Greene King, Just Eat, more on Thomas Cook & Other:

A DAY IN THE LIFE:

I think some parts of the economy have internalised the function of job creation.

This in that they’re not so much about creating jobs that add value but about increasing the size of their own department and here I would, respectfully, suggest that HR departments are a case in point.

Because, when you appoint an HR director, I wouldn’t be surprised if the first thing they did was ask for an assistant. And then an office and then an assistant for the assistant and then a larger office etc. etc. and, before you know it, you’ve got a big tail that may well be wagging the dog.

And departments in universities may be the same.

I mean, with >50% of graduates now having to take ‘non-graduate’ jobs, how many people do we need studying the history of fashion? Or gender studies or psychology or Aramaic or Etruscan pottery or whatever?

No, really, I think the test of whether a job is a job is, if you were removed from it, would anybody notice?

Indeed you may be right in saying that Langton, which clearly lives in a glass house, shouldn’t throw stones. On to the news: 

GREENE KING UPDATES ON Q3 TRADING:

• 40wks Trading to 5 Feb 2017:

• Greene King has this morning updated on trading for the 40wks to 5 Feb 2017 and our comments are set out below:

• Trading update overview:

• Greene King reports that, in the first 40wks of the current financial year, it achieved 1.6% LfL sales growth across its managed pubs

• Sales were +1.6% excluding Fayre & Square, where trading is clearly somewhat problematic.

• GNK says ‘over the last 16 weeks, we have seen a strong Christmas trading period alongside the usual quieter months of November and January.’

• LfL sales were +4.5% over the 3wk Xmas period

• Current trading Suggests further headwinds:

• GNK reports net income across Pub Partners up by 3.5% at week 40. Income had been +4.2% at week 24

• Brewing volumes were down 4.2% at week 40 having been down 3.8% at week 24

• Across the group’s three divisions, trading has slipped between weeks 24 and 40

• A rough estimate would suggest that managed LfLs over the last 16wks are around 0.8% (still positive but slowing) & Pub Partners are 2.5%

• Brewing must have seen volumes down c4.8% over the last 16wks in order to make the numbers add up

• Considering that the 3wks of Xmas were +4.5% (managed) and ‘sales were driven by particularly strong growth in London’, we believe that non-London, non-Xmas sales were weak

• On a positive note, it would appear that big days are still big. GNK reports ‘we again broke our record for Christmas Day with sales of £7.4m, up 6.0% on the previous year.’

• Cash flow, balance sheet, debt & strategy:

• GNK reports ‘further progress was made on the Spirit integration with over 1,000 pubs now converted to the ‘best of both’ Pub Company IT system and ongoing synergy savings realised.’

• The group says ‘we also made further progress on the delivery of our estate plan. We reached our target of 11 new pub acquisitions, of which six were Farmhouse Inns and five were Hungry Horse. Our disposal programme accelerated in the second half as expected. So far this year, we have sold 59 pubs across both Pub Company and Pub Partners for total proceeds of c.£35m. We anticipate disposing a further 50-60 pubs this year, raising proceeds of c. £30-40m.’

• Outlook:

• There is no mention here of margins.

• GNK says ‘looking ahead, despite continued economic uncertainty and significant cost pressures, we will remain focused on building our retail pub brands, delivering great experiences to our guests and completing the Spirit integration.’

• The group concludes ‘we are confident that the combined strength of our brands, pubs, people and cash generation leaves us well placed to deliver another year of progress, value creation and returns for our shareholders.’

• Langton Comment: Greene King has confirmed both that 1) it had a good Xmas & that London was strong, but also 2) that the rest of the country ex-Xmas, has faced a number of headwinds.

• Margins are not mentioned in this statement.

• Trading has slowed and the group remains ‘cautious but well-positioned’ etc.

• The integration of Spirit would appear to be going well.

• The performance of tenanted houses has been good but is slipping a little and beer looks disappointing.

• Overall, GNK remains concerned about the wider economy and mentions Brexit, input costs, rising wage inflation and consumer confidence issues.

• Uncertainty is unavoidable. We believe that this is more likely to lead to a delaying of large-ticket rather than small ticket purchases – although the pub is not immune.

• GNK is one of the UK’s better-positioned pub companies and, with its shares now trading at a single-digit multiple, it is not expensive. However, with a big acquisition under its belt, the group has to execute on its strategy and cautionary comments may put off would-be buyers in the short term.

LANGTON RESEARCH:

• Langton has produced a piece of research on the outlook for 2017. It’s free & can be found here

• We look at the macro trends etc. out there & comment on current developments. If you would like to advertise in these documents going forward, please let us know.

