SSP Group, WTB, McDonald’s, Prezzo, Punch, corporate distress & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

Well, the sun is shining and it’s a Bank Holiday weekend and, if it wasn’t for the nail-biting football situation, there would be plenty to look forward to.

Drilling into the small print reveals the fact, or at least the forecast, that it was reportedly 24 degrees yesterday and will only be ten degrees over the weekend, which slightly takes the shine off it.

At least it won’t be raining but the not-so Mighty Hull City has been a black-cloud manufacturing machine of late and the team’s fate is not entirely in its own hands.

We could win and go down tomorrow or draw and stay up, depending on results elsewhere and the chance of ignominy and a spell in Division One is a very real one.

Still, have a good one and let’s move on to the news:

PUBS & RESTAURANTS:

Corporate distress:

Restructuring accountant Begbies Traynor has released its latest Red Flag Alert report (for Q1 2025) saying that ‘the number of businesses in ‘critical’ financial distress rose 13.1% year-on-year in Q1 2025.’ The number is down 3.1% on Q4 last year but a successful Christmas could have a lot to do with what may be little more than a modest seasonal improvement. Begbies reports that ‘consumer-facing industries – Bars & Restaurants (+31.2%) and Travel & Tourism (+25.5%)  experienced the greatest increase in ‘critical’ financial distress over the last 12 months….’

• The financial advisory company reports that 14 of the 22 ‘sectors covered by Red Flag Alert research experienced double-digit percentage growth of companies in ‘critical’ financial distress over the last year.’ It adds that ‘significant’ financial distress ‘rose 4.5% year-on-year to 579,276 firms (Q1 2024: 554,554), despite an 11.5% fall from 654,765 in Q4 2024.’

• Hospitality: Begbies says that ‘Hotels & Accommodation (+15.4%), Real Estate & Property Services (+12.1%) and Leisure & Cultural Activities (+9.5%) saw the highest year-on-year growth in ‘significant’ financial distress.’ Sectors employing part-time staff and those that are impacted most by minimum wage rises (a.k.a. hospitality & retail) will be disadvantaged by recently-introduced NIC and wage hikes. The impact will be felt from the end of this month on.

• Putting this into context: Perhaps think of companies as on a conveyor belt. It’s either moving towards disaster or redemption and, at the moment, the former appears to be the case. The quarter-on-quarter ‘improvement’ is misleading, particularly in hospitality where a large number of companies will have bought themselves a little breathing space post Christmas. The conveyor can speed up, stop or go into reverse. There are few signs at present of the latter two outcomes.

• Begbies’ comment: Partner Julie Palmer says ‘as we progress through 2025, optimism remains in short supply for UK businesses.’ She says that ‘the first quarter of the new year started positively with unexpected economic growth figures, positive retail sales and cooling inflation – and that is reflected in our latest data.’ Ms Palmer adds ‘indeed, the travel and hospitality sectors may see an opportunity to attract tourists looking to holiday somewhere else other than the United States.’

• Turning to hospitality companies, Ms Palmer says ‘the consumer-facing corners of the economy, which have been on the frontline over the last few years, are clearly continuing to struggle.’ She says that ‘Bars & Restaurants have seen a 31.2% year-on-year increase in critical distress, while Travel & Tourism is not far behind with a 25.5% rise.’ Ms Palmer makes clear that ‘these sectors, which are notorious for operating on tight margins, are bracing themselves for further economic fallout from both domestic tax increases and US tariffs which could push many over the edge.’

COMPANY NEWS:

The FT reports that investor Irenic Capital Management, which has around a 2% stake in SSP Group, it to ‘push the Upper Crust owner to boost its profitability, setting the stage for a private equity takeover….’

• The FT adds that ‘the activist, which plans to continue buying shares, has met on several occasions with management but has yet to outline specific demands to the company, two of them added. The investor has previously targeted Wagamama owner The Restaurant Group in the UK, which was sold to Apollo in 2023.’ Irenic declined to comment.

