Leading analysts, Douglas Jack and Ivor Jones, of Peel Hunt, have given their view on the most findings from the Coffer Peach Business Tracker, which they say indicate a trend that is likely to continue for the next few months.
The note says:
The Coffer Peach Business Tracker (collective LFL sales for managed pub, bar and restaurants) was up 1.4% in May, albeit with managed pubs up 3.5% (drink-led pubs up 5.2%; food-led pubs up 1.3%) vs 2.1% LFL decline in restaurants. We expect a similar trend in June, and, to a lesser extent, July, providing a good boost for the pubs, and compounding the pressure on restaurants.
Weather was the biggest factor driving LFL sales. Nevertheless, over the past 12 months, LFL sales have averaged +0.6% in pubs (with drink-led doing best) vs a 0.9% decline in restaurants; the comparative figures for the prior 12 months were +1.3% and +0.5%, respectively.
We believe May’s trend is likely to repeat in June due to the World Cup. Entering the World Cup, managed restaurants have suffered negative LFL sales in each of the last six months (eight of the last nine months). This is compounding the impact of inflation on profits; for example, labour costs are growing at 4-5% pa, and now exceed 30% of sales in restaurants.
Airports and cinemas provide less relief. Over the last three World Cups, cinema footfall was 23% lower in June and 7% lower in July vs years with no World Cup. In our view, the film release schedule for H2 2018 is not strong, and should result in LFL footfall falling over the full year. Airport passenger volumes rose by 1.5% in January-April vs 5.5% in January-April 2017.
Strugglers may blame their ill-fortune on snow, sun and soccer, and claim that this will provide soft comps in 2019E. This is partly true, but rebalancing supply and demand in casual dining is a slow process. Net new openings added 2.9% to managed sales in May vs 2.8% 12 months ago; despite all the restaurant CVAs, supply reduction is taking longer than many predicted.