• See latest 60 seconds piece here

PUB, RESTAURANT & DRINKS PRODUCERS:

• Just Eat reports CEO David Buttress is to step down due to urgent family matters. He will stay till end Q1

• Just Eat. Chairman John Hughes will take over as CEO.

• Just Eat: Says ‘the Board is commencing an immediate search to find a replacement for David. David has agreed to serve a minimum one-year term as a non-executive director.

• YUM Brands reports Q4 numbers saying LfL sales rose 3% in KFC & Taco Bell units in the quarter. Pizza Hut disappointed

• YUM shares rise c2.1% on better-than-expected results. Co expects a 2% to 3% increase in LfL sales this year

• YUM reports strong operating profit growth (+13%) with 232 stores refranchised in the quarter

• YUM suggests that Pizza Hut’s lack of a strong grab-and-go offering may be behind its slowdown

• YUM should consider divesting its Pizza Hut brand suggest analysts to CNBC. Capex to slow, sales just a tad below estimates

• Chef Gordon Ramsay has picked up his 7th Michelin star

• Star Pubs & Bars managing director Lawson Mountstevens says Punch tenants will not be made to buy exclusively from Heineken.

• Coca-Cola has posted a 6% fall in Q4 net revenues, meaning net revenues for the full year 2016 were down 5%, due mainly to currency moves and structural changes. Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company, said, ‘We are pleased to report that we ended 2016 with fourth quarter top- and bottom-line growth within our expectations. Strong price/mix stemming from our continued focus on driving revenue and solid performance in our developed markets helped offset persistent macroeconomic pressures in our emerging and developing markets. Our flagship market of North America grew net revenues 8% for the quarter and 4% for the year, outperforming total retail value growth for both the North America non-alcoholic ready-to-drink beverage industry and U.S. consumer packaged goods companies.’

• Pernod Ricard has reported a strong first half performance thanks in part to the continued success of Jameson, with organic sales up 4% to €5,061m, and profit also rising 4% to €1,500m. Reported sales were up just 2% and pricing ‘remained subdued’ as the group grappled with unfavourable foreign exchange rates. Chairman and chief executive officer Alexandre Ricard said the strong half-year results delivering a continued performance improvement in an ‘uncertain environment’.

• ‘Our strategy remains consistent and is driving results. For full year FY 17, in an uncertain environment, we plan to continue improving our business performance year-on-year vs. FY 16. We will continue to support priority markets, brands and innovations while focusing on operational excellence. We expect to deliver organic growth in Profit from Recurring Operations in line with the guidance of +2% to +4%,’ he said

• Dunkin Donuts operator Dunkin Brands says it is trying to distinguish itself from rivals like Starbucks and McDonald’s as the ultimate destination for ‘on-the-go’ beverages and food. The company announced a better-than-expected quarterly earnings update for the three-months to December 31. Earnings per share were 64 cents for the quarter, compared to the 61 cents forecast by analysts, on net income of $56.1m, versus analysts’ predictions of $53m profit. Revenue came in as expected at $215.7m.

• UberEats is to launch in Manchester and is strengthening its team to roll out across the UK, with Lizzie Lang recently appointed as Restaurant Partnership Launcher – UK Expansion. The group has also taken on Daniel Calvert as head of partnerships for UberEats in London.

• Leon expects to double its headcount in the next 12-15 months from 1,000 to 2,000, according to managing director John Upton, who was speaking at MCA’s Food to Go Conference 2017. The healthy food group is setting its sights on regional expansion and is opening in Manchester soon.

• A report by fine wine investment management company Vin-X claims that fine wine is the ‘best-performing’ investment compared to art, antiques, and cars. Vin-X’s head of procurement Martin Pruszynski, who wrote the report, said that previous research showed wine “consistently” outperforms traditional investment assets like equities, gold and property, but the new report highlighted its strong performance against other highly collectible items.

• Agricultural labour shortages are prompting the food industry to lobby for the reintroduction of the Seasonal Agricultural Worker Scheme (SAWS), previously axed in 2013.

• Pizza Union, the early stage pizza bar chain, is to open its third site in London, on Leman Street (Aldgate). The first site of the chain, which sells artisanal pizza for affordable prices ranging between £3.95-6.50. opened in 2013 near Liverpool Street Station.

• A trade union has protested outside Deliveroo’s London depot over the controversial treatment of its self-employed drivers. Battersea and Wandsworth Trades Union Council claim that Deliveroo is ‘getting around’ holiday pay, sick leave and rest breaks by not having drivers be listed as employees. Basic pay for the drivers is £6-£7 an hour, plus £1-£1.50 per delivery, however the union states this is not guaranteed as some areas use a results-based scheme that pays between £3.75-£4.55 per hour with no basic pay.