• SSP has commented that ‘we are in constant dialogue with all of our investors, and welcome their feedback and views.’ It adds ‘we are entirely focused on delivering progress against our clear strategic priorities in order to deliver sustainable growth and returns for all of SSP’s stakeholders.’

McDonald yesterday reported Q1 numbers saying that US LFL sales fell by 3.6%. The company reports global LFL sales down by a lesser 1%. Overall revenue fell 3% to $5.96bn, below the $6.12bn estimate by analysts. Net income also missed expectations at $1.87bn, down 3% from last year….

• CEO Chris Kempczinski says that consumers are ‘grappling with uncertainty’ but he says he remains confident that McDonald’s can ‘navigate even the toughest of market conditions and gain market share.’ He told an earnings call that consumer sentiment was weaker than expected and traffic from both low-income and middle-income consumers was under pressure with such footfall down ‘nearly double digits’. He says ‘there’s a clear indication economic pressure on traffic has broadened.’

• The CEO adds that ‘Q1 was always going to be the toughest quarter of the year and we’re expecting to see momentum build.’ He says that promotions are helping and adds ‘we’re encouraged by the Minecraft Meal.’

• Regarding opportunities, the CEO says ‘as we look at opportunities from a macro perspective, a lot of growth we see is from beverages. Profitability from beverages is very attractive.’ McDonald’s has an estimated 10% of the US coffee market and Mr Kempczinski says ‘there’s more that we can be doing to capture our fair share of that….we think we can be doing better.’

• The CEO concludes that ‘the key for us is about execution. In an environment where there is a pressured consumer, you have to simply outexecute your competitors on value programs when it comes to marketing and menu innovation. That’s where we’re focused now.’

• The FT points out that the above ‘follows weaker US quarterly sales at food and drinks establishments Starbucks and Chipotle Mexican Grill. By contrast, Yum Brands’ Taco Bell US unit reported a 9 per cent increase in same-store sales.’ McDonald’s shares had held up relatively well.

Also in the US, Shake Shack has announced Q1 numbers saying that revenue was up 10.5% at $320.9 million with system-wide sales of $489.4 million, up 10.4% versus 2024. LFL sales are up by 0.2%. Net income was $4.5 million versus $2.2 million in 2024….

• CFO Kate Fogertey says ‘there were some very unique macro pressures to each of those regions, and tourism pressures — that was about 75% of the headwind we had in the quarter.’ She adds ‘we have the best labour attainment we’ve ever had. We have the lowest waste we’ve ever had.’ She says ‘the things that go into driving margins that are within our control, we have taken control of those things. … It’s just driving operating discipline and that’s what allowed us to deliver the margins.’

Brighton Pier’s shares are set to be delisted today.

Moët Hennessy, part of LVMH, is reported set to cut around 10 per cent of its workforce in order to take it back to 2019 levels. The company currently employs around 9,400 people and it is looking to reduce this by as many as 1,200. The FT reports the company as saying ‘this was an organisation that was built for a much larger size of business.’ It says this rebuilding of sales ‘is not going to happen anytime soon.’

Punch Pubs & Co reports that it ‘has added to its growing portfolio with the acquisition of the Duke of Wellington pub in Wareham.’ The unit will be ‘welcomed into Punch’s leased and tenanted estate.’

Prezzo has revealed its new name, Prezzo Italian…

• Whilst hardly a revolutionary change, the evolution is to coincide with the chain’s 15th birthday and signal the launch of a refreshed food and drink menu, alongside a restaurant refurbishment programme.

• CEO James Brown says the ‘new chapter is about more than just a new name and design, it represents an important and pivotal milestone in our journey to make Prezzo Italian the standout choice for your go-to Italian meal. With this relaunch, we want to build on success of the past 25 years, ensure we continue to deliver an outstanding guest experience for many more years to come, and reaffirm our position in the market as the ‘Home of the Italian Classics’’.

