JD Wetherspoon Q3, Compass, Comptoir, TUI, Airbnb & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

One of the abiding questions of our time, up there with the inquiry as to what is the purpose of the Universe related in The Hitchhiker’s Guide, is ‘what did the squirrel do with his nuts?’

And a good question it is too but, if like us you have upward of what seems like 1,000 hazel trees growing up through your grass and in what you might in your more deluded moments call your flower beds, it’s one that has a pretty definitive answer because, unless there’s some sort of immaculate conception going on out there in the arboreal world, most of the nuts in the north of England have been buried in our garden.

So that’s one question answered, on to the next.

And, whilst we ponder that, here’s the news:

JD WETHERSPOON – Q3 TRADING UPDATE:

JD Wetherspoon has today updated on Q3 trading and our comments are set out below:

Headline numbers:

• JDW reports that LfL ‘sales increased by 9.1% in the 13 weeks to 30 April 2023, compared to the same period in the last full financial year before the pandemic’ (i.e. the year to July 2019.

• It adds that year to date sales are up 6.4% compared to the same year.

• JDW says that ‘sales in Easter week were the highest-ever for the company – and sales in the current financial year are likely to be a record.’

• It says that, compared to last year (July 22), LfL sales ‘increased by 12.2% in the third quarter and by 12.7% YTD.’

• The company reports that the first May bank holiday ‘was exceptionally strong, including our busiest-ever Saturday’.

• Re the coronation, this was ‘slightly less strong, with a noticeably quiet Saturday, possibly benefitting sales in the off-trade (mainly supermarkets) more than the on-trade (mainly pubs, clubs and restaurants).’

Cashflow, balance sheet, capital spend:

• JDW reports that ‘in the last quarter, the company opened one pub (YTD 3 pubs) and sold, closed or surrendered to the landlord 10 pubs (YTD 21 pubs).’

• It adds that ‘most of the pubs were smaller and older, or where the company has a second pub in reasonably close proximity. There was a net cash inflow of £4.7 million from the 21 disposals.’

• JDW says it has 30 trading pubs still on the market, or under offer and says it currently has a trading estate of 834 pubs.

• Net debt as at 30 April 2023 was £738 million, down £67 million lower than it was at Jan 2020, the H1 before the pandemic.

• JDW says ‘since then, the company has invested £185 million in new pubs and freehold reversions and has raised equity of approximately £240 million.’

• It says it ‘had financial headroom of £241 million at the end of the quarter.’

Company comment & outlook:

• Wetherspoon chairman Tim Martin says ‘sales in the last quarter have continued their positive momentum, although inflation, especially in labour, energy and food costs, remains a more intractable issue.’

• He calls for more free enterprise and fewer regulations and says he ‘expects profits in the current financial year to be towards the top of market expectations.’

Langton comment:

• Having performed relatively poorly during most of 2022, JDW’s shares stabilized in calendar Q4 and they have since staged an impressive partial recovery.

• The group’s historically low margins, its reliance on volume (often laudable) versus price and its older, less well-off and more price-sensitive customer base leave it with some short and medium term hurdles to overcome as the UK flirted with recession.

• But, as optimism became more apparent across consumers and business, stats began to indicate that a recession was unlikely and JDW’s shares have prospered.

• Hence, the backdrop has improved but there is work to be done. JDW has put up prices and, as it may have lost some customers who cannot afford to go out, it may have gained others who are trading down from more expensive outlets.

• Site rationalization is ongoing and it is unclear at just what point this is likely to stop.

• As we have mentioned before, the assets still in place have earned £105m to £110m in PBT in the recent past and they should be capable of doing so again.

• At the ‘per share’ level, however, this may not happen in the short term as there are more shares in issue and margins are lower as a result of high costs

• But the news that profits this year should be at the top end of expectations is likely to be well-received and, with momentum remaining positive, the shares could attract more support.

THE ECONOMIC IMPACT OF THE CORONATION:

Summary:

• Contextualising the issue. It’s a one off and it’s over. The weather, sporting events, train strikes and the state of the economy are a) bigger and b) enduring issues.

• Re the coronation. It was not a major positive for those operators who ‘benefitted’ and it was quite a substantial negative for some other players.

