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Morning Briefing for pub, restaurant and food wervice operators

Sun 13th Mar 2016 - Wetherspoon: food, freeholds, coffee rating, hygiene, Ireland
Propel reports details provided by JD Wetherspoon to analysts at Friday’s results presentation:

Food sales and scrapping the Sunday roast: The company reported food sales have now risen to an average £14,000 per pub per week (including VAT) compared to £23,000 of drink sales (including VAT) – average sales per pub per week are £38,400 (including VAT). Both food and bar sales rose by 2.9% in the First Half of 2016 while machine sales dropped by 2.9%. Chief executive John Hutson said the company had anticipated food sales would grower faster than wet sales after the start of the 2007 smoking but company is still seeing record wet sales in absolute terms. Since 2000, however, food sales have risen from 18% of turnover to 37% of turnover whilst bar sales have decreased from 76% to 59% of total sales – machines have halved in importance to the sales mix since 2000, dropping from 6% of total turnover to 3% in Half One of the current financial year. For the first time, Wetherspoon produced like-for-like sales figure across its 950 hotel bedrooms, reporting a 7.5% increase in the First Half compared to a 11.5% increase in the same period the year before. Hutson said the decision to end serving Sunday roasts today (13 March) is linked to pub managers arguing that it’s not possible to deliver the right level of consistency on Sunday roasts given other menu demands. Some customers would be disappointed but the Wetherspoon Sunday menu offers “lots of hearty meals” as an alternative, Hutson said. 

Property sales, freeholds and new openings: JD Wetherspoon is selling 50 pubs at the moment. Hutson said pubs to be sold often involved sites in towns where it has two pubs. “As time has gone on we’ve realised we don’t need to have two pubs in the same town,” he said. Other sales involve smaller pubs that do not fit the requirement to own larger pubs as food sales have grown and become increasingly important, he said. Hutson added that the company is also selling pubs that are reaching the end of their long leases and where the company does not want to occupy the site for another 30 years. Meanwhile, the company now owns a record 50% of its estate freehold – in 2006 the figure was 41%. “We like the idea owning the freehold,” said Hutson. “You’ve always got control – it’s much easier to exit a freehold.” The company invests large amounts of capital in opening pubs and it ‘feels better’ to own the freehold, added Hutson. The company opened five pubs in the First Half, spending a record £2,576,000 to develop each of them at a record trading size of 5,059 square foot – the comparable figures for the comparable First Half in 2015 are £1,948,000 and 4,080 square foot of trading space. The company’s five openings have a population of 65,000 within a two-mile radius, the highest figure since 2010 when 67,000 lived within two miles of new openings. Buying the freehold of the five openings cost an average of £994,000, the highest figure since 2008 when the average freehold cost £958,000. The company also spent £509 per square foot developing its five pubs – its the highest figure in the past ten years.

Ebitda per pub drops to £92,800 in First Half: JD Wetherspoon has reported that Ebitda per pub dropped to £92,800 in the First Half compared to £99,000 in the comparable 2015 First Half. It means Ebitda per pub for the full year is likely to be the lowest level in ten years despite record sales per pub. Ebitda for the full year per pub was £200,009 in 2015, £204,500 in 2014, £200,900 in 2013, ££194,900 in 2012, £198,700 in 2011, £205,800 in 2010, £212,900 in 2009, £211,600 in 2008, £219,000 in 2007 and £205,600 in 2006.

Hygiene scores across estate averaging 4.9, selling cask ale in Ireland, Beaconsfield: Hutson reported that, as of 24 January 2016, average food hygiene scores across the estate were 4.9 out of a maximum of five. A total of 93% of pubs have achieved the maximum score of 5. The company won awards in 11 categories in the Loo of the Year Awards and has 296 pubs in the 2016 CAMRA Good Beer Guide. Hutson reported that the average tax bill per pub now stands at £350,000 for the First Half, up from £327,000 in the First Half of 2015. The tax bill stands at 42.1% of sales, up from 40.9% in the same period last year. Average length of service for pub managers is now ten years and ten months and kitchen managers average is seven years an one month. Hutson said that cask ale is enjoying a “growing rate of sale” at its handful of pubs in the Republic of Ireland. “It’s not widely known and available in Ireland,” he said. The company believed that selling cask ale will provide a ‘bit of an edge’ over competition in the country, he added. Wetherspoon is selling three types of stout at its Republic of Ireland pubs but is not stocking Guinness. “We don’t think not selling Guinness is having a detrimental affect on sales,” he said. Hutson said that Wetherspoon’s site at Beaconsfield service station is trading reasonably well although below the company average. “It’s not a spectacular success.”

Nick Batram – don’t lose sight of the margin: Of Wetherspoon’s First Half results, Peel Hunt leisure analyst Nick Batram said: Positive like-for-like trading (+2.9%) had a negligible impact on the margin as higher costs and a lack of price increases reduced back operating margins at 6.3% versus 7.4% in the PY. Underlying PBT of £32.2m was c14% lower than the PY, but in line with our forecast (excluding a one-off property gain). Current trading is positive at +3.6%, although this is helped by easier comparatives. The real metric to watch will be the operating margin decline, which has fallen 110bps from the prior period, and with a lower gross margin and higher wage costs still to come, this will continue to be a key focus. The shares trade on 15.9x FY2016. Underling PBT was slightly below our expectations at £32.2m vs our 1.7 forecast of £32.9m; this excluded the one-off property gain of £3.8m, which inflated headline figures in the results. Group revenues in H1 were £790.3m, growing 6.2% from the prior period at £744.4m (in line with PHe). Ebit fell c11% to £49.4m from £55.1 from the PY, as a result of a higher wage bill and lower gross margin. The dividend remained flat at 4p and the group ended the period with higher net debt of £626.1m vs £601.1m from the prior period. like-for-like sales in the first few weeks, post the HY, grew by 3.7%, with total sales up 5.7%. This is against a softer prior period like-for-like comparative of 1.6%. The group’s performance from today should be taken in the context of easier comparatives going into the rest of the year. Wetherspoon’s trades on 15.9x FY2016, falling to 14.3x and a 1.7% dividend yield. We see a number of risks in the business not limited to the increase in the supply of pubs and changing consumer trends. Management has remained reticent on increasing pricing, which may have helped like-for-like sales but has come at considerable cost to the margin. 

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