Marston’s, Everyman, Nichols, McDonald’s, Coke, inflation & other:

A DAY IN THE LIFE:

A year ago or so we started to hear what must surely be the saddest birdsong in the world.

We didn’t know what it was. It sounded like a melancholy, squeaky wheelbarrow, almost a call to arms for the depressed and, Google as we might, we couldn’t find the right words to generate much of a search.

Furthermore, Googling sad, depressed and sorrowful and the rest might have brought on a visit by The Samaritans but, when we finally grabbed a clip of the ‘song’ on Bird-net, we found out it was a Bullfinch.

Now the one we heard was particularly mournful.

And well it might because it was never going to attract a mate like that. Indeed, the examples online sound positively cheerful in comparison but, and here the familiarity bias and / or the availability bias kick in because, though they are not a particularly common bird, we can now hear the little blighters everywhere.

A bit like when your name gets whispered in a noisy room you can pick it up. Or maybe it’s just that the pesky things have gorged on the blossom from our fruit trees and have knocked out a few dozen babies each. On to the news:

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MARSTON’S Q3 TRADING UPDATE:

Marston’s has today updated on Q3 trading and our comments thereon are set out below:

The numbers:

• Marston’s updates on Q3 and on the year to date. LfLs in the managed business were down 3% at H1 and are down 2% in the 42wks of the year to date

• The Co says that ‘as previously reported, this reflects the impact of the reintroduction of trading restrictions in December and January and corresponding impact on consumer sentiment in H1.’

• LfL sales were modestly negative, by around 1% in Q3, largely due to a drop in food sales during the period of hot weather. M&B reported last week. M&B said that it was up 2.2% for the first 5wks of its Q3 and around zero for the remaining period.

• MARS reports that for the first 12wks of the 16wks (wk27-42 inclusive) it was ahead of FY19. During the last 4wks, however, given the hot weather, food sales have been down whilst drink is still positive.

Interpreting the numbers.

• This is a Q3 statement and, as such, it is brief. There is no micro-analysis and there will not be a conference call.

• MARS is not ascribing sluggish sales to rail strikes or a consumer downturn leaving the weather (particularly given the wet / food split) as the most likely determinant, at least in the short term.

• It says ‘encouragingly, total retail sales in the Group’s managed and franchise pubs returned to FY2019 levels in the period. Drinks sales have continued to outperform food sales, once again reinforcing the steadfast trading resilience of Marston’s predominantly community pub estate.’

• Wet sales are good and the group’s accommodation business will continue to benefit from a strong staycation market

• The sky isn’t falling in. The group is encouraged by continued consumer resilience but remains aware that the macro-economic outlook remains challenging.

• Rising energy, particularly electricity, prices will have an impact on margins and profits. MARS reports that higher electricity costs will cost £2m in H2 and this number will be edged from most brokers’ earnings estimates

• The company says ‘with energy cost inflation likely to persist in the short term, Marston’s has taken the decision to fix the Group’s electricity rates for Winter 2022, covering the six-month period from September 2022 to March 2023 with an incremental cost impact of c£3.0m in financial year 2023.’ It adds that ‘the Group’s gas price is also fixed until the end of March 2025 with no additional incremental spend anticipated.’

• MARS remains cash generative at these levels of profitability.

Company comment:

• CEO Andrew Andrea says ‘since COVID restrictions were lifted, we have been encouraged with the level of sales as we have transitioned to operating on a ‘business as usual’ basis.’

• Mr Andrea adds that in spite of ‘external economic headwinds, we have not seen any discernible change to customer footfall to date and remain cautiously optimistic that we will continue to see similar levels of customer demand across the summer where we will benefit from our investments in outside space and staycations.’

• The CEO says ‘we continue to focus on our strategic plans and remain on track with our debt reduction strategy.  We are making considerable progress with the transition away from our value food Two for One brand which will be complete by the end of September.’

• He concludes ‘we have completed 45 of these pub conversions to date and, whilst still early days, initial indications are encouraging with positive customer feedback and improving returns.  We remain confident that the changes we are implementing now will deliver a higher quality business for the Group over the medium to longer term.’

