Langton Capital – 2019-05-03 – PREMIUM – Merlin, IHG, DP Poland, Restaurant Group etc.
Merlin, IHG, DP Poland, Restaurant Group etc.
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, we’ve got a blanket up at our window and, whilst I don’t want to necessarily compare myself to some dumb animal, I can see why horses are fitted with blinkers.
Because, though there are any number of hairy-bottomed builders no more than a few feet from my elbow, I can’t see them and so they don’t exist.
Would that a lot of other problems could be dealt with in that way. But maybe they are.
Anyway, we have a cold but dry three-day weekend coming up. On to the news:
LOCAL DATA COMPANY UPDATES ON ITS THINKING RE CLOSURES, VACANCY RATES & TRENDS ON THE HIGH STREET ETC.: Times they are a changing. In the past, when banks or other operators exited the High Street, JDW & others took their sites. Phone shops took long, thin shoe-shop space etc but, whilst we can now see who’s looking to exit the High Street, who will actually take vacated space? 3 May 2019.
• LDC updated on retail property trends. This is of importance for F&B operators as, at least outside of evening hours, anchor retailers are often desirable in order to draw in trade. Department stores etc can fill this role. Tattoo parlours & male grooming outlets cannot.
A few ongoing developments:
• Very little turns on a sixpence, trends tend to be ongoing.
• One of the speakers at yesterday’s LDC conference said that the ‘value’ of bricks & mortar to the retailer was falling. He said re department stores: ‘getting someone up to the 3rd floor is challenging, getting someone up to the 5th floor is impossible’.
• Vacancy rates are now 11.5% – this splits as to Retail vacancy 12.7% & Leisure vacancy 8.5%
• As always, it is not quite that simple. Short lets muddy the picture. The worst affected by vacancy in descending order: Retail Parks then Shopping Centres then The High Street
• However ‘persistent’ vacancies, those lasting more than two years, are worst in shopping centres followed by the High Street suggesting that Retail Parks are relatively good at filling empty units
Lies, damned lies & statistics…
• The net loss is the difference between closures and new openings. In 2018, openings fell substantially whilst closures held up at a fairly stable level.
• The net loss of leisure units was 749 in 2018 compared to 67 in 2017. The net loss of retail units was 6799 in 2018 compared to 5426 in 2017
• Closures have been dominated by brands due to CVAs. Major features have been – In leisure; Jamie’s Italian, Byrons, Carluccio’s etc. and in retail; New Look, Poundworld, Toys ‘R’ Us, Maplins etc.
• Multiples (brands w/ 5+ sites) saw net units lost climb from 4010 in 2017 to 6537 in 2018 whereas Independents saw net units lost fall from 1483 in 2017 to 1013 in 2018
• Major losers include Banks (-716), Pubs (-636) & Estate agents (-448)
Where are the bright spots?
• The industry would like to see incoming units with the power to ‘draw’ customers
• This isn’t really happening with Barbers (+813) & Beauty Salons (+495) growing their presence most notably last year. The power of a hipster moustache salon to attract F&B spending customers has to be quite limited. Tattoo parlours and nail bars ditto
• Mike Ashley is putting his money where his mouth is. He has increased his retail exposure by unit number by 77% in the last 4yrs, going from 651 stores in 2015 to 1,154 as at the end of March 2019.
The way forward:
• People talk their own book but New River said ‘Repurposing of retail space is the only way forward.’
• There may need to be some innovative thinking. An example given by New River involved taking rooves off shopping centres and blending them with town centres, creating a more open atmosphere and making shopping centres feel less ‘closed off’.
• Councils & maybe central government could need to get involved
• Pop-ups could help to fill some space. Xmas card shops on two month lets & charity shops have always taken some units but Appear Hear pointed out that, as trends have moved to more rapid solutions, the average lease ‘desired’ by an occupier is now 4yrs.
• This may be hard to pin down but it could be directionally correct.
• Short leases & pop ups alongside more residential units would contribute to a more experiential and artisanal feel – but rents would have to fall
• The overriding feeling is that change is in the air & that that will remain the case for some time
Bricks n clicks, drop-shipping etc.
• Bricks n clicks (or click n collect) has been around for some time but drop-shipping is a less familiar term.
• It involves the retailer taking the order & the supplier delivering the goods directly
• This has existed with furniture for some time.