Saturday:

• Neutral to negative for most leisure operators outside of pubs & restaurants (and some London hotels).

• The day was a car crash for restaurants. They swapped what could have been a busy Saturday for something like a poor Monday’s business – particularly during daylight hours.

• For pubs, there was more noise than there was action, at least as far as cash in tills is concerned. City centres were quieter, residential areas saw a small positive.

• The 3pm football (on the plus side) and the poor weather (on the negative) were more important.

Sunday:

• Much better weather and more positive trade for most operators. As customers had the Monday off work, Sunday became a Saturday and, with good weather, that was a considerable help to revenues.

Monday:

• The weather wasn’t good and sales were poor.

• They – i.e. sales (for both pubs & restaurants) were up on the same Monday last year but down on what would have been a normal Bank Holiday.

Public comments:

• Thankyou to those who chipped in with trading information.

• Publicly, City Pub Group has told the BBC that Saturday was ‘a washout’ but Sunday was ‘really, really strong.’

• UKH said central London did well on Saturday but residential areas did better on Sunday.

• Foodservice analyst Peter Backman said that, historically, ‘royal events don’t do much for the foodservice sector.’ He says ‘I hope I’m wrong’ but we don’t think he was.

• The Morning Advertiser says ‘the coronation bank holiday weekend saw drinkers consume 50.5m pints across the UK, which was a 5.7% increase from the 2022 Jubilee bank holiday.’ It adds that ‘some operators have claimed the weekend was worse than expected, blaming shocking weather conditions and the cost-of-living crisis.’

• Design My Night says ‘the coronation of King Charles III was disappointing with 25% fewer bookings taken across Design My Night and Access Collins than the previous year’s Royal celebrations.’

• It adds that ‘numbers were also 17% down on the first May Bank Holiday just a week earlier.’

• The Oxford Partnership says the weekend was a ‘mixed bag’. It says ‘total beer was up +6.2% vs. 2022 and this growth was driven by World Lager increasing by +20.9% and Stout by +11.7%.’ Since we are comparing a weekend followed by a Bank Holiday Monday to one without, that isn’t very impressive.

Langton:

• It was a) small where it was a positive, b) larger where it was a negative and c) it’s gone and won’t be repeated for a generation.

• Hospitality will ultimately be heavily influenced by the performance of the economy and by the share that Labour (as opposed to capital and taxes) take within it.

• Here we may swerve a recession but, if the government needs to hike taxes to pay down debt, it may not feel like it.

PUBS & RESTAURANTS:

Consumer squeeze:

Which? estimates that 700k households missed or defaulted on a rent or mortgage payment last month. Missed housing payments were ‘particularly high’ among renters…

• This has implications for spending and Which is suggesting that less well-off demographics may be in a worse position than some of their better-off peers. Which says three-fifths (59%) reported making at least one ‘adjustment’ in order to cover essential spending last month, either cutting back on essentials, dipping into savings, selling possessions or borrowing.

• The above suggests that disposable income is becoming increasingly stretched, especially among those who are renting. This could have knock-on impacts on spending in leisure, travel and hospitality, with government support being withdrawn from many and interest rates set to rise further.

On the other hand, Paul Martin of KPMG has highlighted that ‘consumer demand has so far been fairly resilient to the twin drags of high inflation and high interest rates…’

• However, he does continue to say that ‘as Government energy support comes to an end for many, savings start to dwindle and other household bills rise, it is likely that the next few months will continue to be challenging as the consumer tank empties.’ He says ‘much hinges on whether soaring food inflation can be brought under control enough to allow consumers to comfortably start spending again on non-essential items.’

Footfall:

Springboard reports that last week was an exceptional week in that it ‘was bookended by bank holidays, which meant that footfall across UK retail destinations remained virtually flat from the week before.’ It was up just 3% week-on-week.

Worth remembering that there is a further rail strike this Friday (12th). This will be negative for footfall.

Prices & Costs:

Sainsbury’s has cut the price of its own brand butter and bread as wholesale  food prices have been falling globally. The supermarket chain said ‘Whenever we are paying less for the products we buy from our suppliers, we will pass those savings on to customers’.

