DOM, SBUX, McDonald’s, WTB, Molson, Amazon, confidence & other:

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A DAY IN THE LIFE:

Bity backed up with work this morning.

And behind after various errands yesterday.

And stressed ahead of the football on Saturday so, with all of that in mind, we might have to go straight to the news:

DOMINO’S Q1 TRADING UPDATE:

Domino’s Pizza Group has this morning updated on Q1 trading and our comments thereon are set out below:

The numbers:

• Domino’s reports that it has returned to ‘positive like-for-like sales and total orders across February and March’ after a tougher January.

• The company reports that LfL sales were down 0.5% in Q1 as a whole with total orders down by 0.8%,

• On a 2-year basis, DOM reports that Q1 like-for-like sales are up 8.4%

New openings:

• The group opened 14 new stores in Q1 (15 at this point in FY23

• DOM says it has a ‘strong pipeline, with 38 in construction or planning approved.’ The company still expects to open over 70 stores in FY24

Other issues:

• The company reports continued digital progress with ‘app orders as a percentage of total orders +11.3 ppts vs. Q1 23.’

• It says it has had a 37% increase in app customers vs. Q1 23

• The company reports that, with the Shorecal acquisition completed on 10 April, it is now focused on accelerating growth in Ireland

• It adds that the ‘process [is] at an advanced stage to sell the London corporate store estate to a select number of existing and new franchisees.’

Outlook:

• DOM reports that ‘Q2 is another tough comparative period. Reflecting that, trading in April was slower given the very strong comparative in the prior year.’

• The company says ‘we continue to drive initiatives to improve trading momentum with its £4 lunch offer now running.

• The company has seen a ‘continued acceleration of Uber Eats trial following strong initial results.’ It is ‘now live in 1,170 stores across UK & Ireland.’

• DOM reports ‘we completed a £11m investment in DP Poland plc (“DPP”) on 18 April and as a result, DPG owns approximately 12.1% of DPP’s issued share capital.’

• It says ‘this represented a unique opportunity to re-enter international markets in a disciplined, capital light manner, and in partnership with a high-performing business, operated by an experienced management team.’

• The company expects ‘to benefit from the Men’s Euro football tournament’ and says, ‘as a result, we remain confident that our focus on our strategic priorities will deliver order count and like-for-like sales growth in FY24 and are reiterating our FY24 EBITDA guidance.’

Company comment:

• CEO Andrew Rennie reports we ‘have made strong progress in Q1, both across the core UK&I business and with our strategic growth ambitions.’

• He says ‘following a slow January in part as we tactically held back marketing spend, I am pleased that we saw positive like-for-like sales and orders across February and March in an uncertain market.’

• Mr Rennie adds ‘like Q1, Q2 is another tough comparative period but we remain confident of delivering order count and like-for-like sales growth this year and are pleased to confirm our full year profit guidance.’

• He says the group has momentum and adds ‘we have a fantastic pipeline of initiatives across our UK & Ireland business driven by real energy from our colleagues and our franchisees.’

• Mr Rennie says ‘we are at an advanced stage to sell the London corporate stores to some outstanding franchisees, which will allow us to reallocate capital within the business, and we have some exciting events such as the Men’s Euro football tournament coming up.”

Langton Comment:

• After stepping up sharply some nine months ago, Domino’s shares have given back around half of their gains.

• The company appears to have come through a tough January to return to growth in Feb and March.

• Having said that, April appears to be a little behind and the outlook remains uncertain.

• In the near term, however, the Euro football championship (and to a lesser extent the Olympics) should boost trade over the summer.

• The acquisition of the 12.1% stake in DP Poland could be interesting moving forward.

• The group’s shares have slipped recently and today’s statement may reassure in some quarters that the caution has been somewhat overdone.

• Whilst the company’s shares are not cheap, per se, the business’s sub-franchised model is relatively asset-light, which supports the valuation. Today’s news could be supportive with the medium term looking more interesting than it has done for some time.

PUBS & RESTAURANTS:

Changing consumer behaviour:

Data from payment technology provider Dojo shows a shift towards afternoon activities and ‘days out’ in Q1 2024, with hospitality venues experiencing a £134m increase in spend during the afternoon compared to night time. The cost of living crisis shows signs of easing, driving a nearly 40% surge in spending at tourist attractions and exhibitions, along with a 38% uptick in spend on competitive socialising venues….

• While cost concerns persist for 90% of UK adults, consumer confidence is stabilising, prompting prioritisation of experiences and value for money. Dojo’s head of customer insight, Jon Knott, says ‘the growth of the afternoon trade, competitive socialising and retail store openings is encouraging to see, as it indicates that consumers are exploring more avenues on how to make memorable experiences, bringing more businesses into the experience economy.’