• It could be logistically complex but is do-able.
• Risks to the retailer are that the supplier could, ultimately, cut him out. Risks to the rest of the High Street are that the draw of the street is diminished and linger time and the number of re-visits is cut
GENERAL NEWS – PUBS & RESTAURANTS:
• PAUL, the French bakery and patisserie, is set to open its second ‘Express’ shop later this month, located on Tottenham Court Road.
• Carlsberg reports beer sales up 9% to £1.6bn in Q1 2019, driven by premium drinks in Asia. Last year, the brewer’s sales in Europe were boosted by a combination of the World Cup and an extended summer heatwave.
• Sky has reported Andy Hornby ‘will be paid up to £2.96m a year when he ends a decade-long absence from the stock market to become chief executive of The Restaurant Group.’
• Sky says Mr Hornby will be paid a golden hello worth £945k alongside a ‘basic salary worth £630,000 plus an annual bonus of up to £945,000 and long-term share awards worth £1.26m a year, together with a supplement in lieu of pension benefits worth up to £126,000.’
• Bank Holiday Weather: There will be frosts over the long weekend but, thankfully, it will be dry. Somewhat less warm than the Easter weekend but nonetheless welcome for that.
• DP Poland has updated on trading in a statement that will accompany its AGM later today. The group says trading in Q1 is ‘in line with management expectations.’ In the period the group opened 3 new stores, bringing the total number of stores to 66, across 30 towns and cities. There have been 4 further leases signed during the period.
• DPP CEO Peter Shaw reports ‘our marketing campaign featuring Damian Kordas [was] launched in the second half of January and has been effective at driving sales, as has our trial partnership with food delivery aggregator Pyszne. All 66 of our stores are now on the Pyszne system.’
• Heineken acquires a majority stake in Biela y Bebidas del Ecuador, producer of Biela beer. Marc Busain, President Americas at Heineken, said ‘We are pleased to announce our investment in Ecuador. With its favourable demographics, flourishing tourism industry and GDP growth, it offers a lot of potential to grow our premium offering’
• Beyond Meat shares surged 84% in their first day of trading yesterday, giving the company a market capitalisation of $2.75bn. The company said it intends to use a bulk of its $240m IPO proceeds for research and development, as well as building manufacturing facilities.
• Chancellor Philip Hammond has safeguarded the use of pennies and £50 notes. Which? reports nearly 1,000 free-to-use cash machines converted to charge fees in March alone.
• Catton Hospitality has reported that hospitality operators saw ‘fluctuating’ sales in April. The grouip says that ‘operators had [a] mixed sales performance during April. Whilst the first quarter of 2019 had seen resilient figures for both food and drink, April’s sales figures could be summarised by a weakening of sales for drink focused business and the growth of drink sales in food focused business.’
• Catton says ‘the sales of food plateaued in food focused business, with a slight drop off of 0.3% compared to like for like sales in April 2018. However, the same set of sites bucked the national trend of falling drink sales, with a 4.1% boost in revenue.’
• Catton goes on to say ‘wet led venues were more harshly exposed to the impact in the national fall in drinking out habits. In fact, there was a decline of 5.7% in drink sales compared to April 2018. The general picture of food sales in wet led pubs has recently been one of good growth, however, April’s sales figures showed a very slight like for like fall equating to 2.2% in sales of food in venues that are drink focused.’
• Glasgow start-up Two Birds is to unveil a new, vitamin-enriched cold-blend coffee. The company says ‘we’ve been developing our unique Two Birds cold-blend coffee for over a year now and we’re very excited to let people try it for themselves. People can now enjoy the caffeine boost of a speciality grade coffee with all the added immune function and anti-inflammatory benefits from the host of vitamins in our unique blend.’
• Sainsbury has opened its first till-free grocery store. Payments can only be made by mobile device.
• Constellation Brands acquires a majority stake in Nelson’s Green Brier Distillery, a craft Tennessee whiskey distillery.
• New York Authorities have banned alcohol advertising on city property, including bus shelters, newsstands and phone booths. This follows a ban on alcohol advertising on the New York subway almost two years ago.
• Fuller’s launches ‘Designed for Life’, a new learning and development offer to enhance staff development.