Langton Comment:

• Whilst there is no comment on margins or profits in today’s statement, Marston’s is not discounting. Sales are stable, the group remains cash-flow positive and drink sales are strong.

• MARS has a small London presence and, as tourists – both overseas and domestic – appear to be back, that is perhaps swinging from a modest positive to a small negative.

• There is very little visibility but, at the moment, there are no major negative signals coming from the consumer.

• Overall, minus 1% or so in Q3 is not wonderful but nor, on any measure, is it dreadful and the pub remains an affordable place in which to socialise.

• A sum of the parts valuation may be appropriate at some point as Marston’s is both an investor in its beer company and an operator of its pubs.

• We believe that MARS has some more flexibility if it needs to ‘take more price’. This puts it in a favourable position compared to some of its competitors, who have been fairly aggressive when it comes to putting through increases

• The market remains challenging and difficult to read but MARS is generating cash and it owns the freehold for the majority of its units. Marston’s debt is coming down but its shares, in common with many across the sector as a whole, have been weak recently.

• There is little clarity yet on the medium term prospects but, over the longer term, as the company is generating cash, Marston’s remains well-positioned to prosper.

PUBS & RESTAURANTS:

Inflation:

There are stats coming out of people’s ears but, yesterday, we managed to pay £2.20 for 4pts of milk in Tesco. A quick trawl around showed this would have cost less than a pound a few years back…

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The British Retail Consortium reports that shop price inflation rose to 4.4% in July, up from 3.1% in June. It says that food inflation was up 7%, compared to 5.6% in June…

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Food demand:

Some commentators say that the supermarkets (and food manufacturers) will take share from hospitality. Others say people will simply eat less or eat more cheaply. Nick Bubb yesterday pointed out that, talking about supermarket sales (which are usually pretty robust in tough times), Mike Watkins of Nielsen said that “The worrying pressure on sales volumes is expected to continue throughout the summer period and exacerbated due to the holidays, with more Brits travelling abroad than last year…’

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Grab and go:

IGD reports that the UK food-to-go market is predicted to be worth £23.4bn by 2027, 26% more than pre-pandemic levels, with inflation set to be the main driver of growth…

Getting to work (and the pub),

Rail strikes and the propensity to work from home tend to be positively correlated…

COMPANY NEWS:

Nichols has reported H1 results, saying that revenue rose by 19.1% to £80.2m with adjusted PBT up from £8.9m to £11.3m. EPS is 22.2p (2021: 18.9p) and the H1 dividend is up from 9.8p to 12.4p…

McDonald’s Corp has reported Q2 sales saying that like for like sales rose by around 10% with growth in all segments. CEO Chris Kempczinski says ‘the McDonald’s System continues to demonstrate strength and resiliency.’ He adds ‘our second quarter performance reflects outstanding execution against our Accelerating the Arches strategy…’

Bridgepoint, which owns Burger King UK, has reported numbers saying that it turned in a resilient performance given the market environment.

Starbucks is now reported to have 200 unionised stores in the US.

The Coca-Cola Company has reported second quarter 2022 results saying ‘our results this quarter reflect the agility of our business, the strength of our streamlined portfolio of brands, and the actions we’ve taken to execute for growth in the face of challenges in the operating and macroeconomic environment…’

Fuller’s has opened The George & Dragon in Westerham Kent and The Queen’s Arms at Heathrow. The George & Dragon reopens following a £2.4m investment. The Queen’s Arms is Fuller’s first landside pub. CEO Simon Emeny said ‘Across these two sites, we have created 90 new jobs – reinforcing the fact that hospitality is an engine for growth.’

Walmart has issued a profit warning for the second time since May, as the soaring cost of food and fuel hits customer spending. The company says it now expects profits to fall by as much as 13% this year, and  “signals a warning bell for the retail sector” according to one expert.

DP Poland yesterday hosted an online meeting for shareholders and interested parties. The group has welcomed Nils Gornall to the board post the acquisition of DP Croatia. Mr Gornall, who was a Domino’s franchisee in Australia before moving to Croatia, says that the expansion opportunities for DP Poland, in what remains one of the largest immature markets in Europe, is very substantial…

• The company, which is majority owned by Warsaw-based investor Accession Capital Partners, seemed to stress the potential for acquisitions in the Polish market. This, if it could be achieved with an acceptable level of integration risk, would allow more rapid expansion. ACP says it has a 2-3yr view. It would like to double sales. The implication, unless we are mistaken, is that they would like to exit their investment towards the end of that period and let the next owner double sales again.