WFH etc:

Startups.co.uk comments that ‘the traditional 9-5 is dead’ and it adds that ‘four in five UK businesses now believe flexible working is critical to success.’ It says that ‘moving away from strict rules around ‘clocking in’, they are letting staff plan their work around their personal commitments – not the other way around….’

• Startups says ‘with previously progressive policies like remote working now the norm, the new perk in town is the four-day work week. Research indicates the demand is high. 7 in 10 employees plan to request the schedule this year. Now, their employers are beginning to respond.’

• It says ‘after the success of a six-month long experiment that ended in 2022, 56 companies have now chosen to fully adopt a reduced working model. The strategy has been proven to boost mental health and protect productivity – plus provide a three day-weekend to boot.’

• Langton. This will be welcomed by employees but perhaps less so by their employers. And leisure and hospitality operators with city centre sites that benefit (or benefited) from office-trade, will not be happy to hear such comments. Mondays, which were perhaps never busy, are now sometimes ghostly quiet and Thursdays may be supplanting Fridays as the busiest day of the week.

• This will impact revenues (unless prices can be hiked to take up the slack and, in all likelihood, they can’t) and lower revenues will put pressure on margins. This, over time, could lead to collapses unless the problem can be passed on to and shared with landlords via lower rents. Landlords, of course, have their own problems.

Other news:

Bolton Council have begun consultation on introducing the Late Night Levy with a proposal to introduce the Levy on 1 January 2024. The annual levy fee ranges from £299 a year for smaller businesses to £4,449 for larger businesses which are used exclusively or primarily for the sale of alcohol. The consultation period will end on 18 June 2023.

Accountant BDO has updated on business optimism saying that the UK’s business leaders are the most upbeat about the outlook for their firms since before the government’s disastrous mini-budget last September. Business leaders say that the economy has been more resilient than they had feared with the UK managing to avoid recession.

COMPANY NEWS:

Compass Group has reported H1 numbers saying that revenues rose by 24.7% to £15.8bn with operating profits up 41.1% to £1.05bn and EPS up by 42.8% at 42.7p. The company will pay an interim dividend of 15.0p (2022: 9.4p). The group is raising its outlook for FY23…

• CPG now says it expects operating profit growth of ‘towards 30%’. It says that it will report in US$ from the end of this financial year.

• CEO Dominic Blakemore says ‘the Group performed strongly in the first half of the year, benefiting from balanced growth across all regions.’ He says ‘net new business continued to be excellent, and significantly higher than our historical rate. We are particularly pleased with the step change in our Europe performance which has benefited from growth initiatives as well as favourable outsourcing conditions.’

• Mr Blakemore adds that ‘despite pockets of macroeconomic weakness, the outsourcing market remains very attractive.’ He says ‘following our strong first-half performance, we now expect operating profit growth towards 30% on a constant-currency basis, to be delivered through organic revenue growth of around 18% and an underlying operating margin in the range of 6.7% to 6.8%.’

• The CEO says ‘the strength of our balance sheet, along with our confidence in the prospects for the business, give us the platform for further returns to shareholders. In addition to our ordinary dividend, we are announcing a further share buyback of up to £750m in 2023, taking the total programme announced since May 2022 to £1.5bn.’

• He concludes ‘longer term, we expect the growth opportunities in the market to sustain mid-to-high single-digit organic growth and a path back to our historical margin, leading to profit growth above revenue growth. With our established value creation model intact, we will continue rewarding shareholders with compounding returns over the long term.’

Comptoir has reported FY numbers to 1 Jan 2023 saying that group revenue rose by 49.7% to £31.0m. Adjusted EBITDA was £6.3m (prior year £6.4m) and basic EPS was 0.48p (prior year 1.34p). The group was net cash positive to the tune of £7.7m at the year end…

• Chair Dr Beatrice Lafon says ‘Comptoir has performed well against the well documented headwinds affecting the industry.. The chair adds ‘this was a pivotal year for the Group as it recovered from the challenges presented by the pandemic and was required to address unprecedented inflationary pressures on food and energy prices.’

