Langton Capital – 2020-01-16 – PREMIUM – Whitbread, C&C, Rank, Xmas, Crussh, Flybe & more:
Whitbread, C&C, Rank, Xmas, Crussh, Flybe & more:A DAY IN
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I fell for some clickbait the other day and ended up reading a Daily Express story online.
And it wasn’t long before I felt that I’d fallen down some sort of rabbit hole because first it worried me by opining that the UK was going to suffer 150mph winds and have a foot of snow but then at the same time it firmly shone a light on the sunlit uplands by confirming that PM Boris Johnson had once again humiliated the EU, Donald Trump had a firm hand on the world’s tiller, his daughter Ivanka looked devastating in a pencil skirt and burgundy lipstick and his wife was a knockout in her new, metallic coat.
So, it turned out that all was well in the world and, as the polar temperatures and six foot snow drifts somehow morphed into nothing more than heavy drizzle in a balmy nine degrees, though I was wet, dishevelled and somewhat bewildered yesterday, I realised that things could have been worse, the Daily Express could have been right about something. On to the news:
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WHITBREAD Q3 TRADING UPDATE: Whitbread has this morning updated on trading for its Q3 (to end-November) and our comments thereon are set out below. 16 Jan 2020:
• Whitbread reports that it has had a ‘solid Third Quarter performance with total sales growth of 1.0%.’
• It says ‘UK total sales growth 0.3% for the third quarter, marginally improving the year-to-date run rate.’
• The group adds it has seen ‘further development in Germany with open + committed pipeline extended to almost 50 hotels.’
• The group adds it has made ‘good progress on optimising the UK network, including 19 hotels trialling Premier Plus rooms.’
• The company says its ‘efficiency programme [is] progressing in line with plans and partially offsetting structural inflation.’
• Overall, WTB says they ‘expect to deliver FY20 Results in-line with expectations.’
Premier Inn & Restaurants:
• WTB has seen a ‘slight decline in UK accommodation sales due to weak market conditions in the regions.’
• It says that there has been ‘continued capacity addition in UK, whilst achieving high occupancy above 80%.’
• Occupancy is 80.8%, down some 180bps on last year with average room rate coming in at £62.18 (down 2.3%). The group reports REVPAR is some 4.4% lower.
• The group has added 426 rooms in the quarter to total some 77,263
• Sales for Q3 on a LfL basis are down by 2.1% in hotels but up by 0.4% in the much smaller restaurant business
• Year to date LfL sales are down 3.1% and down 0.7%
• Q4 comps are a little easier but the group says ‘it is still early in the fourth quarter and a level of caution remains on the UK hotel environment.’
• Re the pipeline, WTB says it ‘expects to add 5,000 new rooms this year, comprising approximately 3,000 gross new rooms in the UK and 2,000 new rooms in Germany.’
• This represents a slight reduction on prior plans in the UK. The group says ‘net room openings in the UK will be slightly lower at c.2,500 as the optimisation of current estate continues, with eight hotel disposals this year.’
Company comment, corporate issues, future trading etc.:
• Whitbread CEO Alison Brittain says ‘Whitbread delivered a robust performance in the third quarter, growing total sales by 1%, despite challenging market conditions in the UK. We now have over 80,000 rooms in the UK & internationally, operating under the Premier Inn brand, with a committed pipeline of over 20,000 additional rooms.’
• Ms Brittain adds ‘we also continue to achieve strong results from our efficiency programme, which is helping to partially offset high industry cost inflation and means we are on track to achieve our full year expectations for FY20.’
• The CEO adds re hotels ‘weak business and leisure confidence in the regions continued, which was partially offset by the strength of the central London market, where we outperformed.’
• Ms Brittain says ‘despite the short-term economic uncertainty, there remains significant long-term opportunities for Premier Inn in both the UK and Germany.’
• Regarding the outlook for FY21, WTB says it is ‘confident in its plans given the significant structural growth opportunities in the UK and internationally. The UK political & economic environment remains uncertain and the sustained industry inflation continues. It remains difficult to predict business confidence in the short-term and its impact on the market. However, Whitbread’s strong balance sheet, efficiency programme, resilient business model and ongoing investment puts it in a strong relative position to benefit as the environment improves.’
• The group previously updated on 22 October saying that ‘market conditions in the UK continue to be challenging with business confidence remaining weak and leisure confidence in decline, coinciding with heightened political and economic uncertainty, which has continued into the third quarter of FY20.’
