to run in the Sunday papers, with the Sunday Times highlighting on its Business front page that the top 2 property agents have refused to advise Arcadia over a CVA, under pressure from shopping centre landlords, and Oliver Shah, the scourge of Philip Green, thundered in his Sunday Times column that the landlords are right to take a stand on Arcadia and that “Green’s house of cards is ready to topple”. The Mail on Sunday flagged, however, that Arcadia will pay its quarterly rents on time on March 25th and that only 30 store closures are planned.

• Sunday Press and News (2): The Sunday Telegraph led its Business front page with the news that the struggling Debenhams may be unable to pay its £50m quarterly rent bill on time on March 25th and may collapse into administration if it can’t soon agree a further refinancing with its banks (“Debenhams in race against time to secure lifeline”). And the Business editorial in the Sunday Telegraph stuck the boot in on Mike Ashley and his antics over Debenhams, thundering that “the Mike Ashley show is beginning to wear a little thin” and that “he should stop time wasting and make an offer for Debenhams”. The Sunday Times noted that the FCA is investigating Sports Direct’s claims that Debenhams has been misleading shareholders.

• Sunday Press and News (3): The Mail on Sunday had a couple of decent scoops: one, on its News pages, was that Marks & Spencer is planning to open bigger mainstream Food halls to cater for family weekly shopping trips (according to a letter to suppliers from MD Stuart Machin) and the other, on its Business pages, was that “Mad” Mike Ashley has stuffed House of Fraser stores full of Sports Direct clearance lines, to the dismay of premium suppliers like Hugo Boss (the article is headlined “Is this REALLY your Harrods of the High Street, Mike?” and has some damming photos from House of Fraser store visits). The Mail on Sunday also flags that B&M is still fighting against the Groceries Adjudicator’s aim to include it in its remit and that Ocado is encountering resistance from an influential investor advisory group over its new share option incentive plan.

• Sunday Press and News (4): The Sunday Times had a plethora of other Retail news stories: the Links of London jewellery chain is on the brink of bankruptcy, the embattled Intu Properties is eyeing the sale of its Spanish shopping centres to help cut its debt mountain, the struggling Jack Wills fashion chain has poached its new FD from rival Jigsaw, the cosmetics chain Lush has blamed the Government and Brexit for its poor results and the former Boohoo Chairman Peter Williams has claimed that Julian Dunkerton will need him on the Board at Superdry to withstand a “hostile environment” if he is re-appointed to the business. Patience Wheatcroft also looked at the Superdry situation in her Comment column in the Sunday Timesand argued that company founders need to know when to let go (the Observer had a column comparing Superdry’s problems with Ted Baker post Ray Kelvin). Finally, the Sunday
Times had a feature article on Tesco (“Tesco’s discount dream: it’s not all right, Dave”), noting that there have been no more openings of the much-vaunted Jack’s discount store after the fanfare for its launch six months ago.

• JD/Footasylum: Having bought a c19% stake in its struggling rival Footasylum a month ago, “for investment purposes”, JD has now decided to put the company out of its misery and has agreed an 82.5p cash offer for the whole business, valuing it at c£90m. In general, it is hard to know why JD has taken so long to take advantage of Footasylum’s problems, but JD has been busy with its big US acquisition and there is a lot of “history” between the 2 companies… It is also hard to know why JD has paid such a big premium to the recent share price (46.5p at Friday’s close and 29p before the stake-building), although it now appears that it paid up to 75p for shares in its buying spree back on Feb 18th. Anyway, given what JD can bring to the party, this will all soon seem a bit irrelevant and Footasylum, which is targeted at “a slightly older consumer”, will fit neatly into JD’s stable of brands
(unless the CMA decides to take a look…)

• News Flow This Week: This week will bring yet another key Brexit vote in the House of Commons, but there is plenty going on in retailing to distract us from the continuing political chaos, beginning tomorrow with the Ocado Q1, the Applegreen finals, the ScS interims and the ASOS update. Wednesday then brings the Kingfisher finals (and a decision about the future of the CEO, Veronique Laury). Then Thursday brings the much-awaited Next finals, as well as the Ted Baker finals, the Game Digital interims and the ONS Retail Sales figures for February.


Trading Statements, etc.


Upcoming results are set out below:

• 18 Mar 18 Marriott International Securities Analyst Day

• 19 Mar 19 Gym Group FY numbers

• 20 Mar 19 Ten Entertainment FY numbers

• 21 Mar 19 Sportech FY numbers

• 26 Mar 19 AG Barr FY numbers

• 26 Mar 19 Wynnstay AGM

• 2 Apr 19 Hostelworld FY numbers

• 2 Apr 19 DP Eurasia FY numbers

• 4 Apr 19 Saga FY numbers

• 4 Apr 19 Constellation Brands Q4 & FY numbers

• 9 Apr 19 City Pub Group FY numbers

• 10 Apr 19 Hollywood Bowl H1 trading update

• Est 15 Apr 19 Richoux Final results

• 30 Apr 19 Whitbread FY numbers

• 30 Apr 19 Greene King FY trading update

• 14 May 19 Stock Spirits H1 numbers

• 15 May 19 Marston’s H1 numbers

• 15 May 19 SSP H1 numbers

• 15 May 19 Compass Group H1 numbers

• 15 May TUI H1 numbers

• 15 May 19 William Hill AGM

• 16 May 19 Thomas Cook H1 numbers

• 22 May 19 Britvic H1 numbers

• Est 24 May 19 Young & Co FY numbers

• 25 May 19 M&B H1 numbers

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