Langton Capital – 2026-05-06 – PREMIUM – JD Wetherspoon, Diageo, Hostelworld, trading, food costs & other:
JD Wetherspoon, Diageo, Hostelworld, trading, food costs & other:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: How is it that my dog, your dog, any dog, is deaf when told to stop doing something irritating, or to come here, or to get away from something really nauseating but, when a biscuit is dropped in their food bowl, they’ll hear it from 100 metres away? Maybe it’s a different type of sound? Or maybe it’s a different time of day or they’ve just cleared up an ear infection or it could be something to do with atmospheric pressure but, when you’ve stripped away all of the wrong answers, as Mr Sherlock Holmes reassured us, you’re left with the right one. Namely that feigning deafness they consider to be a consequence-free two fingers at you, particularly likely if or when they shoot you the odd glance whilst ignoring you but, well, your food is your food and that’s a different matter altogether. Anyway, if the price of getting the dog in from the far end of the garden when it’s raining is the odd gravy bone – about 100 for a quid from Tesco – then it’s maybe one worth paying. On to the news: PUBS & RESTAURANTS: Food costs: A study carried out by the Energy and Climate Intelligence Unit suggests that food costs may have risen by 50% between mid-2021 and the end of this year. It says that this is leaving consumers, particularly those on modest earnings, having to cut back elsewhere… • The rise in prices since prior to the Russian invasion of Ukraine may be equivalent to that experienced over the 20 years to that date. The rise may be down to a number of factors including weather events, global supply disruptions, and continued volatile oil, energy & fertiliser prices. • The impact on consumption of non-essential goods and services could be material with Anna Taylor, director of the Food Foundation charity, saying ‘food prices rising this high and this fast leaves families on the lowest incomes with nowhere left to cut except the food on their plate. When that happens, people skip meals, children go hungry, and diet-related illness rises – taking parents out of work and piling pressure on an NHS that can least afford it.’ • The Guardian comments that foods including pasta, frozen vegetables, chocolate and eggs were all at least 50% more expensive than five years ago, while the price of beef was up 64% and olive oil had more than doubled, and adds that ‘the rises reflected the products’ sensitivity to volatile oil and gas prices, synthetic fertiliser costs, and climate impacts such as droughts, floods and heatwaves, both in the UK and in key import regions.’ • The ECIU adds ‘Trump’s war in the Middle East is set to drive shopping bills higher as oil and gas prices spike. Scientists are predicting 2027 to be the hottest year on record with climate change combining with the El Niño effect kicking off this year. Three of England’s worst harvests on record have been in the past five years.’ Pub closures: The BBPA has reported that around two British pubs closed a day in Q1 this year with a total of 161 pubs closing their doors permanently over the period… • BBPA CEO Emma McClarkin says ‘the scale of these closures is avoidable because pubs are doing a brisk trade, but their profits are wiped out by a disproportionate tax burden and huge costs.’ She adds ‘we want to work with government to establish a permanent long-term plan that will deliver permanently lower bills, a fairer system and ultimately protect this treasured sector.’ • Despite criticism, the government maintains that it has been ‘backing Britain’s pubs’ by cutting business rates bills – albeit once discounts have been reversed out – by 15%, which will be followed by a two-year freeze. Sky reports that ‘Rachel Reeves had been warned measures she unveiled in her budget last November would put pubs at risk, and months later she announced they would receive business rates support to help them cope.’ Trading: The Oxford Partnership comments on early May trading when it says that ‘the UK on trade enjoyed a strong Early May Bank Holiday, with pubs selling 27.3 million pints over the four-day weekend, up +5.0% on last year, as warmer weather and longer visits combined to drive higher volumes… • It says that the uplift was driven by both increases in footfall and longer dwell times. Commenting on the Bank Holiday, it says ‘trading momentum built throughout the weekend, with Monday emerging as the standout day, up +6.7ppt year on year, suggesting that consumers are increasingly extending their Bank Holiday social occasions beyond the traditional peak days.’ • CEO Ali Jordan says ‘when the conditions are right, consumers are coming out, staying longer and fully embracing the social occasion. What’s particularly encouraging is that this growth is being driven by longer, more relaxed visits rather than just spikes in footfall.’ • She says ‘however, the shift in behaviour is clear. Growth is increasingly coming from premium, experience-led occasions, with consumers prioritising quality and time spent over pure volume. For operators, the opportunity is to maximise these longer visits and trade consumers up across the occasion’ Trading continued: Meaningful Vision reports that fast food and casual dining restaurants saw their steepest decline in consumer traffic for two years in Q1 this year, largely as a result of continued cost of living pressures… • Meaningful Vision shows that footfall fell by 2.3% across the more c60,000 outlets that it monitors in Q1. It says that pub and restaurant traffic fell by 7.6% in the quarter with the fast food sector seeing a 1.2% fall. Maria Vanifatova, CEO at Meaningful Vision, says ‘the performance of the fast food and casual dining markets is becoming more concerning – last year the fast food sector grew 1% and has now swung to a decline of -1.2%. Part of the reason for that is the pace of new openings has slowed significantly so far in 2026, with the rate of expansion now running at half the level seen previously. But more importantly, like-for-like traffic has weakened further as consumers cut back on spending in a tough economy.’ • Ms Vanifatova continues ‘one of the clear drivers for that is undoubtedly inflation – prices went up at their highest rate for 15 months in February. While there was some improvement in March, given the geopolitical situation in the Middle East and the protracted impact this is likely to have on inflation, prices could continue to rise further. That will only put even more pressure on a hospitality sector that is already struggling with challenges on a number of fronts, with the only reprieve being more people opting to staycation potentially providing a boost in the summer months.’ Disposable incomes: UK Finance has suggested that mortgage affordability for UK home-owners is at its most challenged since 2008. Separately, food price warnings have been multiplying and the RAC has reported that, whilst fuel prices fell at the end of April, they are now once again close to their highest since the US and Israeli attacks on Iran commenced on 28 February… • UK Finance reports that the average homebuyer in the UK had to spend around 21.3% of their gross income on servicing their mortgage last year, the highest percentage in over 15 years. It says that certain areas, such as North Norfolk, were worse. James Tatch at UK Finance says ‘it’s been challenging times for those trying to buy a property in recent years, with affordability pressures weighing heavy.’ He adds ‘but the pain is not felt equally across the country. Property prices, wages and demographics vary greatly across and within regions.’ • Mr Tatch says ‘all of these have an impact on affordability and if you’re a landlord, how profitable your investment property is. The UK housing market faces both challenges and opportunities at a national and local level, and understanding these local markets enables better decision-making from government, local authorities and others.’ UK Finance concludes ‘we look forward to continuing our work with these stakeholders to improve the mortgage market.’ • Re food prices, The Guardian comments on a poll undertaken by Opinium, which suggests that 80% of people are now worried that the Iran war will make food more expensive. Some 73% expect the conflict to push up prices of other products. The effects of the war so far have been felt by sectors such as manufacturing and chemicals – and motorists, of course, see below – but Helen Dickinson, CEO at the British Retail Consortium, says the war is ‘driving up costs across the supply chain and families are right to be concerned.’ • Ms Dickinson adds that some other ‘governments are already acting.’ She says ‘Germany has reduced electricity costs for businesses by moving levies off bills and EU leaders are actively discussing similar responses to this crisis. The UK should be moving in the same direction, not treating global instability as cover for inaction on costs of its own making.’ • And the RAC has warned that fuel prices are now nearing the highest since the war began in late February. It says petrol pump prices hit 158p for petrol and 191p for diesel on 15 April. They then drifted back lower but have risen in recent days. RAC head of policy Simon Williams says ‘the outlook for the first couple of weeks of May is more ominous. Wholesale petrol and diesel prices jumped by around 5p a litre last week, and are now at their highest since the war began. This hasn’t yet been reflected at the pumps – petrol is up by just a fraction of a penny so far this month, and diesel has continued to slowly drift downwards.’ Other news: Whisky companies have reacted with relief to the news that US president Donald Trump is to remove tariff restrictions on whisky exports into the US… • Drinks Business reports that ‘reaction from across the whisky sector has been swift following confirmation by Donald Trump that tariffs and restrictions on whisky imports will be removed after the state visit by King Charles III and Queen Camilla. Executives are enjoying renewed confidence while awaiting details on how quickly the changes will take effect.’ The £10 pint. The NTIA has said that, spotting pints being sold at £10 each in Central London is not big news. It says that the situation is ‘far more complex’ than the headline figure would suggest… • NTIA CEO Michael Kill says ‘the reality behind rising pint prices in London is far more complex than a headline figure.’ He adds ‘businesses are contending with soaring energy bills, rising wages, increased alcohol duty, and a heavy regulatory burden, all of which are squeezing already thin margins.’ He maintains ‘what we are seeing is not profiteering, but a sector fighting for survival.’ JD WETHERSPOON – Q3 UPDATE: JD Wetherspoon has this morning updated on Q3 trading and our comments thereon are set out below: Headline trading numbers: • JDW reports that ‘Like-for-like sales increased by 3.4% in the 13 weeks to 26 April 2026, compared to the same period last year.’ • It adds that Year-to-date like-for-like sales increased by 4.3%. • The group reports that, taking into account disposals and new openings, total sales increased by 4.1% in the quarter and by 4.9% YTD. Balance sheet: • The group reports that ‘in the YTD, the company has opened eight pubs and sold eight.’ • It says that it now operates 794 managed pubs and adds that an additional 21 pubs operate under a franchise agreement. There have been 13 franchised openings in the YTD. • In the YTD, the company has purchased 3,845,754 of its own shares for cancellation at an average price of £6.80 a share. • The group reports that it ‘has purchased the freehold reversions of four pubs for a total of £12.2 million, bringing the amount we’ve spent on freehold reversions since 2011 to £489 million.’ • JDW concludes ‘we continue to anticipate year-end net debt of between £740 million and £760 million’ and says that ‘interest costs for the financial year will be approximately £47 million, in line with FY25.’ Outlook • Re the outlook, JDW chair Sir Tim Martin comments that ‘sales growth was ahead of the ‘NIQ RSM Hospitality Business Tracker’ for the 43rd month in a row in March 2026, although Wetherspoon’s growth for Q3 was slightly below the year-to-date.’ • He adds that the ‘company has a strong pipeline of new pubs and planned openings include Manchester airport, Heathrow airport, Paddington station, Charing Cross station and Shaftesbury Ave in central London.’ • Sir Tim concludes that ‘as many hospitality operators, including Wetherspoon, have reported, there have been substantial increases in costs, which may result in profits slightly below market expectations.’ Context: • The company had already updated on the seven weeks to 15 March 2026 at its H1 numbers when it announced that like-for-like sales increased by 2.6%. This suggests a slight acceleration in the remainder of q3. • The company at the time contrasted its own Feb 2026 LFL numbers (up 3.2%) with the latest ‘CGA RSM Hospitality Business Tracker numbers for the industry, which was down by 0.2%. • JDW has once again been able to beat the Tracker though, as it says, costs are an issue. Langton comment: • JDW continues to outperform in terms of sales but, as the group cautioned in January and once again cautions today, costs are something of an issue and it now adds that profits may still be below reduced full year estimates. • The company’s shares performed strongly in Q2 last year but they have since moved broadly sideways before dropping as part of firstly wider market sell offs and latterly as a result of its own cautious comments on trading. • JDW’s shares reached around 1400p in Q2-2021 and, despite the group’s efforts in terms of trading performance, they currently change hands at materially less than half that price. • This has perhaps reflected shareholder concerns that the cost of living crisis could impact value offers and particularly those trading with low margins. • Despite the company’s