• Mr Knott says ‘while consumers are more positive about their disposable income and are now spending more, spending patterns are changing. Pubs, bars and clubs have faced huge pressure in recent months, for example, evident through our transaction data that saw the sector grow only 6% in Q1. As other areas of the experience economy grow, businesses need to be in tune to changing consumer spending habits and adapt to their evolving preferences so as not to miss out.’

WFH

Grosvenor, the Duke of Westminster’s property company, reported yesterday that it is working on the basis that flexible workspaces will remain in demand for the foreseeable future. CEO Mark Preston said ‘the thing that surprised us [is] just how widely attractive this product now is for businesses that you might be inclined to think would take a longer-term commitment.’ In some properties, Grosvenor has edged into the service office space.

COMPANY NEWS:

Revolution Bars Group plc yesterday announced the postponement of its General Meeting, which had been scheduled to take place tomorrow at 11.00 am. RBG proposes a new date of 20 May. The company says that the postponement comes ‘following discussions with key shareholders and in order to provide additional time to fully explore all its strategic options….

• This has unsurprisingly led to suggestions that the company has received indications of takeover interest. At the time of its fund-raising news, RBG said that it was to raise up to £12.5m via the issue of 389m shares in a ‘Firm Placing’, 661m shares in a subscription offer and 201m via another placing.

• RBG announced at the time that the ‘fundraising is conditional on, amongst others, the Restructuring Plan being sanctioned by the Court.’ The GM to approve the issue has been pushed back (was tomorrow, now 20 May) and it isn’t clear whether any of the new shares have yet been issued.

McDonald’s yesterday reported Q1 numbers saying that earnings increased 2% to $2.70 per share adjusted on 5% revenue growth to $6.17 billion. Analysts had reportedly been looking for nearer $2.72 in earnings and, as the results made three consecutive quarters of slowing earnings growth, there were some concerns that a new trend was being established. LfL sales globally were up by 1.9%, slightly below the 2.1% rise that the market had been looking for…

• McDonald’s shares slipped slightly on the news. They are down almost 8% in the year to date. The company reports consumers had been “more discriminating with every dollar they spend”. Sales in the US were up by 2.5%, largely on the back of higher prices. This was slightly lower than estimates. CEO Chris Kempczinski said consumers ‘faced elevated prices in their day-to-day spending, which is putting pressure on the quick service restaurant industry.’ McDonald’s has over 40,000 outlets in more than 100 countries across the world.

Starbucks yesterday reported fiscal Q2 numbers saying that consolidated net revenue fell by 2% to $8.6bn ‘driven by a complex operating environment’. The company reports that ‘global comparable store sales declined 4%, driven by a 6% decline in comparable transactions, partially offset by a 2% increase in average ticket.’ It says ‘North America and U.S. comparable store sales declined 3%, driven by a 7% decline in comparable transactions, partially offset by a 4% increase in average ticket…’

• Starbucks reports that ‘international comparable store sales declined 6%, driven by a 3% decline in both comparable transactions and average ticket; China comparable store sales declined 11%, driven by an 8% decline in average ticket and a 4% decline in comparable transactions.’

• The company adds that it opened 364 net new stores in Q2, ending the period with 38,951 stores: 52% company-operated and 48% licensed. It says that ‘at the end of Q2, stores in the U.S. and China comprised 61% of the company’s global portfolio, with 16,600 and 7,093 stores in the U.S. and China, respectively.’

• Starbucks reports ‘consolidated net revenues declined 2%, to $8.6 billion, or a 1% decline on a constant currency basis.’ It says that ‘GAAP operating margin contracted 240 basis points year-over-year to 12.8%, primarily driven by deleverage, incremental investments in store partner wages and benefits, increased promotional activities, lapping the gain on the sale of Seattle’s Best Coffee brand, as well as higher general and administrative costs primarily in support of Reinvention. This decline was partially offset by pricing and in-store operational efficiencies.’

• CEO Laxman Narasimhan reports ‘in a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead.’ He adds ‘it did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us. We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand.’

• The CFO adds ‘while it was a difficult quarter, we learned from our own underperformance and sharpened our focus with a comprehensive roadmap of well thought out actions making the path forward clear.’ She adds ‘on this path, we remain committed to our disciplined approach to capital allocation as we navigate this complex and dynamic environment.’

Amazon yesterday reported Q1 profits sharply higher with the company attributing the rise to AI and advertising sales. The company reported Q1 revenue of $143.3bn, up 13% from the same period in 2023 and ahead of Wall Street expectations of $142.65bn….