Chinese coffee shop chain Luckin Coffee Inc. has reported Q1 2025 numbers saying that net revenue was US$1.22 billion, up 41.2 per cent on last year. The company averaged some 74.3 million customers a month over the quarter….

• The company, which has over 24,000 stores, reports ‘we delivered strong first quarter results, marked by a 41 per cent year-on-year revenue growth and healthy margin improvement as we scaled to over 24,000 stores.’ It says ‘capitalising on China’s booming coffee market, we will strategically focus on gaining market share by continuing to offer high-quality products at competitive prices.’

WHITBREAD – FULL YEAR CONFERENCE CALL:

Following the release of its FY numbers, Whitbread hosted a conference call for analysts and our comments thereon are set out below.

Introductory comments:

• Demand ‘has been somewhat softer in the UK’. But cost base has been reduced and progress in Germany has been ‘excellent’.

• Re current trading, demand is still below last year (albeit distorted by Easter). The company performed ‘ahead of the market’ but the UK economic outlook ‘remains uncertain’. Germany REVPAR growth has ‘remained in double digits positive’.

• The company maintains that much of its performance going forward will be achieved even if the market is not ‘super strong’.

Premier Inn UK:

• Room growth, have targets slipped? Co is ‘still confident with the 98k room UK target for FY30’. Says ‘has line of sight on all but 2k of these rooms’. This ‘will involve an acceleration’. Some delays on contract signing (still) post Covid. German targets unchanged with a pipeline of 7k rooms. Undated UK target of around 125k in UK & Ireland.

• London. Is this yet recovering? Inner vs outer. The latter is softer. Overall, ‘feel good about London, although we still under-index’. More volume has come in but ‘London can take that’.

• Has Easter been positive? Good, as expected, for leisure but less so for B2B travel (as usual).

• UK hotel conversions, any opportunity for Hub? Co is ‘highly returns-focused’. Hub is ‘well-positioned’ for office block conversions. Window-mapping can work well. Typically, an older office could have poor ESG ratings & WTB can improve this.

• Why buy back stock? Is there really nothing better that you could do with your cash? WTB says supply continues to contract. This was a feature pre-pandemic.

• OTAs. Learned a lot from the German experience where OTAs predominate. WTB will selectively use business OTAs. This is an ‘inbound only’ trial so focuses near airports etc.

• Demand in the UK, what economic lead indicators do you focus on?

o Key may be supply levels, which are still subnormal (till est. 2027).

o But household cashflow is ‘solid’ and real wages are positive. This is, of course, positive for leisure but perhaps less so for B2B, for whom wages are a cost.

o Says Hub is well-positioned, presumably for more parsimonious travellers.

• REVPAR has recently softened. In the recent past, it had been driven by slightly higher rates and lower occupancy. The revenue management model has pushed price.

o Why is REVPAR weak? Co points to macro-economic uncertainty. Co accepts that it has been very strong since Covid – and it remains above those levels.

• Will REVPAR really ‘recover’? Hadn’t it just ran too far & is now correcting?

o CEO says the REVPAR growth ‘has really not been that substantial’.

o Says some of the rise in REVPAR is mix change, Premier Plus etc. Also, a larger slug of rooms are now in London.

German market:

• Business doing very well. It ‘occupies the sweet spot between quality & value’. The older units should mature in the next 12 months or so. The rest of the estate will follow in due course.

• Est. £5m to £10m of profit in the year. Wide range but co has a number of levers to pull to ‘drive REVPAR forward’. Expect REVPAR up around 10pc to hit target range.

Costs:

• These ‘have been well trailed’. Co has ‘stepped up its efficiencies’. Delivered £75m in efficiencies. Upping target this year to £60m from £50m. Co is ‘very, very good at mitigating costs’. It says it is ‘better than our competitors’.