• Nick Ayerst was appointed CEO in October. Looking to the future, he says ‘while economic uncertainty and inflationary cost pressures are set to persist in the short term, we believe Comptoir Group is in an excellent position to capitalise on opportunities in the marketplace.’

• He adds the company’s ‘destination restaurant brands have a great opportunity for organic growth with a clear market positioning and renewed focus. We are in a position to open new restaurants across the different brands with an experienced and motivated leadership team to execute the Groups strategy.’

• Mr Ayerst adds ‘the cost pressures of the last 12 months have impacted profitability, and this will continue into 2023. Whilst we would expect costs to remain higher than they were prior to the war in Ukraine we continue to mitigate these effects through our new supplier partnerships and menu engineering. Energy prices have already started to retreat, and our flexible hedge allows us to take that benefit as it occurs.’

Brew By Numbers and Brick Brewery have indicated intentions to call in the administrators reports Just Drinks. Should the South London breweries fail to find a solution during the administrations then they will join the 36 breweries that have already closed in the UK this year, equal to approximately two per week.

Jamie Oliver’s new UK restaurant will be a more ‘premium’ venture than Jamie’s Italian according to CEO of the Jamie Oliver Group Kevin Styles. He did not confirm whether the concept would be spun out into a chain but said the launch was part of a five-year plan for the business.

Greggs has opened its first airport site in partnership with SSP, located in Cardiff…

• Greggs commercial director, Malcolm Copland, said ‘We are delighted to open another shop with SSP. We know that high quality food-on-the-go and convenience go hand in hand, and this shop at Cardiff Airport gives us the opportunity to bring our range of products to more customers in an exciting new location.’

HOLIDAYS & LEISURE TRAVEL:

TUI has reported H1 numbers saying that underlying EBIT came in at a seasonal loss of €242.4m ‘delivering a strong improvement year-on-year (Q2 2022: €-329.9m) with the strong booking momentum continuing into the Summer seasons..’

• Re Summer 2023, the company says ‘Easter bookings confirmed the strong customer demand across all our markets and indications for the Summer season remain positive. 8.3m bookings have been taken to date, 3.6m more than at our Q1 2023 update. 55% of the programme sold which is +2%pts ahead of Summer 2022 and broadly in line with Summer 2019.’

• It says ‘in the last six weeks, booking momentum has remained strong, +6% ahead of the Summer 2019 comparison reconfirming the positive and encouraging trends for this Summer.’ TUI adds ‘the UK market continues to be the most advanced sold at 64%. Bookings are in line with the prior season and +10% versus pre-pandemic levels again accompanied by higher ASPs.’

The latest UNWTO world tourism barometer has found that international tourism is ‘well on its way’ to returning to pre-Covid levels, now at 80% of pre-pandemic levels in the January to March period with an estimated 235 million tourists travelling….

• The UNWTO cautions that the economic situation (high inflation and elevated oil prices) remain a drag on the effective recovery of international tourism in 2023. It says ‘uncertainty derived from the Russian aggression against Ukraine and other mounting geopolitical tensions, also continue to represent downside risks.’

• Nonetheless, UNWTO secretary-general Zurab Pololikashvili comments that ‘the start of the year has shown again tourism’s unique ability to bounce back. In many places, we are close to or even above pre-pandemic levels of arrivals.’

Eurocontrol figures show that total flights in April reached 90% of 2019 levels and rose further to 92% for the week from 26 April to 2 May, up 7% YoY. The UK continues to be Europe’s leading aviation market with average daily flights of 5,311, followed by Spain (4,798 services), Germany (4,677) and France (4,011).

Airbnb Inc has updates on earnings & the business outlook saying that bookings are likely to fall with rates also likely to slide in its Q2. The company’s shares fell more than 10% in after-hours trading….

• CEO Brian Chesky told an investor call that consumers appeared to be more price sensitive in the US saying ‘in the United States, the lowest price listings have the highest occupancy.’ CFO David Stephenson says ‘some of the pressures that we’re seeing there on overall revenue growth has frankly just been some of the elevated rates.’ The company is to spend more on marketing. It forecast Q2 revenue between $2.35 billion and $2.45 billion, in line with analysts’ expectations.