• Mr Gornall said there are ‘big opportunity in Poland’. He adds that there is ‘very little difference between Polish and Australian (or for that matter) Croatian customers’. The implication is that sales per unit should grow and there is the potential for 400-500 units across the country. The directors say new stores are performing will. E Expansion could be either organic or by acquisition.

• Inflationary pressure are still present. There have been 3x price increases this year alongside moves to cut costs and encourage dine-in, where it is sensible, in order to save on delivery costs. The group will sell down stores to sub-franchisees and it will grow ‘one way or the other’.

HOLIDAYS & LEISURE TRAVEL:

BA pilots in the Balpa union are expected to threaten walkouts as a pay row rumbles on. A walkout could come as soon as this summer, impacting holidaymakers during the peak season. BA pilots agreed to sacrifice a portion of their salaries to mitigate job losses in a pay deal agreed in July 2020. They accepted temporary pay cuts of 20%, falling to 8% over the following two years, allowing job cuts to be reduced from 1,255 to 270.

Per Telegraph, the head of the Public Accounts Committee has said that the traffic  light travel restrictions imposed during the pandemic were in part to blame for travel chaos at airports this summer.

Heathrow airport reports losses of £321m for the first six months of the year, up from losses of £466m in the same period the year prior. Passenger numbers surged to 26.1m, compared with just 3.9m a year earlier. Heathrow claims that the summer getaway has “started well”, despite having to introduce a cap on passenger numbers to avoid further travel chaos.

EasyJet posted a pre-tax loss of £114m for April-June, including a £133m loss due to disruption and cancelled flights. EasyJet operated 95% of its planned schedule in Q3, with some customers seeing their flights cancelled at the last minute.

Travel delays & strikes:

Heathrow blamed ground handling shortages as the “constraint” on its capacity and revealed that it started planning for the summer peak nine months ago…

Dover ferry operator DFDS told passengers there were queues of about an hour for French border checks on Monday morning and to “allow a minimum of 120 minutes before your departure to complete all controls”…

The TSSA rail union has  agreed to strike on 18 and 20 August at seven train operating companies in an industry-wide dispute over pay, job security and conditions. Staff will walk out at Avanti West Coast, c2c, East Midlands Railway, CrossCountry, Great Western Railway, LNER, and Southeastern.

OTHER LEISURE:

Everyman Media Group has updated on H1 trading, saying that group revenue was £40.7m, an increase of £11.8m vs. the same period in 2019. It expects group EBITDA of £7.5m, an increase of £0.9m vs. the same period in 2019….

Alison Brittain, outgoing CEO at Whitbread, is to chair the Premier League.

Microsoft yesterday missed Q2 profit estimates, blaming ‘evolving macroeconomic conditions and other unforeseen items.’

Amazon Prime subscriptions are increasing in price from September. Monthly subscriptions will go up £1 to £8.99 and annual membership will increase from £79 to £95. Amazon said the price rise was due to “increased inflation and operating costs”.

FINANCE & MARKETS:

The International Monetary Fund has warned that the UK is likely to have the slowest growth of the G7 economies next year. It says UK growth will fall to just 0.5% in 2023. It had been looking for 1.2% as recently as April…

Rishi Sunak last night signalled a U-turn should he become PM when he said he would cut VAT on fuel bills. He had previously pledged not to make any immediate tax cuts.

Sterling mixed at $1.2056 and €1.1877. Oil price lower at $104.39. UK 10yr gilt yield down 3bps at 1.91%. World markets mixed yesterday. London set to open up around 27pts as at 6.30am.

FORTHCOMING NEWS:

Fairly active on the corporate front this week with fewer ONS statistical releases. Wednesday sees Marston’s update on Q3. On Thursday, Virgin Wines reports H1 numbers.

RETAIL WITH NICK BUBB:

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