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook’s bonds fell sharply yesterday as the cost to insure against a potential default rose due to concerns over the company’s ability to service its debt. The group’s shares fell by nearly 4p (15%) yesterday.
• Bloomberg had earlier reported that holders of some of TCG’s debt had been trying to sell their stock. Some debt had changed hands at 59p in the pound. The bonds maturing in 2022 saw the sharpest fall.
• The cost of insuring against the default of TCG’s debt rose to 34ppts up front meaning that it costs 34p to secure every 100p of debt.
• Intercontinental Hotels has reported Q1 numbers saying that it saw 5.4% year on year growth in its room stock with 24k rooms signed in Q1, the strongest Q1 rate of increase for 12yrs.
• IHG CEO Keith Barr says ‘our strategic focus on driving industry leading net rooms growth is delivering strong results, with our net system size increasing 5.4% in the first quarter and our highest number of signings in 12 years. Global RevPAR increased 0.3% against strong prior year results, with good growth in the US where we outperformed the industry segments where we compete, and continued market share gains in China.’
• IHG reports ‘our highest first quarter hotel openings in a decade included our 400th hotel in Greater China. More than 60% of openings globally were in the Holiday Inn Brand Family, driven by our focus on innovative design and service enhancements which is leading to improved guest satisfaction across our highly preferred portfolio of global brands.’
• The company says ‘we have continued to expand our brand portfolio into high-opportunity segments and markets. In mainstream, we now have over 180 avid hotels signed and will launch our all-suites upper midscale brand in the US later this month. Our upscale conversion brand voco, is seeing strong owner interest with 5 hotels now open and a further 12 signed since launch last year. Our recent acquisition of Six Senses rounds out our offer in the top tier of luxury.’
• IHG concludes ‘the investments we are making to enable this acceleration in growth are funded through our efficiency programme, which is on track to deliver $125m of annual savings by 2020. While macro-economic and geopolitical uncertainties remain in some markets, the strong fundamentals of our business give us confidence for the balance of the year.’
• IHG UK REVPAR was up 2% in Q1 against the same period last year. London was +4% and the provinces were flat. This accords with comments made by Whitbread re its Premier Inn business earlier this week.
• Hostelworld has announced that NED Andy McCue, currently the outgoing CEO at Restaurant Group, has informed the Board of his intention to step down from his position as a Non-Executive Director and Chairman of the Remuneration Committee, effective 31 May 2019, following the conclusion of the Company’s Annual General Meeting.
• Hyatt Hotels reports Q1 net income of $63m down from $411m a year earlier. Mark S. Hoplamazian, president and CEO, said ‘We had a strong start to the year, highlighted by continued growth of management and franchising fees.’
• Host Hotels & Resorts reports revenue up 3.3% yoy to nearly $1.4bn, but RevPAR down 1% due to renovations and government shutdown.
• STR reports US hotel occupancy down 1.4% to 68.9%, ADR down 1.4% to $128.66 and RevPAR down 2.9% to $88.59 for the week ending 27 April.
• The Caterer reports there is one Airbnb room in London for every two hotel rooms. The capital has nearly 80,000 Airbnb rooms registered on the site, compared to 20,000 in 2015, going at a median rate of £80 compared to hotel ADR of £138.13.
• The Local Data Company reports just 87 travel agents closed in 2018, compared to 670 in 2017.
• Hilton Worldwide Holdings has reported Q1 numbers saying system-wide REVPAR rose by 1.8% on a constant currency basis with EBITDA up 12% at $499m and EPS of 54c per share.
• Hilton CEO Christopher Nassetta reports ‘we are happy to report a good start to the year with first quarter results that exceeded the high end of guidance for Adjusted EBITDA and diluted EPS, adjusted for special items.’
• In the first quarter of this year, Hilton opened 85 new hotels comprising 12,100 rooms. Net growth, after some hotels had left the network, was 10,000 rooms.
• Butlin’s opens Splash, its £40m swimming pool, at its Bognor Regis resort. The opening was supported by a light and projection show.
• Manchester Airports Group (MAG) raises £350m through a new bond issue at an interest rate of 2.875%. MAG has disclosed that the order book for the bond was four times oversubscribed, and will be used to fund significant and transformational capital investment programmes.
• IdeaWorksCompany and CarTrawler estimate airlines made $28.1bn in baggage fees in 2018, up 110% since 2014. Ancillary revenues reached $92.9bn, up from $82.2bn the year prior.