• CEO Andy Jassy reports ‘the more demand AWS [the company’s AI business] has, the more we have to procure new data centres’. The company’s shares rose 5% in after-hours trading.

Molson Coors reported Q1 net sales +10.7% on a constant currency basis, with income before taxes +160.5% to $265.4m. This growth was driven by elevated demand and favourable shipment timing in the US, the company’s largest market….

• The success was attributed to the strength of core power brands like Coors Light and Miller Lite, as well as innovations such as Madri in the UK. Despite industry softness in the US and Canada, Molson Coors remains confident in its business and strategy, reiterating guidance for top and bottom-line growth in 2024.

• The group says ‘the first quarter of 2024 was a strong start to the year for Molson Coors. Net sales grew 10.1% on a constant currency basis, while underlying income before income taxes increased 68.8% on a constant currency basis. Results were driven by both business units and were strongly supported by elevated demand and favourable shipment timing in the U.S., our largest market.’

Green King is leaving its historic Westgate Brewery in Bury St Edmunds, Suffolk, after over 200 years, relocating to a new site nearby. The £40m investment in the Suffolk Park location aims to support future sustainability goals, with brewing continuing at Westgate until the new brewery is operational, expected by 2027.

The MCA reports that Loungers, which achieved record revenue and LfL sales growth (+7.5%) in the 53 weeks to 21 April 2024, has plans to maintain expansion at 35 sites per year….

• CEO Nick Collins said sales growth spans all day parts and categories, except for late-night, and expansion focuses on the Lounge brand, with more sites in the North and Northeast. Loungers benefits from increased buying power and favourable property dynamics as it continues to grow.

Campari Group has completed the acquisition of Courvoisier Holding France S.A.S., including the Courvoisier brand, for $1.17bn, following negotiations with Beam Suntory Inc. and regulatory approvals. An additional $30m for finished goods will be paid separately, with a potential earn-out of up to$120m based on 2028 sales targets.

Boparan Restaurant Group’s Slim Chickens UK is expanding into Germany through a partnership with the Foodelity Group, with five locations set to open within the next year.

Restaurant operator Mowgli Street Food has reported full year numbers to 31 July 2023 to Companies House saying that revenue rose from £26.9m to £30.9m but the company slipped to a loss before tax of £476k (2022: profit £1.9m)…

• The company operated 17 restaurants at its year end. It reports that last year’s EBITDA ‘included a number of one-off benefits including lower VAT rates and other post-Covid support measures.’ It says that, additionally, ‘the company saw higher utility rates in 2023 due to increase in wholesale energy costs’. The company’s accumulated profit account has slipped from £157k in credit to an accumulated loss of £319k. The company has negative shareholders’ funds of £219k.

Coca-Cola Inc yesterday reported Q1 earnings and revenue ahead of Wall Street’s expectations and it went on to raise its outlook for its full-year organic revenue. Case volumes globally rose by 1% in Q1.

WHITBREAD – FULL YEAR RESULTS – WEBINAR:

Whitbread has this morning held its full year analysts’ meeting and our comments thereon are set out below:

Headline numbers – Full Year:

• Whitbread has reported revenue up 13% at £2.06bn with adjusted EBITDAR of £1.057bn vs £888m (up 19%).

• Adjusted PBT increased by 36% YoY to £561m, with adjusted EPS of 206.9p (2023: 162.9p).

• Full year dividends per share +31% at 97.0p (2023: 74.2p).

• An additional £150m share buy-back announced.

Extension plan (‘Accelerating Growth Plan’):

• WTB announced a new extensions programme, adding 3,500 rooms to its pipeline by converting 112 restaurants.

• The company said the conversions will be done in locations where it has a ‘very clear’ picture of demand and where it knows how much it is losing by not being able to service this demand.

• WTB stated it has data that these conversions will lead to improved guest scores and will feature more efficient, integrated F&B propositions.

• Another 126 loss-making restaurants will be exited, with the company having already agreed to sell 21 of these sites for £28m. These are locations where it has been deemed that a conversion would not work.

• WTB is guiding to £175-225m expected proceeds from the disposal of the restaurants, saying this is a ‘fairly conservative’ estimate.

• The company stated that the above plan of converting restaurants to rooms, creating integrated restaurants and disposing of restaurants will cost c£500m for the 238 sites. It said that these are low cost rooms to build and will generate c£14k EBITDA per room.

• In FY25, the plan will see £80-100m reduction in F&B revenue as well as a £20-25m one-off reduction in PBT.