• Major chocolate companies have said that they will not necessarily participate in ‘shrinkflation’. Toblerone already has, of course, but others say that they are ‘considering all options’.

• The Pubs adjudicator has said that Heineken’s proposed acquisition of Punch Taverns will not allow tenants to choose a free-of-tie option. The PMA reports the Pubs Code Adjudicator as writing ‘while we understand that the desire for certainty might seem to come from dealing with a ‘class action’, any trigger can only be considered on a case-by-case basis where such an event has actually occurred, as each case turns on its own facts.’ It does not see that the choice has been triggered by the proposed purchase.

MAJOR SPENDING TRENDS:

• Home ownership has fallen by around 10 percentage points since it peaked in the early 00s.

• Young people ‘cannot get on the housing ladder’.

• Have you tried to insure a car for an U25 recently?

• Student debt is following you people around like Marley’s ghost.

• The Resolution Foundation has reported that men currently in their 20s will not be as rich as their parents were. This may drive spending trends. The foundation says ‘the long-held belief that each generation should do better than the last is under threat. Millennials – those born between 1981 and 2000 – are the first to earn less than their predecessors.’

• The Fall of Rome or just a couple of generations’ long blip?

• On a brighter note, the Council of Mortgage Lenders has reported that fewer houses were repossessed in 2016 than in any year since 1982. People have simply not been able to afford them in the first place. And interest rates are at their lowest level since the 1600s.

LEISURE TRAVEL & HOTELS:

• TCG shares fell yesterday on what was deemed to be a cautious Q1 update.

• Around a third of Thomas Cook shareholders voted against its plans to change its directors’ share incentive scheme

• Greece is now reported to be Thomas Cook’s number one destination. The Western Med should overhaul it by season end. Nonetheless, TCG has seen bookings to Greece rise by 40% in the current year to date. Cook is reported to have added 500,000 more beds to Greece, with average prices increasing by 2%. CEO Peter Fankhauser reports ‘we have not changed capacity in Spain but focused on higher quality holidays. Hotels have increased their costs and capacity has increased as well which gives a competitive situation.’

• The outbound travel market is being driven by family bookings, a GfK report confirms. The figures display a growth rate for this summer is double the year-on-year growth in overall bookings. Summer 2017’s season-to-date bookings are up 5% y-o-y, but family bookings are up 10%, according to GfK.

• Airline chiefs have warned of ‘a summer of disruption’ in Europe due to strikes by air traffic controllers and demanded the European Commission take action.

• The US hotel industry reported mostly negative results in the three key performance metrics during the week of 29 January through 4 February 2017. Occupancy fell 1.5% to 55.6% and average daily rate only rose by 0.2% to $119.58, meaning revenue per available room dropped by 1.3% to $66.51.

• Stansted enjoyed a strong January, with passenger throughput increasing by 5% year-on-year to 1.74 million and aircraft load factors up to 81.4% from 79.2%. The positive start to the year was boosted by plans by Ryanair and British Airways to start new services and add frequency on existing routes for summer 2017. Numbers grew by 7.3% to 24.4 million passengers in the 12 months ending January 2017 over the previous year.

• Aviation campaign body Airlines4Europe is calling on the European Union to remove ‘economically damaging’ aviation taxes. The group says air passenger duty, especially in the UK and Germany, continues to ‘hinder’ growth and jobs across Europe. Despite persistent calls for such measures to be scrapped, Sweden last month announced it will be introducing the tax in 2018.

OTHER LEISURE:

• Twitter shares are expected to tumble after the social media company reported a near-doubling of fourth-quarter losses to $167m. Active users rose 4% to 319 million but revenue from ads dropped slightly to $638m, with figures both falling short of expectations.

• Manchester United remains on track for record revenues after seeing total revenues jump 18% to £157.9m and now expects record full-year revenues of £540m. ‘The robustness of our business model continues to be reflected in our strong quarterly financial results and we remain on track to deliver record revenues for the year,’ said Ed Woodward, executive vice chairman.

FINANCE & MARKETS:

• US St Louis Fed president James Bullard has said that interest rates may remain low this year. Markets estimate 3 rises

• Brent up a shade at around $55.70 per barrel

• Sterling little changed vs US$ at around $1.25

• UK interest rates steadying with 10yr gilt yield at 1.25% (was 1.26% this time yesterday). US 30yr treasury yield +6bps at 3.02%

• World markets: UK & Europe up yesterday with US also higher & hitting new records. Far East mostly up in Friday trade.