• Merlin has updated on Q1 trading saying ‘trading during this seasonally quiet period of the year has been in line with expectations and consistent with the guidance provided on 28 February.’
• Merlin says it ‘has made good strategic progress to date, opening seven new Midway attractions, including two new Peppa Pig World of Play sites in Dallas and Michigan.’ The group adds ‘we have also opened an additional 244 accommodation rooms comprising the 142 room Castle Hotel at LEGOLAND Billund Resort and 102 ‘Stargazing Pods’ at Alton Towers Resort. The 128 room Magic Hotel at Gardaland Resort is scheduled to open later this month.’ It reminds investors of 5 April it ‘completed the disposal of our two Australian ski resorts, for a total consideration of A$174m.’
• Two Circles reports global spending on sports sponsorship by businesses will increase by 4% in 2019 to £35bn. However, Two Circles suggests rights holders to leagues, teams or tournaments are under-exploiting sponsorship deals.
• Tesla aims to raise up to $2.3bn after disclosing it had lost $700m in the first quarter of the year as a result of production and delivery difficulties. It predicted the current three month period would also be loss-making.
• Kenny Alexander, CEO of GVC, was paid over £19m last year per the company’s report & accounts.
FINANCE & ECONOMICS:
• Bank of England leaves rates on hold at 0.75%. It says economic growth in the UK has been stronger than expected.
• The Bank predicts that inflation will edge up and says that there may be ‘more and more frequent interest rate increases than the market expects’ if the economy grows as it anticipates.
• Bank of England believes that unemployment will fall to 3.5%.
• IHS Markit reports that the UK construction sector returned to growth in April when it registered 50.5 versus 49.7 in March. Markit says ‘a return to growth would normally be considered a positive month for the UK construction sector, but the weakness outside of house building gives more than a little pause for thought.’ The much larger Services PMI number is out at 9.30am.
• Sterling down vs dollar at $1.3037 but up vs Euro at €1.1668. Oil down at $70.40. UK 10yr gilt yield up 4bps on B o E comments to 1.19%. World markets. UK down yesterday with Europe mixed & US also down. Far East Mixed today & FTSE100 set to open up about 6pts.
• Brexit etc.:
o Labour / Tory talks continue. Gavin Williamson fallout etc.
START THE DAY WITH A SONG:
Yesterday’s song was Caravan of Love by The Housemartins. Today, who sang:
I only knew you for a while,
I never saw your smile
Till it was time to go
Time to go away
RETAIL NEWS WITH NICK BUBB:
Intu Properties: We flagged yesterday that the beleaguered Intu Properties shopping centre business saw its share price slump by 3% to a new low of 91p on Wednesday, ahead of today’s trading update (not helped by the big rent reduction plans of its main tenant, the Arcadia fashion empire), but yesterday saw the share price rally sharply to c100p, as if the bears feared that the news would not be as bad as expected…However, the news is not good…Intu report that, although operational performance in the first four months of the year has been stable, “we expect the remainder of 2019 to be challenging due to a higher than expected level of CVAs and a slowdown in new lettings as tenants delay their decisions due the uncertainties in the current political and retail environments”. Factoring in expected CVAs, Intu are now guiding 2019 net rental income to be down between 4% and 6%…Back on Feb
BDO High Street Sales Tracker: We flagged on Wednesday that sales at John Lewis were hit last week by the calendar shift of Easter, as the stores were closed on Easter Sunday, as well as by the unhelpfully hot weather at the start. The BDO High Street Sales Tracker for medium-sized Non-Food chains for last week, w/e Sunday April 28th, was less affected by the calendar, but worsening weather and poor footfall led to a mixed outcome. BDO Fashion Store sales were up by 0.8% LFL (including Online), despite tough comps.Total BDO LFL sales (including Homewares and Lifestyle sales) were up by 0.6% last week (down by 4.2% in Store sales, but up by 20.6% Online).
News Flow Next Week: Things kick off quietly next week, after the Bank Holiday on Monday, but Wednesday brings the BRC-KPMG Retail Sales survey for April and the Travis Perkins Q1 update and then on Thursday we get the Morrisons Q1 update, the Superdry pre-close update and the Debenhams CVA creditor’s vote.