Assets:

• Property valuation, why?

o The strategy is to use some of the mature sites as a source of investment cash. This ‘is a really nice business model for us’. Sale & leaseback of at least £1bn of property over the next 5 years – and reinvest the cash. The revaluation was undertaken with this in mind.

o Other benefits ‘are indirect’. It helps with negotiations with banks, landlords etc.

o It helps with the group’s covenant. This sometimes allows the group to win a property lease as an underbidder. The higher covenant implies a greater asset value for the landlord.

Langton Comment:

• Softer UK demand has impacted numbers whilst Germany continues to mature.

• REVPAR is clearly under pressure but the company maintains that it can achieve its targets irrespective of the market.

• The shares have reacted positively to the figures – including the additional share buyback, more cost savings and the potential switch of some capital from freeholds to leasehold assets.

• Nonetheless, trading remains more challenging than it has been for some time. REVPAR is considerably above pre-Covid levels (despite recent softness) and it could fall further.

• Furthermore, despite its strengths, Whitbread operates in a market where the incentive to discount (in heavy-capex industries) is fierce. This may be initiated by third parties and, effectively, be beyond Whitbread’s control.

• Whitbread is a well-run company with some tremendous assets. The market is materially softer and there remains some risk that the current downturn in the UK hotel market will continue.

HOLIDAYS & LEISURE TRAVEL:

IATA reports that global air passenger demand rose by 3.3 per cent in March in terms of revenue passenger kilometres. It says that capacity rose by 5.3 per cent and load factors slipped to 80.7 per cent as a result….

• Demand in Europe rose by 4.4 per cent year-on-year in March with load factors down to 79.2 per cent due to a 6.4 per cent increase in capacity. The North American market fell by 1.1 per cent in terms of demand with capacity up by 3.5 per cent. Load factors as a result.

• Director General Willie Walsh says ‘there remains a lot of speculation around the potential impacts of tariffs and other economic headwinds on travel. He says ‘while the small decline in demand in North America needs to be watched carefully, March numbers continued to show a global pattern of growth for air travel.’ He concludes that this ‘means the challenges associated with accommodating more people who need to travel – specifically alleviating supply chain problems and ensuring sufficient airport and air traffic management capacity – remain urgent.’

Airbnb yesterday reported broadly in-line numbers for Q1. Revenue was $2.27bn (estimates were around $2.26bn) and EPS of 24c per share, in line with estimates.  The company is guiding to revenue of between $2.99 billion and $3.05 billion for Q2, a little behind estimates of $3.02 billion…

• In a letter to shareholders, the company says ‘in the U.S., we’ve seen relatively softer results, which we believe has been largely driven by broader economic uncertainties.’ It adds that there was some ‘softness’ in travel from Canada to the U.S. toward the end of the quarter.

US giant Wyndham has reported Q1 REVPAR up 2% year on year with global openings of 15,000 rooms during the quarter.

OTHER LEISURE:

The Guardian reports that ‘the billionaire Coates family behind Bet365 are weighing up a sale of their online gambling empire that could value the business at £9bn.’ It says the company has ‘held talks with Wall Street banks and US advisers in recent weeks about a full or partial sale.’

MGM Resorts in the US has reported net revenue of $2.2 billion at its Las Vegas Strip properties in Q1, down $2.3 billion in the same quarter last year. The Super Bowl being was hosted in Las Vegas last year, making comparisons somewhat misleading.

Shares in Snap fell sharply yesterday as it dropped guidance in the wake of President Donald Trump’s tariff flip-flopping.

Tesla has now denied Wall Street Journal reports that its board had begun the search for a successor to current CEO Elon Musk.

Apple yesterday reported better than expected Q1 numbers saying that revenues came in at $95.4bn for the quarter, up 5 per cent year on year and slightly above consensus estimates of $94.6bn. The company reports net income of $24.8bn, also slightly ahead of estimates of $24.5bn and up 5 per cent on Q1 last year….