OTHER LEISURE:

Warner Music Group has reported Q2 profits down by 63 per cent to $34 million after exceptional costs caused by layoffs. Sales were up by 2 per cent to $1.4 billion in the three months to March 31.

FINANCE & MARKETS:

The Halifax Building Society yesterday reported that house prices fell by 0.3% month-on-month in April to leave them up by only 0.1% year-on-year. This is the lowest rate in a decade and is down from the year-figure of 1.6% to March…

• House prices fell after the government’s disastrous mini-Budget last September and then bounced a little. They are now under a bit more pressure. Nonetheless, Halifax says ‘the economy has proven to be resilient, with a robust labour market and consumer price inflation predicted to decelerate sharply in the coming months.’

• It says ‘while the housing market as a whole remains subdued, the number of properties for sale is also slowly increasing, as sellers adapt to market conditions.’ It adds that ‘the four regions of southern England have seen average house prices fall over the last year, with the south-east registering the largest dip, of minus 0.6%.’ In London, house prices over the year are down 0.2% (or over 10% in real terms).

House marketing agent and former high-flyer Purplebricks, whose shares have fallen by around 98% from their highs, managed to lose another c60% yesterday as the company announced that it had cash problems and somewhat ominously said it would need to ‘conclude the Strategic Review and the Formal Sale Process promptly.’

Insolvency and restructuring trade body R3 has reported that London has seen a Q1 startup ‘boom’ with over 70,000 new businesses launched during the period in region. Startups in London are up by 13.9 per cent in Q1 2023 vs the same quarter last year.

A bit of a pile-on. Make.uk has said that flip-flopping…

• …on policy by the government has held back business. Yesterday, Jan du Plessis, chairman of the Financial Reporting Council, told Bloomberg that an aversion to high pay was handicapping London. JP Morgan’s CEO for EMEA said that post Brexit competition from other European hubs was adding to the problem.

Sterling up at $1.2619 and €1.1502. Oil price higher at $76.98. UK 10yr gilt yield up 10bps at 3.86%. World markets weaker yesterday but London set to open up around 7pts as at 6.30am.

RETAIL WITH NICK BUBB:

• Today’s News: The ASOS interims (for the six months to end Feb) are headlined “Executing on Driving Change agenda, creating strong foundations for a return to profitability and cash generation in H2 FY23 and beyond”, but the results themselves are poor, with revenue 8% down to £1.84bn and adjusted PBT falling into a loss of £87m, even though the company claims that things would have been even worse but for cost-cutting. José Antonio Ramos Calamonte, the new CEO, says: “Our focus is on improving our core profitability, prioritising order economics over top-line growth and I am pleased with the strategic and rapid operational progress the business has made in the first half of the financial year, against some very challenging trading conditions”. In terms of current trading, the company says that sales momentum in P2 FY23 (-15% ex-Russia, in constant currency) has broadly continued into
March and April, with approximately half of the sales decline driven by planned “Driving Change” initiatives. However, with adjusted gross margin run rate up more than 300bps, adjusted gross profit was broadly flat over the same period, “reflective of the prioritisation of profitability over growth”.  

• Today’s Press: According to the invaluable Guardian morning email briefing, today’s front pages are dominated by the welcome news of the columnist E Jean Carroll’s court victory over former US President Donald Trump. The Guardian leads with “Trump sexually abused writer in 1990s, New York jury finds,” and the Telegraph has an almost identical headline: “Trump sexually assaulted writer, US jury finds”. The Daily Mail has a slightly different angle with “Is this the end of Trump’s new bid to be President?” while the Daily Mirror baldly states “Trump the sex attacker”. In other news, the Times splashes on “Britain set to blacklist Russia’s Wagner group”. The top story in the Financial Times is “Blood-scandal compensation scheme expected to cost taxpayer up to £10bn”. The Metro looks back on Russia’s Victory parade in Moscow, labelling it “Stark raving Vlad,” while the i says it has an
exclusive with “Archbishop clashes with No 10 on migration”.

• News Flow This Week: Today brings the John Lewis Partnership Council confidence votes on the stewardship of the business and the latest MPC interest rate decision is out at mid-day tomorrow.