• Although the rate of decline has moderated in Q3, there has arguably been little change to the above.
• But Whitbread’s shares reacted positively to its last update, and they have risen by c20% over the last couple of months having stood at around 4000p at the end of October.
• The London hotel market seems to be pushing REVPAR ever upwards but now that is accompanied by falling occupancy and oversupply. Whitbread has been increasing its bed-count in the capital – but they clearly haven’t been the only ones. As a ‘newer’ entrant, WTB is arguably making more of a problem for others than it is for itself.
• On the other hand, staycations could be on the rise and, with the economy effectively flatlining, Premier Inn could be a beneficiary if would-be three-star guests decide to trade down.
• It remains fair to say that there are no upward pressures on forecasts, many of which have been in flux since the disposal of Costa and the £2bn share buyback programme.
• Whitbread clearly remains cautious on trading in the medium term but maintains that it is well-positioned.
• Germany remains both an opportunity and a challenge.
• WTB has an impressive freehold estate, good brands and international ambitions but, with trading uncertain, the shares could pause after recent strength and could give ground.
PUBS & RESTAURANTS:
• C&C boss to step down immediately.
• C&C has announced that its CEO, Stephen Glancey, is to retire. The company says ‘he will step down as CEO with immediate effect and will be leaving the Company at the end of February. Stephen will, however, continue to be available to assist with effecting a smooth handover.’
• C&C adds ‘Stewart Gilliland has been appointed interim Executive Chairman with immediate effect to ensure continuity of executive leadership.’
• Re trading, C&C says ‘the Board confirms that trading across the group for the four months to 31 December 2019 has been in line with the Board’s expectations, including through the key Christmas trading period and remains on track to deliver double-digit EPS growth for FY2020.’
• The good, the bad and the ugly?
• Thoughts on the December Tracker. The numbers we’ve heard from pubcos re their Xmas LfLs range from +4% to +8%. The Tracker reports +2.5%.
• This implies that of its constituents either 1) a number are well below the 4-8% referred to above or 2) virtually none are at that level. The inclusion of companies that are finding the going difficult at the moment (Ask, Zizzi, Prezzo, Pizza Express, Carluccio, Casual Dining Group etc.) is inconclusive as their heavy discounting (and delivery) could be helping LfLs whilst margins will be under pressure.
• And the fact that the Tracker said that pubs were up by only 2.7% implies that very few are hitting the 4-8% mentioned by the pub companies (public and private) that have thus far reported. Since we know that Revolution and M&B (which both contribute data to the Tracker) achieved 4.0% and 5.6% respectively (admittedly for varying lengths of Christmas periods), some of the other pub companies that contribute to the Tracker must be performing markedly less well.
• No and low set to grow:
• KAM Media has reported that a quarter of all visits to a pub now do not include alcohol. It says that this proportion is likely to grow. KAM says ‘more than 1-in-2 consumers said they find it difficult to see which cans and bottles, behind the bar, are low and non-alcoholic versions of alcoholic drinks, or soft drinks specifically.’
• KAM Media says that licensees have identified low and no-alcohol products as an area of growth. Some 72% see the products as a chance to sell premium non-alcoholic products. As many as a third of adults intend to cut down their alcohol consumption in 2020.
• Crussh CEO exits:
• Crussh has announced that its CEO, Shane Kavanagh, is to step down in order to ‘take on a new challenge’ and ‘the healthy food and juice chain seeks new leader for next phase of growth.’
• Krush, which owns the Crussh trading subsidiaries, was incorporated in 1998. The group lost £1.2m before tax in the year to end-March 2019 (loss £1.6m in the year to March 2018). The consolidated company had accumulated losses of £2.2m as of last March and balance sheet totals were negative to the tune of £1.3m. The group had £1.6m of bank loans and £2.3m of convertible loan stock in issue.
• Crussh says ‘Shane has led Crussh from a 28-store London high street business, to an estate of 35, including the brand’s first sites outside London, in Birmingham and Bristol.’
• Chairman John Hart says ‘under Shane’s leadership Crussh has successfully evolved a strategy of franchise, concession and product supply which is now delivering significant results.’ The company says ‘Shane has navigated the core business through the most turbulent times ever faced by London’s food-to-go marketplace.’