• The company has effectively commented on the Trump tariffs saying that it is shifting production of most iPhones and other devices to be sold in the US away from China to countries such as India. Vietnam will be a major production hub for items like iPads and Apple Watches.

FINANCE & MARKETS:

The Japanese Central Bank has said that Donald Trump’s tariff confusion will reduce economic growth in Japan. It has cut its estimate for growth in the year to March 2026 to 0.5% from an earlier estimate of 1.1%.

In the UK, the Construction Products Association has forecast growth of 1.9% in UK construction output for 2025 and 3.7% in 2026.

S&P has released its April PMI numbers for the UK manufacturing sector saying that its measure rose slightly from 44.9 in March to 45.4 in April. Any number below 50.0 implies contraction…

• S&P’s Rob Dobson says ‘the start of the second quarter saw UK manufacturing buffeted by adverse global market conditions, rising cost pressures, deteriorating supply chains and increased trade uncertainty. April saw further contractions in output, new orders and exports, as well as a slump in business confidence to its lowest ebb since November 2022.’ It adds ‘although domestic demand remains soft, overseas demand is especially weak. New export business fell at the quickest pace for nearly five years, with demand from clients in the US, Europe and mainland China all declining.’

• Cost rises. S&P says ‘manufacturers are also seeing an increasingly harsh cost environment, with purchase price inflation hitting a 28-month high. Alongside general raw material price increases on global markets, UK producers are also facing domestic inflationary pressure from increases to National Insurance, minimum wages and the knock-on impact of the latter on higher pay grades. These increased costs are resulting in a combination of higher selling prices and cutbacks to non-essential spending on staffing and purchasing, potentially reinforcing the ‘rising costs, declining demand’ backdrop.’

The Bank of England reports that mortgage borrowing in the UK rose sharply to its highest level in four years in March, as buyers moved to complete ahead of stamp duty threshold changes.

Sterling up at $1.3304 and €1.1776. Oil higher at $62.47. UK 10 year gilt yield up 4 basis points at 4.48%. World markets better yesterday and London set to open around 54 points higher as at 6.30am.

RETAIL WITH NICK BUBB:

Today’s News: There is no Retail news out this morning, apart from the usual share buyback announcements. Ahead of the Howden AGM yesterday, we weren’t aware of any particular issues preying on shareholders’ minds, but it’s worth noting that there was a near 20% vote against the Director’s Remuneration Policy…Over on the West Coast of the US, the Amazon Q1 and the Apple Q2 results both came out after-hours tonight. The Amazon Q1 topped expectations, with net sales up by 10%, but the shares sold off by c3% in after-hours trading, on the back of disappointing Q2 guidance (operating income is expected to be between $13.0bn and $17.5bn, compared with $14.7bn in Q2 2024). Apple also dropped by c3% in after-hours trading, despite Q2 earnings beating estimates, as Services revenue came in slightly below expectations at $26.65bn.

Today’s Press: The sweeping gains in the UK local elections for the Reform party (including the Runcorn by-election, by just six votes!) came too late for the front-page headlines of today’s papers, which are rather varied: the main story in the Financial Times is “Trump ditches Waltz after Maga wrath builds against national security adviser”, the i has “UK care worker visa crackdown as Labour tries to stop ‘vanishing’ migration scam, the Metro has “Hottest May of the years!”, the Daily Telegraph leads with “Chemists to give out weight-loss injections”, the Guardian runs with “Revealed-British banks put £75bn into firms behind ‘carbon bombs’” and the Times goes with “Banks forecast fastest fall in interest rates since 2009”.

Next Week’s News: As we move on into May, the big event next week, after the Bank Holiday on Monday, is the Q1 update from Next on Thursday, but Tuesday brings the Zalando Q1 (in Germany) and on Wednesday we get the Card Factory finals. Thursday is VE Day and it also brings the Lords Group finals, the Wickes AGM and the latest MPC interest rate decision.