strengths, customer demand may be influenced by the cost of living issues facing households and the company’s own costs remain under upward pressure. • JDW issued 15.7m shares at 900p in April 2020 to raise £141m and 8,4m shares at 1120p in January 2021 to raise £94m. It has since bought some back but there are more shares in issue now than there were pre-Covid (July 2019: 105.1m, July 2025: 113.0m) • JDW has maintained both its value offer and its sales momentum but it may be reluctant to test price elasticities too much further as customers may vote with their feet in favour of supermarket beer & pizza, the sofa and Netflix. • Whilst the immediate cost outlook is challenging – and profits are likely to be ‘slightly’ lower this year than last – the hospitality market, in which JDW remains an excellent operator, should grow more rapidly than GDP over time. COMPANY NEWS: Diageo has updated on Q3 trading (to end-March) saying that revenue rose by 2.3% in reported terms to $4.48bn with volumes up by 0.4%. The company says that ‘strong organic net sales growth was delivered in Europe, LAC and Africa’ but adds that ‘Asia Pacific net sales declined slightly with weakness in Chinese white spirits offsetting low-single-digit growth in international premium spirits… · Fiscal 26 guidance is unchanged from the time of the group’s H1 numbers and CEO Sir Dave Lewis says ‘we are pleased with the strong growth across Europe, LAC and Africa. North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive. Actions are already underway to address this.’ · He says ‘progress on the re-design of our new strategy and the shaping of a more competitive operating framework is well underway. We are on track to share a Strategy Update with shareholders alongside our fiscal 26 full-year results on 6 August 2026.’ · Sir Dave concludes ‘while we are mindful of continued geopolitical uncertainty, including the impact of the ongoing conflict in the Middle East on energy, supply and distribution; we are reiterating our fiscal 26 guidance.’ Whitbread pub restaurant sales. The Times reports that Whitbread has approached established pub companies, including Greene King, Heineken, Marston’s and Punch, in order to ascertain the level of demand for its pub-restaurant assets. Franco Manca has seen its proposed CVA approved by creditors and has revealed the list of the 16 restaurants that are to close… • The company is to close the first restaurant it ever opened, the unit in Brixton. Parent company Fulham Shore says the CVA will allow Franco Manca to invest in its retained estate. CEO Marcel Khan says ‘we are grateful for the support shown by our creditors today. Franco Manca is a fantastic brand with a strong heritage and loyal customer base. With this agreement in place, we will put the business back on a firm footing and press ahead with strengthening our customer offer and performance.’ AB InBev yesterday reported Q1 numbers saying that it had turned in a ‘solid top- and bottom-line performance.’ It announced that revenue was up by 5.8% with beer volume growth of 1.2%. it reported a 20.8% Underlying EPS increase… • AB InBev CEO Michel Doukeris said ‚cheers to beer – the strength of the category and the consistent execution of our consumer-centric strategy drove continued momentum across our footprint. We are investing behind our megabrands and innovations to lead and grow the category. With strong execution by our teams and major moments of celebration ahead, we are well positioned for 2026.’ • Re the full year outlook, AB InBev says ‘we expect our EBITDA to grow in line with our medium-term outlook of between 4-8%. The outlook for FY26 reflects our current assessment of inflation and other macroeconomic conditions.’ It adds that ‘we expect net capital expenditure of between 3.5 and 4.0 billion USD in FY26.’ Greene King has reported group revenue rose by 3.6% to £2.54bn for the 53 weeks to 4 January 2026. It adds that adjusted operating profit rose 9.8% to £217.4m. HOLIDAYS & LEISURE TRAVEL: Hostelworld has updated on trading in a statement that will be read to its AGM later today, saying that year-to-date revenue momentum has been maintained but that FY 2026 guidance can be reiterated only ‘subject to macro conditions…’ • The chair, Marieke Bax, says that ‘against the currently challenging backdrop, I am encouraged by the strength of the platform the team has built and the underlying engagement we are seeing on the network.’ She says ‘the broader macroeconomic consequences of the Middle East conflict are uncertain and difficult to predict.’ • Ms Bax says ‘to date, the Group’s overall revenues have not been materially affected. Demand for intra-European travel remains in line with our expectations and is currently offsetting softness in long-haul demand from Asia, where bookings on routes through the affected region have been impacted. Given the relatively short booking windows in our segment of the market, the Board will continue to monitor trading patterns closely and update shareholders should the position change.’ • The chair concludes ‘on that basis, and assuming no further escalation of the Middle East conflict, the Board reiterates its guidance for the financial year 2026 in line with current market expectations.’ Jet fuel shortages. City AM reports that ‘the UK is particularly vulnerable to the jet fuel shortages caused by the Iran war, as the risk of rationing looms as supplies fall to “critically low levels” while the summer holidays creep closer….’ • It quotes a note by Goldman Sachs, which says that ‘the UK is the largest net importer of jet fuel in Europe, and it holds no strategic reserves, leaving commercial inventories as the primary buffer.’ This despite comments from the government and from a number of airlines and holiday companies that they expected to be able to operate (broadly speaking) as normal over the summer. • Flight delays. The CAA has published its ranking of airports by delay times saying that Manchester Airport was the airport with the longest average delays at 19 and a half minutes. Birmingham was second least timely with delays of 18 minutes and 42 seconds on average. Other major holiday airports, Gatwick, Leeds Bradford and Glasgow, came in 5th. 7th and 18th in terms of the length of their delays. FINANCE & MARKETS: Nissan has announced it will cut one of its Sunderland production lines and will shed some 900 jobs across Europe as a whole. The company says ‘we will consolidate production from two lines to one at our Sunderland plant as we assess future opportunities to secure full plant utilisation.’ Longer- UK borrowing costs have now risen to their highest level since 1998, largely as a result of international tensions. Yesterday, the yield on UK government 30-year bonds reached a 28 year high whilst the more heavily traded 10-year bonds, which yielded around 5.06% at the time, were hitting 18-year highs. Sterling $1.3588 and €1.1587. Oil $108.39. UK 10 year gilt yield 5.07%. World markets heading better yesterday and London set to open up around 105 points as at 6.30am. RETAIL WITH NICK BUBB:
Today’s News: The much-awaited Next Q1 update covers the 13 weeks to May 2nd and after an ‘encouraging’ performance in the first 8 weeks (as flagged at the time of the final results on March 25th) the big interest was in how April turned out, given the tough comps in the UK… and the answer is not too badly, with overall Q1 full-price sales up by 6.2%, after 11.8% growth in the first 5 weeks. Helpfully, Next has broken the quarter down into three separate periods, by geography, to show the impact on sales of the Middle East war. Reassuringly, product sales in the last 5 weeks were up by 5.5%, with the UK up by 1.7% and the fast-growing International division recovering from a sticky period in March to see strong 18.3% growth. Q1 was still better than budget overall and Next has been happy to add the resulting £8m profit boost to its full-year profit guidance (which stood at £1210m
Today’s Press: In terms of the front-page headlines of today’s papers, according to the press summary email from the Guardian, the Guardian itself leads with “Labour under pressure after UK borrowing costs hit 28-year high” and “Long-term borrowing costs highest in decades as prolonged inflation looms” says the FT. The i paper leads with “Millions face flight cancellations as jet fuel shortage deepens and Iran ceasefire falters”, while the Sun focuses on the same issue, opting for the headline: “Come cry with me”. “New powers to treat Iran proxies as foreign spies” says the Times, while the Metro has “A target on the back of UK Iran critics”. “Thirty Green candidates probed over antisemitism,” says the Mail. The Telegraph has “Starmer could cost us the election, says Welsh leader,” while the Mirror carries a plea to voters from the Prime Minister: “We’re still only ones on your News Flow This Week/Next Week: Tomorrow brings the much-awaited JD Sports finals, as well as the Howdens AGM and the long-waited Local Elections. Next week kicks off first thing on Tuesday with the BRC-KPMG Retail Sales figures for April, followed by the Greggs trading update and the Angling Direct finals. The Greggs AGM is then on Wednesday, whilst on Thursday we get the 3i (Action) finals, the Burberry finals, the LandSecs finals and the Watches of Switzerland Q4 update. |
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