• Crussh says ‘Shane leaves his role at the end of February retaining an advisory position whilst a new CEO is recruited. In the meantime, Executive Chairman Jonathan Hart will lead the business and, together with the rest of the senior team, will pick up Shane’s responsibilities.’
• Other news:
• Fleurets has announced that it has been instructed by property-owner Aprirose to sell the five properties which have been surrendered to it by Revolution Bar Group (referred to in yesterday’s email) and the four re-geared investments.
• QikServe has acquired Preoday, the branded mobile application and online ordering technology provider. QikServe says ‘the merger will see the businesses collaborate to build the hospitality management platform of the future – bringing together loyalty, delivery, payment and EPoS integrations, to provide operators and partners with the technology to power multi-channel, seamless experiences for customers.’
• QikServe says ‘we will bring together two world-class digital self-service platforms, which empower operators and allow customers to order and pay at their convenience, whether in-restaurant, on the move or at home.’
• Ordering product remotely should help operators to keep a lid on labour costs. The NLW rises by 6.2% on April Fool’s Day.
• Ask Italian has been fined £40,000 by Swansea Magistrates’ Court for a ‘misleading’ description of one of its dishes. The Aragosta e Gamberoni pasta dish is marketed as containing lobster and king prawns but an investigation found the dish only contained 35% lobster, with white fish accounting for 34% of the dish but disguised to look like lobster.
• Seaweed & Co, a North East business selling products made from seaweed, is expanding across the UK with goods in Holland and Barrett, Sainsburys and now Lakeland and Boots stores.
• Greggs partners with Just Eat to roll out delivery nationwide. The chain already delivers in London, Newcastle and Glasgow and will extend the service to Bristol and Birmingham this week. Delivery in Manchester, Leeds, Sheffield and Nottingham will launch in spring.
• McDonald’s is set to build a site in Rutland, the last county in the England to get a McDonald’s.
• Wing Shack will open a new site next month in Clerkenwell, featuring the brand’s signature dishes including ‘Inferno Wings’ and ‘Jarvis Tangy Buffalo wings’.
• Yo! Sushi partners with Sainsbury’s to stock pre-packed lines in 350 stores across the UK.
• Café Rouge and Carluccio’s plan to close sites in Brighton by 19 January.
• The English Breakfast Society, which says that the full English breakfast is ‘part of the British cultural fabric’, has said that the dish risks becoming extinct as millennials are turning away from it as a ‘’heart attack on a plate.’ It says that less than one in five 18-30 year olds has eaten the traditional meal. The meal can tot up to around 800 calories. Just what you need in the morning or more a case of one’s nice but two might kill you?
• North west supermarket chain Booth’s has reported that sales grew by 3.5% over the Christmas period with LfL sales up by 2.7%.
• The Silicon Valley Bank 2020 State of the Wine Industry Report suggests the large US millennial population hasn’t totally ‘embraced’ wine as have previous generations, which is both a problem and an opportunity for sales growth, according to the report.
• Wine Intelligence claims the number of US consumers drinking wine at least once a month had fallen by 11 million in four years. The reduction was particularly marked among consumers aged between 21 and 34, with millennials accounting for 29 million regular wine drinkers in 2015, compared to 21.5 million in 2019.
• The threat from online:
• Amazon has said that its plans for investment in the UK are unchanged despite the potential for a further tax on its online earnings. The FT says ‘March 11’s Budget is expected to introduce the “digital services tax”, a 2 per cent levy on UK revenues of technology businesses, which pay little or no domestic corporation tax because their European headquarters are located in tax havens such as Ireland and Luxembourg.’
• Amazon, because its operations tend to be located on industrial parks rather than the High Street, will also pay much less in business rates than would any traditional company making a similar level of sales. Amazon may say that it didn’t make the rules, it inherited them and works within them (as they currently stand).
HOLIDAYS & LEISURE TRAVEL:
• UK gov saves Flybe having ignored TCG.
• Business secretary Andrea Leadsom tweeted on Tuesday to say she was ‘delighted that we have reached agreement with Flybe’s shareholders to keep the company operating, ensuring that U.K. regions remain connected.’ Details of the rescue are said to include a rescheduling of Flybe’s outstanding tax debt to the government. British Airways (and probably the aggrieved creditors, staff and customers of Thomas Cook) are yelling foul.
• MGM Resorts is to sell its MGM Grand, Mandalay Bay for $2.5b to a JV of MGM Growth Properties and Blackstone Real Estate Income Trust. MGM Resorts will receive net cash proceeds of $2.4 billion.
