Langton Capital – 2023-10-03 – PREMIUM – Tortilla (H1), GRG (Q3s), Burger & Lobster, rail strikes, food inflation etc.:
Tortilla (H1), GRG (Q3s), Burger & Lobster, rail strikes, food inflation etc.:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Meetings yesterday. Preparing, taking part in, recovering from, noting up etc have left us short of time. So, let’s move on to the news: PUBS & RESTAURANTS: Rail strikes, threat to Christmas (again): Thirty-seven major UK hospitality companies signed a letter urging rail unions to avoid strikes over Christmas, arguing it would cost the sector £400 million and significantly disrupt businesses, workers, and families…. • Langton: The companies called for the unions, transport secretary, and rail groups to resolve their dispute before the holidays to prevent severe economic and social impacts. Christmas is a vital period over which many hospitality operators are able to generate the positive cashflow that will see them through the lean months of January and February/ • It doesn’t help that Christmas VAT will be payable in January with other fixed costs going on as normal into the New Year despite the annual drop off in revenues. The threat to Christmas is arguably particularly acute because it was so heavily impacted last year and, since then, further government help has been withdrawn. • The letter says ‘the significance of the festive season to our sector cannot be overstated. It represents a crucial time when we traditionally see a substantial portion of our annual revenue generated, crucial to enabling venues to operate during the quiet months at the start of the year.’ • It goes on ‘the festive season is a crucial period for our workforce: missed shifts and subsequent lost earnings – including lost income from tips – would be most acutely felt around Christmas.’ The letter concludes ‘we are urging the rail unions to make a public commitment to not strike during the critical festive period. Striking would cause significant harm to hospitality businesses, undermine workers’ ability to earn and disrupt the plans of hard-working families across the country.’ MD of Dishoom, Brian Trollop, has told The Caterer that the group could lose 3,500 bookings over Christmas if there are further train strikes during the festive period. He said at The Casual Dining Show ‘I think [train strikes are] going to potentially nail the hospitality sector very, very badly over the Christmas period’. Inflation: The British Retail Consortium reports that food prices in September are down 0.1% from August in the first fall in prices for two years. The BRC says that fierce competition between supermarkets is behind the fall. It says that prices of staples such as dairy goods, margarine, fish and vegetables, all fell… • Food prices are still up by 9.9% in the year to September, though this is lower than August’s 11.5% rate. Shop inflation overall fell to 6.2%, the lowest rate in a year. • The BRC says she expects a further slowing in inflation but says ‘there are still many risks to this trend – high interest rates, climbing oil prices, global shortages of sugar, as well as the supply chain disruption from the war in Ukraine.’ • NielsenIQ says ‘there continues to be pressure on budgets with over half of households still feeling that they are significantly impacted by the continued increases in cost of living.’ The CGA Prestige Foodservice Price Index showed a slowdown in food inflation for a third consecutive month in August, but it remains above 20% year-on-year. CGA says ‘price increases have slowed in both foodservice and supermarkets in recent months. However, the rate of easing has been faster in retail, as month-on-month inflation in supermarkets as measured by the Consumer Prices Index stood at just 0.3% in August—compared to 0.8% in the Foodservice Price Index….’ • CGA reports that all 11 categories of the Index remained in double-digit inflation, though some saw prices drop month-on-month, including fish, fruit and sugars. Meat prices increased again, by 1.7%, and the vegetables category recorded the highest year-on-year inflation of any category at 33.5%. • CGA says ‘inflation is being fuelled by the high cost of transport and packaging after crude oil prices rose 30% above the levels seen in June. Import costs remain an issue after sterling fell marginally against the dollar and Euro in August, while wage inflation of 8% has driven up costs further. Inflationary challenges outweighed a 2.1% drop in the price of key food commodities in August.’ • Shaun Allen, CEO of Prestige Purchasing comments ‘the outlook for kitchen-door food prices is becoming more positive because inflation will continue to ease, but we expect this slowing of inflation to take effect more slowly than in retail. A fall in prices (deflation) on the full basket of food and drink is unlikely until at least early 2025.’ • James Ashurst at CGA says ‘drops in inflation over the summer have been welcome, but they have been modest and foodservice prices remain under huge pressure—especially by comparison to slower rates in retail. Frustratingly, meaningful relief is still some way off, and price will continue to be a major factor in trading conditions in hospitality as we move into the final quarter of 2023.’ Elsewhere, the government says that the introduction of new Brexit border controls next year will cost business (and ultimately the consumer) some £330m per year in red tape and additional charges. Trading: On-premise drinks sales in the UK were down 3% year-on-year last week according to CGA, the first decline since mid-August, attributed to tough comparisons from last year’s Queen’s funeral bank holiday boost…. • Spirits sales saw the steepest decline at 14% behind last year continuing a downward trend, while beer, cider, wine and soft drinks were relatively flat. However, ales picked up later in the week suggesting a solid start to autumn for pubs and bars. • CGA MD UK & Ireland Jonathan Jones says ‘drinks sales at this time of year are closely tied to the weather, so Storm Agnes will create tricky trading conditions this week.’ He says ‘as we move towards the final quarter of the year, all operators will need to be at the top of their game to maintain footfall and achieve growth.’ He says operators have made a ‘solid start’ to autumn trading. Other news: Consumers cutting back: The BBC Good Food Nation survey has found that many UK families are turning to cheaper, less nutritious ready meals and processed foods while cutting back on organic, protein, and home cooking due to soaring costs…. • Over 60% said rising prices have impacted their healthy eating habits with 28% admitting to less healthy diets despite considering themselves healthy eaters. COMPANY NEWS: Tortilla H1. Swings into loss but trading in-line and expansion opportunities remain. Tortilla has reported H1 numbers saying that its ‘resilient trading supports [its] FY 2023 expectations’. The company reports revenues up 22% at £32.7m with LfL growth of 5.0% . It says that LfL growth on a VAT-adjusted basis was 8.4%. The company reports adjusted EBITDA of £1.8m (H1 last year £2.5m) and says it is trading in line with expectations. The loss before tax is £0.6m compared to a profit last year of £0.3m). The company says it has made ‘good progress on UK new store openings with three opened in H1 FY22’ and says it has managed the ‘successful integration of [the] Chilango business…’ • Tortilla says it has ‘growing confidence in the UK and international franchising opportunity with record profits following the return to normalised trading post-Covid.’ It adds that cost pressures are ‘easing along with favourable contracts negotiated with key suppliers.’ • Re current trading and the full year outlook, the company says ‘since the Period end, we have opened a further two sites: Belfast and Bracknell in July and August respectively and both are trading well, with Belfast doubling the opening revenue expectations.’ It adds that ‘a further three sites are expected to open in H2 FY23, taking the total to eight new sites in the year as we continue to deliver our stated roll-out plans.’ • Tortilla says ‘the summer was unsurprisingly quiet, as seen in the wider market, with an increased demand for overseas holidays, ongoing industrial strike-action on the train network and uninspiring weather. Nonetheless, the Group delivered LFL growth for this period.’ • It says cost cutting continues, as does menu development. The company says ‘we remain confident of being broadly in line with our targeted Adjusted EBITDA for FY23 and we expect to see the full year benefit of these initiatives next year.’ • CEO Richard Morris says ‘despite the challenging economic backdrop, during the first half Tortilla demonstrated its resilience and showed consistent progress, with revenue growth of more than 20%. We continued to expand our store estate and have successfully embedded the Chilango acquisition. We have also enhanced our food offer and secured significant improvement in our costs structure while making technology upgrades which will improve and quicken customer service at peak trading times.’ • Mr Morris says ‘with our outstanding food offer, excellent value for money and great service, alongside our adaptable and resilient business model, we remain well placed to continue expanding our UK network whilst taking the brand into new markets, particularly in Europe.’ Gregg’s Q3. No change to forecasts. Gregg’s has updated on its Q3 trading, saying that total sales are up 20.8% in the 13wks to 30 September. It says LfL sales are up 14.2% and adds that it has opened 82 shops year to date. The co believes it will open between 135 and 145 in the full year. Gregg’s says it has ‘continued to enjoy a strong trading performance over the third quarter’ and says that ‘evening trade (sales post-4pm) represented 8.8% of company-managed shop sales for the 13 weeks to 30 September 2023 (H1 2023: 8.3%).’ It adds that ‘investment in our supply chain is progressing well, supporting our ambitious growth plans. A fourth production line will be commissioned at Balliol Park in Newcastle upon Tyne in the coming weeks…’ • Re delivery, the company reports that it has ‘initiated a trial with a second delivery aggregator. We have now concluded these trials to test the incremental benefit of making Greggs available for delivery on the Uber Eats platform, alongside our existing partner Just Eat.’ • Regarding the outlook, Gregg’s says ‘the rate of cost inflation has eased as we annualise on the significant commodity-led increases experienced in 2022.’ It says ‘we have strong product and promotional plans for the fourth quarter and the extension of our delivery service will make Greggs accessible to more customers on more occasions.’ • The company says ‘whilst acknowledging the uncertainty in the economy as a whole and the very strong comparative performance of the business in the fourth quarter of 2022, the Board expects the full year outcome to be in line with its previous expectations.’ Diageo has announced that it has launched two bonds adding up to a $1.7bn fixed rate, US$-denominated issue. Whisky company William Grant & Sons reports turnover up 22% YoY to £1.7bn and profit after tax up 34% to £331m, with the company reaching pre-pandemic profitability once again. The company operates across 200 markets globally and owns brands such as Glenfiddich, The Balvenie, Hendrick’s Gin and Monkey Shoulder. Pizza Pilgrims has announced that it is to open in Leeds in mid-November. Urban Pubs & Bars is to open its 43rd site, and its first in a transport hub, this month in London’s Waterloo Station. The MCA reports that Vagabond bars is exploring using AI to create a ‘frictionless guest experience’ including a personalised app with wine recommendations. The UK self-pour wine bar group believes AI has huge potential for its business in improving the guest journey through data-driven personalised offerings and automation. Burger & Lobster reported turnover +47% YoY to £36.5m in the year to 1 January 2023, with EBITDA increasing to £2.2m from £1.8m the year prior…. • The group posted a profit after tax of £387k for the period. Burger & Lobster operates nine London restaurants, with a further 11 restaurants in New York, Singapore, Bangkok, Genting, Kuwait City, Hong Kong and Doha. The group states that it is now actively looking for new locations outside of London responding to continuing demand and opportunities in key cities around the UK and Europe. HOLIDAYS, HOTELS & LEISURE TRAVEL: The UK is launching an Electronic Travel Authorisation (ETA) for visitors from Qatar this month and then subsequently extended to other gulf nations before being rolled out to all non-UK nationals not requiring a visa by the end of 2024…. • The new electronic systems aim to improve security and facilitate travel by replacing passport stamps with digital registration and requiring pre-travel clearance. Warner Leisure Hotels has expanded by acquiring two new landmark properties, The Forest of Arden Country Club near Birmingham and Dalmahoy Hotel and Country Club near Edinburgh…. • The owner, Bourne Leisure, will commit over £100m to extensively refurbish the hotels ahead of their reopening under the Warner brand. The acquisitions bring Warner Leisure Hotels’ portfolio to 18 properties with over 4,000 rooms, including its first hotel in Scotland. Merlin Entertainments has announced that long-standing CFO Alistair Windybank intends to retire. He will will remain in place for at least his 12-month notice period and will continue to support the CEO and help in the search for a suitable successor. OTHER LEISURE: Sky News reports that Sir Jim Ratcliffe ’is contemplating buying a minority stake in Manchester United Football Club rather than seeking full control, in an effort to end a nearly 10 months-long process to resolve the club’s future ownership.’ He could take 25%. Hollywood Bowl has acquired an existing site Lincoln. Ops director David Williams says ‘we are committed to investing in the centre’s future with centre-wide enhancements taking place early next year.’ PureGym has raised some £805m in refinancing in order to fund expansion. The chain heralded it as a “huge vote of confidence” in its expansion plans after its holding company Pinnacle Bidco completed the deal. FINANCE & MARKETS: S&P yesterday released manufacturing PMI numbers for the UK for September saying that the reading came in at 44.3, up from August’s 3yr low of 43.0 but still below the 50.0 mark at which a contraction is being signalled…. • S&P says ‘output, new orders and employment were all cut back further, amid weaker intakes of new work from both domestic and overseas clients.’ It says, nonetheless, that 55% of companies say they are expecting growth over the coming 12 months (down slightly on the month). • S&P says the reading ‘saw manufacturing output decline for the seventh successive month, as companies cut back production in response to lower order intakes. Demand was impacted negatively by ongoing market uncertainty, the cost-of-living crisis and weak conditions in overseas markets.’ • Assuming ceteris paribus, the weakness should dampen inflationary expectations. S&P says ‘September saw manufacturing employment reduced for the twelfth consecutive month and the rate of decline was the second-steepest during that sequence. Job losses were registered across the consumer, intermediate and investment goods industries and at small, medium and large-scale producers.’ • Rob Dawson, Director at S&P Global Market Intelligence, says the result is ‘raising the possibility of the broader UK economy slipping back into contraction during the second half of the year.’ He says ‘there was slightly better news for producers on the price front, as a mix of lower costs and rising selling prices aided margin protection efforts. However, with oil prices on the rise, the environment may become less disinflationary in the coming months.’ The Nationwide yesterday reported that house prices in the UK fell by 5.3% in the year to September. The Halifax updates on Friday…. • Prices were down 3.9% in the North, the strongest region, and down by 5.5% in the East Midlands (the weakest). The Nationwide’s Robert Gardner says ’housing market activity remains weak, with just 45,400 mortgages approved for house purchase in August, circa 30% below the monthly average prevailing in 2019 before the pandemic struck. This relatively subdued picture is not surprising given the more challenging picture for housing affordability.’ Politics: The CBI comments on chancellor Jeremy Hunt’s speech to the Tory Party Conference saying he is ‘[right to highlight the sound fundamentals of the UK economy’ but says he ‘must focus on stability and predictability to tip the balance for investors….’ • The CBI says ‘tackling inflation might remain the number one priority, but there’s more to do to get the economy firing again. Government and business need to pull in the same direction on tax, investment and big growth opportunities to break the low growth cycle and deliver prosperity for all.’ Sterling weaker at $1.2064 and €1.1528. Oil price lower at $89.74. UK 10yr gilt yield sharply higher again at 4.56% (up 14bps). Global markets weak yesterday and London forecast to open some 22pts lower as at 6.30am. RETAIL WITH NICK BUBB:
• Today’s News: The Greggs Q3 update (for the 13 weeks to Sept 30th) flags that strong trading has continued, with company-managed shop like-for-like sales up by 14.2% and that cost inflation is beginning to ease, so “Whilst acknowledging the uncertainty in the economy as a whole and the very strong comparative performance of the business in the fourth quarter of 2022, the Board expects the full year outcome to be in line with its previous expectations”. The Boohoo interims (for the six months to end August) begin with the statement that “In the last six months the group has made substantial progress, delivering key operational and strategic projects and an improvement in adjusted EBITDA margin”, but revenues were down by 17% and adjusted EBITDA was 12% down and management have lowered their full-year revenue guidance to between -12% and -17%, “given the slower volume recovery than
• John Lewis Partnership Watch: After a leak to the BBC, JLP confirmed just after 10am yesterday the news that the Chairman of the John Lewis Partnership, Sharon White, had asked the Partnership Board “to initiate the process to appoint a successor as she enters the latter stages of her five-year term”. The short statement didn’t set out the reasons, but it did highlight that the process to appoint the current Chairman was started by her predecessor Charlie Mayfield in November 2018. The appointment of Sharon White was announced in June 2019 and she started the role in February 2020, so her five-year term as Chairman comes to an end in February 2025. We think it’s sensible of Sharon to realise that the structural problems of JLP are deep-seated and that the group needs somebody with more retailing experience to take over, but it won’t be an easy appointment to make. We suspect that
• Yesterday’s Other News: Apart from the news about Sharon White stepping down at JLP (see above), Next also chose to announce yesterday (at 3pm) that their long-serving CFO Amanda James had decided to retire next year and that her successor (in July 2024) will be Jonathan Blanchard, currently the CFO at Reiss. The statement highlighted that “Amanda has made a huge contribution to the Group in her 28 years with NEXT and has been an exceptional guardian of our finances” and that “We have worked closely with Jonathan for over three years and believe that his skills are well suited to NEXT’s financial disciplines and its culture”. And, having flagged in our calendar of this week’s events yesterday that the management Pendragon would have to say soon what it thinks of the two rival offers for the business from the Hedin and Penske consortium and from AutoNation, the US auto retailer Lithia
• Today’s Press: According to the invaluable Guardian morning email briefing, the Guardian itself leads its front-page with the main headline “Sunak accused of ‘cancelling the future’ with climbdown over HS2” and several other papers are on this track today. “PM brings axe down on HS2 in the north” says the Times. The i has “Tory rebellion grows as PM scraps HS2 in the North” and the Financial Times reports “Sunak faces mounting protests over plan to axe northern branch of HS2”. “It’s Manc robbery!” says the Metro, with a picture of “furious” king in the north Andy Burnham (the Manchester mayor). The Daily Express thinks it’s these kinds of “tough decisions” that will win the Tories the next election: “Rishi’s ‘path to victory’ by delivering what’s best for Britain”. In other news: “Transgender women to be banned from female wards” says the Daily Telegraph. And the Daily Mail reports • This Week’s News: As we move on into October/Q4, tomorrow brings the Tesco interims, the Topps Tiles pre-close update and The Works AGM. The Vertu Motors interims are expected on Thursday and Friday is then another big day for Motor dealers, with the completion of the Lookers takeover deal (by the Canadian motor dealer group Global Auto/Alpha Auto). |
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