• Germany’s trade surplus hit an all-time high in 2016. The country has a surplus with the rest of the world of €253bn.

• The number of Americans filing for unemployment benefits fell to a near-43yr low last week.

• Apple is reported to be ‘very optimistic’ about the UK’s future outside the EU.

• US Chamber of Commerce, meanwhile, says that US companies have been delaying investment decisions in the UK. Money speaks louder than words though Apple, which is building a new regional HQ in the UK, is the exception.

TODAY IN A NUTSHELL – TWEET VERSION & YESTERDAY’S LATER COMMENTS:

• GNK Q3 update: 1.6% LfL sales growth across managed pubs. Represents a slowdown but Xmas & London good

• GNK Q3 update: Sales were +1.6% excluding Fayre & Square, where trading is clearly somewhat problematic.

• GNK Q3 update: Net income across Pub Partners up by 3.5% at week 40. Income had been +4.2% at week 24. Brewing down 4.2%

• GNK Q3 update:  Across the group’s three divisions, trading has slipped between weeks 24 and 40. No mention of margins

• Just Eat reports CEO David Buttress is to step down due to urgent family matters. He will stay till end Q1

• YUM Brands reports Q4 numbers saying LfL sales rose 3% in KFC & Taco Bell units in the quarter. Pizza Hut disappointed

• Pizza Union, the early stage pizza bar chain, is to open its third site in London, on Leman Street (Aldgate).

• TCG shares fell yesterday on what was deemed to be a cautious Q1 update.

• Later tweets: Commodity price rises, lumber on the up. Widely ignored but up 42% in $$s or +65% in Sterling. Building boom ahoy?

• Risk off = reflation reversal. Not sure that will last long but global bond yields down into the teeth of reflationary stimulus? Really?

• DFS cautions furniture sales could slow this year. And why wouldn’t they will real wages likely to be negative again in H2?

• London has coldest Jan in 55yrs. Wasn’t that bad, was it? Anyway, at least it was dry. Should be OK for pubs, help hot food sales etc.

RETAIL NEWS WITH NICK BUBB:

• BDO High Street Sales Tracker: We flagged on Wednesday that John Lewis had a solid start to February last week, thanks to good Home sales, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains flags that w/e Feb 5th saw Fashion Store LFL sales drop back against last year by 2.7%, despite an easy comp…Including Homewares (and Lifestyle) chains, total Store LFL sales edged down by 0.9%, but overall Online sales were up by 13.8% (although that was notably slower growth than of late).

• Today’s News: The Chairman of Dunelm, Andy Harrison, has shown some support, by buying c32,000 shares at 625p. And Heathrow Airport has given WH Smith Travel a boost by announcing that they squeezed as many as 4.2% more passengers through last month.

• Trade Press (1): The front cover of Retail Week magazine today flags up a feature entitled “Going it alone”, about how retailers are preparing for Brexit. There is also a big feature on “Sir Ken remembered” (“How Morrisons’ legendary leader changed grocery”), as well as an analysis of the “Key lessons from retail’s vital golden quarter” and a column from Iceland boss Malcolm Walker on “political correctness gone mad”. In terms of News stories, RW focus on the news that Bunnings has opened its first UK DIY Warehouse in St Albans, Wiggle has appointed The White Company CEO Will Kernan as its new boss, Aldi has leapfrogged the Co-op to become the UK’s fifth-largest grocer and Poundland has pulled the plug on the transactional element of its website. And, in his column, the Editor thunders that “Sir Ken has passed away, but his legacy lives on” and also notes that “After a better
Christmas than many expected came a worse January than anticipated”.

• Trade Press (2): In Drapers magazine today, the Editor’s column is, intriguingly, headlined “A masterclass in growth from Boohoo” and she goes on to praise the Nasty Gal acquisition in the US. In terms of News stories, Drapers lead on the news that the South African retailer The Foschini Group ¬is planning to open 100 UK stores and concessions for Damsel in a Dress after acquiring the womenswear brand this week, Gap has placed its entire UK-based merchandising team into “consultation” as it centralises its global operations in the US and the Polish clothing retailer Reserved is readying itself for its UK debut this autumn in 106,000 sq ft of the former BHS flagship on Oxford Street. The main feature is an interview with the founder of the Australian-focused “flash Sale” etailer MySale, the persuasive Jamie Jackson, in their UK distribution centre in Corby.

• News Flow Next Week: Things are quiet next week, but Tuesday (aka Valentine’s Day) brings us the Pendragon finals and then on Friday we learn what last month was like on the High Street on the Planet ONS, via the ONS Retail Sales figures for January.