• In FY26, there will be a further £100-120m reduction in F&B revenue and a reversal of the prior year’s £20-25m PBT hit.

• Subsequently, the conversions will then generate £30-40m PBT in FY27, and eventually £80-90m PBT in FY29.

Efficiency:

• Alongside the above plan, the company also introduced a new efficiency programme, aiming to make £150m of cost efficiencies over the next 3 years.

• Since WTB has a large labour base, many of the initiatives are based around reducing the time of servicing each room and include making rooms easier to clean, introducing robot hoovers as well as energy saving initiatives.

• The company stated that net levels of inflation will get lower as costs are reduced.

The UK market:

• During the year the company opened 2,253 rooms and closed 386 rooms. It said that openings this year have been relatively low due to a hangover effect from Covid, but that this situation is much more extreme for competitors and so should extend its market leading position over next few years.

• WTB has a committed pipeline of 7,000 new rooms and 3,500 rooms via its new extensions programme, refurbishing some restaurants into additional rooms.

• WTB will expand its UK estate from 85,000 rooms in FY24 to 97,000 rooms in FY29, with potential to reach 125,000 in the long-term.

• The company reiterated that it does not see UK hotel supply returning to pre-pandemic levels for at least the next 4-5 years, creating an important underpin for gaining market share.

• WTB stated the extension programme will provide a unique avenue of growth at a time when competitors are struggling to grow.

• The company said Q1 off-peak leisure demand had seen ‘some changes’ driven by a materially earlier Easter as well as perhaps the recent wet weather. Bookings, however, are well-ahead of last year and consumer confidence has gotten stronger over the last 6 months.

• WTB stated it performs particularly well against the market in high demand seasons, which it is now entering, when its pricing engine operates at its best. The company said that while market numbers might ‘bounce around’ over the next few months, it has confidence in driving margins and improving the guest experience.

• FY25 new rooms are expected to be in the region of 750-1,250.

Germany:

• The company stated it remains on course to break-even on a run-rate basis during calendar year 2024 in Germany.

• WTB added 1,464 rooms during the year and now have over 10,500 rooms open with a further 6,000 rooms in its committed pipeline.

• WTB acknowledged that the pipeline in Germany has become smaller, but stated that it is still the biggest pipeline in the country. It said that, much like the UK, there is a Covid hangover when it comes to new developments.

• The company indicated that its performance against established competitors in the region is improving.

• It did, however, state that its focus has shifted to profitability over growth. It has installed a local leadership team to help build out the division.

• WTB commented on the ISG deal to acquire 108 hotels in Germany, saying that the deal is rebranding existing hotels in the market, its not adding new capacity. It also said that the M&A activity reinforces its view that Germany has good potential, adding to its overall confidence in the region.

Debt and capital allocation:

• The company’s net debt/EBITDAR was x2.9 in FY24. It said that its ceiling is x3.5 and that it is comfortable going above x3.0. WTB indicated that it wanted enough headroom to pursue M&A opportunities as they arise.

• When asked what it would do in the probable scenario of a decline in EPS in FY25 WTB said that its dividend policy is that it would move dividends in line with earnings.

• WTB said that it believes giving returns to shareholders through dividends and share buy backs is ‘appropriate’ and shows a ‘good’ capital allocation policy.

Langton Comment:

• WTB is signalling a tougher Q1 but it remains hopeful over the medium term, with optimism winning out in the market as shares move 4% higher.

• Pipelines in both the UK and Germany seem to be impacted from a Covid hangover, with Germany moving towards a profitability focus at the expense of reining in its growth.

• UK demand (and subsequently hotel pricing) remains very strong. The marginal profits contributed from higher rates run at almost 100%.

• WTB appears to be looking to cost efficiencies over growth, announcing a large £150m programme and reducing its workforce by c1,500.

• The new extension programme appears to be accretive over the medium term, with an initial PBT hit in FY25, but otherwise looks to be an innovative way to develop new rooms in an environment where developments are sluggish.

• There does not appear to be any ready-made buyer for the 126 restaurants it plans to exit, but WTB is managing to sell them in smaller dribs and drabs, with 21 having already been agreed to be sold.

• The incentive to discount in heavy-capex industries is fierce. Operational gearing – both positive and negative – is extremely high and, should the cycle turn (as at some point it will) the impact on profitability will be unforgiving.

• FY25 EPS may come under pressure from the PBT hit from the extension plan as well as a more sluggish demand environment carrying on from Q1. WTB’s capital allocation policy suggests this could lead to a reduction in its dividend.

• Whilst Whitbread is a well-run company with some tremendous assets, there is perhaps a slight note of caution to today’s statement that perhaps hasn’t been present in earlier comments.