• Accor has reached its 3,000th hotel in Europe:
• EasyJet will restart flights to Sharm el Sheikh in June following the government’s decision to stop flights in 2015 due to the Islamic State bombing of a Russian airliner.
• Whitbread will open the UK’s ‘largest’ Premier Inn in 2022 at Canary Wharf Westferry. The hotel will feature 400 rooms and will be the largest Premier Inn not located at an airport.
• PPHE has announced that it has now acquired from its joint venture partner its 50% interest in W29 Development LLC. The company says ‘as a result, the Company now owns 100% of the JV Company.
• Rank Group has updated on H1 numbers saying that ‘the Rank Group Plc now expects underlying operating profit pre IFRS16 for the year ending 30 June 2020 to be above current market expectations.’ This by about £8m or c8%.
• The Telegraph points out that Netflix has more Oscar nominations than any Hollywood studio. Nonetheless, it says that cinema is doing well in the UK – although 2019 did not hit 2018 peaks. Langton looked at the threat from Netflix last week.
• The major threat is that the internet and streaming does to film what it did to electronic, book and DVD retailing. The threats are two fold – first to the way in which traditional products are sold (books sold by Amazon etc.) and second to the nature of the product itself (a Kindle book rather than a paperback or a streamed song rather than a disc). Both of these factors are currently impacting film which, at least via the cinema, has the partial defence that it is a social rather than a solitary pursuit.
FINANCE & ECONOMICS:
• The ONS reports that the CPI in the UK rose by 1.3% in the year to December, down from 1.5% in November. This marks a 3yr low for inflation. It may make an interest rate cut that little bit more likely. The NIESR says that ‘consumers benefitted from lower inflation in clothing and footwear, and restaurants and hotels.’
• The NIESR goes on to say ‘our measure of underlying inflation, which excludes extreme price movements, decreased by 0.2 percentage point to 0.8 per cent in December.’
• The Resolution Foundation reports that the increased use of credit cards, store cards and overdrafts by those struggling to cope financially should concern policymakers. It reports that some 62% of low-income households are using some form of consumer debt.
• The RICS has suggested that London house prices picked up in December after the result of the general election became known.
• Sterling up slightly at $1.3048 and €1.1701. Oil up a shade at $64.49. UK 10yr gilt yield lower by 7bps at 0.65%. World markets broadly higher.
• Brexit & politics.
o FT reports France and other governments in the EU as saying that Britain should stay in sync with EU environmental regulations, mimicking upgrades to European law that happen over the years to come.
o This is likely to be called ‘dynamic alignment.’ It may appear to some Brexiters as BRINO
o FT says the EU intends to say it will ‘scupper the entire economic negotiation with Britain if the UK will not continue to grant European fishermen access to its waters on a very similar basis to now.’ The FT says ‘nothing is agreed until the EU gets what it needs.’
START THE DAY WITH A SONG:
Yesterday’s song was Little Talks by Of Monsters and Men. Today, who sang:
“Cause you tear us apart with all the things you don’t like
You can’t understand that I won’t leave
‘Til we’re finished here and then you’ll find out
Where it all went wrong”
RETAIL WITH NICK BUBB:
Primark: The food conglomerate ABF has come out with its trading update on the 16 weeks to Jan 4th, with all the focus on its huge Primark subsidiary. And the update is a bit disappointing, with even Primark suffering a “marginal” decline in LFL sales in the UK in the period (gross sales were 4% up), although Europe was a tad better.
Halfords: We flagged yesterday that it was interesting that the struggling Halfords had not had to bring forward today’s scheduled update (for the 14 weeks to Jan 3rd) , despite a very weak start to the new-year for its share price, and the news is indeed OK, with positive LFL growth in both Retail and Autocentres, alongside continued gross margin growth and tight cost control, with Halfords reaffirming its full year profit guidance of £50-55m.
N Brown: The news is less good from the struggling home shopping company N Brown, with the company warning with today’s Q3 (for the 18 weeks to Jan 4th) that it now expects full year adjusted PBT to be down from £83.6m to £70m-72m, because of a highly promotional market and lower Financial Services revenues.
News Flow This Week: We have aslo had updates from Moss Bros and The Works today. The Signet update at lunchtime in the US will reveal how badly H Samuel and Ernest Jones did in the UK at Christmas. Tomorrow brings the ONS Retail Sales figures for December.