HOLIDAYS, HOTELS & LEISURE TRAVEL:

The Advertising Standards Authority has banned Whitbread’s Premier Inn from advertising rooms “from only £35 a night.” This because the headline was ‘likely to mislead’ because of the small number of rooms available at the advertised price. The ASA says ‘we told Premier Inn to ensure that when using ‘from’ price claims in the future, a significant proportion of the advertised rooms were available at the advertised price.’

Safestay has announced the acquisition of the Hotel Lineros. It reports ‘the property has 30 freehold bedrooms and is situated in the very centre of the ancient city of Cordoba, 60 miles north of Malaga. Under the Safestay brand the site will be converted into a 100 bed hostel. The cash consideration will be €2 million funded from the Group’s existing cash balance.

Planned strike action by around 50 refuelling operatives at Heathrow airport over the early May bank holiday weekend has been called off after affected Unite members accepted improved pay and conditions. The strike, which could have affected up to 35 airlines, including Virgin Atlantic, Delta Air Lines, Emirates, and Air France, was scheduled for 4-7 May but was cancelled on Monday.

OTHER LEISURE:

PayPal yesterday reported Q1 numbers ahead of estimates. Its shares rose around 3% on the news. The company went on to raise its forecast for full-year adjusted profit.

FINANCE & MARKETS:

The EU has reported that GDP rose year on year in Q1 by 0.4% in the Euro area and by 0.5% in the EU as a whole. It reports that quarter on quarter growth was 0.3% in both the Euro area and the EU. The flash data suggests that any recession has now ended.

Ireland is reported to have made around €700m from additional customs duties now payable on exports into the Republic from the UK.

Zoopla reports that UK house sales rose for the seventh consecutive month in April. It says that lower mortgage rates are fuelling demand and sales numbers in April were up by 12% on a year ago. It says ‘the rebound in sales being agreed continues as mortgage rates have fallen, consumer confidence improves and home buyers have much greater choice of homes for sale.’

Sterling down at $1.2474 and €1.1715. Oil lower at $85.58. UK 10 year gilt yield up 7 basis points at 4.36%. World markets mostly lower yesterday and London set to open broadly unchanged as at 6.30am.

RETAIL WITH NICK BUBB:

• Today’s News: Given the poor weather and mixed signs on April trading, there was a possibility that the key Next Q1 update today (for the 13 weeks to April 27th) might have disappointed, but the comps were very weak (“with unusually cold and wet weather in the run up to Easter 2023”) and overall sales growth actually came in a bit higher than the +5.0% guidance, at +5.7% (with Online sales up by 8.8% and Retail sales flat). However, some people may be surprised to hear that Next is maintaining its guidance for full price sales in the first half to be only up +2.5%, as that implies that sales in Q2 will be down -0.3%…with Next saying that “We expect the sales performance in the second quarter to be weaker than the first quarter because last year benefited from particularly warm weather from late May through to the end of June”. Elsewhere, there is a gloomy update for y/e March from
Mulberry (“Against a backdrop of challenging macro-economic conditions and a decline in luxury consumer spending, especially in the last quarter, group revenue for FY24 declined by 4% (-2.7% on constant currency)”). Thierry Andretta, Chief Executive Officer, says “Looking ahead, the trading environment in the UK and China remains challenging and we do not expect this to change in the short term. We are therefore managing the business prudently, focusing on executing our strategy and vision to become a global sustainable luxury brand”. There has also been an update from Wickes (for the 16 weeks to 20 April), to flag a “Solid start to the year in Retail; challenging market conditions continue in Design & Installation. Profit outlook for the year remains unchanged”.

• Today’s Press: According to the invaluable press summary email from the Guardian, “22 minutes of horror: boy killed in sword rampage” is the Guardian front-page headline this morning, while the i has “Boy, 14, killed on his way to school in horror sword attack”. “Schoolboy killed in daylight sword rampage” says the Daily Telegraph, while the Daily Mirror also leads on the “Sword attack horror” and the Daily Express says “Boy, 14, killed in horror ‘sword attack’”. The Metro points out the “Courage of sword cops” who were among those stabbed. The picture is on the front of the Daily Mail too, but its lead story is “Prostate scans that could cut deaths by 40%”. “Immigration levels fall amid visas crackdown” reports the Times. Top story in the Financial Times is “Quinn startles investors with notice to step down after 5 years as HSBC chief”.

• News Flow This Week: As we move into May, tomorrow brings the latest monthly Nielsen grocery sales figures, the Howden AGM and the UK Local Elections, together with the Apple Q2 results (in the US).