Spirit Pub Company sales on track despite tough trading

By Mark Wingett

- Last updated on GMT

Related tags: Net income, Weather, Revenue

Spirit sales back on track
Spirit sales back on track
Spirit Pub Company has reported a 2.6% rise in like-for-like sales across its managed estate for the six weeks to 25 May, a performance that bounced back after a 3.8% decline in the proceeding six weeks, which it said was impacted by an “an exceptionally cold start to spring”.

The performance in the second six weeks was driven by a 4.4% increase in food sales and a 0.2% rise in drink sales. In the former six weeks, food sales were down 0.3% and drink sales declined 7.6%.

The group said that its managed sales were “resilient after an exceptionally cold start to spring”. Like-for-like sales across the division for the 40 weeks to 25 May were up 0.7% driven by a 2.1% increase in food sales, which offset a 1.7% decline in drink sales.

The company said: “Trading remained volatile throughout the period with challenging conditions towards the beginning of the quarter offset by more encouraging performance in the latter half, following the return of more seasonal weather. Our focus remains on developing compelling brands and pubs whilst nurturing talent and galvanizing the leadership skills of our teams to deliver a consistently great guest experience and drive footfall.”

It said that it had invested in 64 pubs in this financial year and return on investment remained strong. It has also built three new Wacky Warehouses and extended two of its pubs as it seeks to capture opportunities to “maximise income and enhance value within our existing estate”.

The group said that its leased estate was similarly impacted by the exceptionally cold weather but has recovered since with net turnover up by 1.2% in the last four weeks to 25 May. Net income was down by 2% in this period, which it said reflected the last phase of its rent rebasing process.

Like-for-like net turnover for the eight weeks to 27 April declined 4.0%, with net income down 5.6%. For the 40 weeks to 25 May net turnover was down 1.8% and net income fell by 3.1%.

Spirit said it remained confident of returning the leased estate to stable like-for-like net income in the fourth quarter.
The company has now invested in 60 pubs in the year to date.
It said: “With performance remaining encouraging we have identified further pubs for conversion to our new operating models, which we expect to complete in the final quarter. This will take the trial group to sixteen, eleven of which will be franchise with the remaining five being agreements with premium operators.”
The group has also disposed of a further four pubs in the period, taking the total year to date to 24, for c.£250k per pub. It said that proceeds remain in line with book value.
Mike Tye, chief executive, said: “We are encouraged by this resilient performance despite extremely volatile trading conditions and uncertain consumer confidence. Both Managed and Leased pubs have delivered good growth in turnover after an exceptionally cold start to spring.
“We have the right balance of ingredients for success in the long-term, including our continued focus on delivering a great guest experience, building compelling Managed brands, and an ongoing emphasis on investment and innovation in the Leased estate. We maintain guidance for the full year, but are mindful of the remaining uncertainty around trading in the short-term, which has characterised recent quarters.”
Analyst reaction
Douglas Jack at Numis said: “Full year guidance remains unchanged as the LFL sales and margins outlook for Q4 is good, largely due to easy comps. It also appears likely that the leased estate will recover to flat LFL net income in Q4.
“Managed pub LFL sales are up 0.7% after nine months, undermined by poor weather. Our 2% full year assumption requires LFL sales to average 4.5% in Q4, the largest trading quarter. Q4 should benefit from easy comps relating to the weather and the Olympics as well as initiatives relating to service standards and product range/pricing/marketing. Trading should also benefit from c.90 major refurbishments this year, of which 64 are complete (the slowdown reflects a more selective process).
“LFL net income [in the Leased estate] improved from -5.6% to -2.0% over the same period and is expected to be flat in Q4 due to: rent-rebasing now being complete; easier comparatives; better retail disciplines; use of iDraught dispense systems; and new agreements.
“Despite offering one of the highest growth rates, Spirit has the lowest valuation in its sub-sector on most metrics (with or without the onerous lease provision), prior to considering its £80m of cash tax credits. Thus, we believe Spirit offers an attractive way in to the sector, given a low relative valuation, strong management team and improving prospects.”

Spirit Pub Company has reported a 2.6% rise in like-for-like sales across its managed estate for the six weeks to 25 May, a performance that bounced back after a 3.8% decline in the proceeding six weeks, which it said was impacted by an “an exceptionally cold start to spring”.
 
 The performance in the second six weeks was driven by a 4.4% increase in food sales and a 0.2% rise in drink sales. In the former six weeks, food sales were down 0.3% and drink sales declined 7.6%.
 
 The group said that its managed sales were “resilient after an exceptionally cold start to spring”. Like-for-like sales across the division for the 40 weeks to 25 May were up 0.7% driven by a 2.1% increase in food sales, which offset a 1.7% decline in drink sales.
 
 The company said: “Trading remained volatile throughout the period with challenging conditions towards the beginning of the quarter offset by more encouraging performance in the latter half, following the return of more seasonal weather. Our focus remains on developing compelling brands and pubs whilst nurturing talent and galvanizing the leadership skills of our teams to deliver a consistently great guest experience and drive footfall.”
 
 It said that it had invested in 64 pubs in this financial year and return on investment remained strong. It has also built three new Wacky Warehouses and extended two of its pubs as it seeks to capture opportunities to “maximise income and enhance value within our existing estate”.
 
 The group said that its leased estate was similarly impacted by the exceptionally cold weather but has recovered since with net turnover up by 1.2% in the last four weeks to 25 May. Net income was down by 2% in this period, which it said reflected the last phase of its rent rebasing process.
 
 Like-for-like net turnover for the eight weeks to 27 April declined 4.0%, with net income down 5.6%. For the 40 weeks to 25 May net turnover was down 1.8% and net income fell by 3.1%.
 
 Spirit said it remained confident of returning the leased estate to stable like-for-like net income in the fourth quarter.
 
 The company has now invested in 60 pubs in the year to date.
 
 It said: “With performance remaining encouraging we have identified further pubs for conversion to our new operating models, which we expect to complete in the final quarter. This will take the trial group to sixteen, eleven of which will be franchise with the remaining five being agreements with premium operators.”
 
 The group has also disposed of a further four pubs in the period, taking the total year to date to 24, for c.£250k per pub. It said that proceeds remain in line with book value.
 
 Mike Tye, chief executive, said: "We are encouraged by this resilient performance despite extremely volatile trading conditions and uncertain consumer confidence. Both Managed and Leased pubs have delivered good growth in turnover after an exceptionally cold start to spring.
 
 “We have the right balance of ingredients for success in the long-term, including our continued focus on delivering a great guest experience, building compelling Managed brands, and an ongoing emphasis on investment and innovation in the Leased estate. We maintain guidance for the full year, but are mindful of the remaining uncertainty around trading in the short-term, which has characterised recent quarters.”
 
 Analyst reaction
 ​Douglas Jack at Numis said: “Full year guidance remains unchanged as the LFL sales and margins outlook for Q4 is good, largely due to easy comps. It also appears likely that the leased estate will recover to flat LFL net income in Q4.
 
 “Managed pub LFL sales are up 0.7% after nine months, undermined by poor weather. Our 2% full year assumption requires LFL sales to average 4.5% in Q4, the largest trading quarter. Q4 should benefit from easy comps relating to the weather and the Olympics as well as initiatives relating to service standards and product range/pricing/marketing. Trading should also benefit from c.90 major refurbishments this year, of which 64 are complete (the slowdown reflects a more selective process).
 
 “LFL net income [in the Leased estate] improved from -5.6% to -2.0% over the same period and is expected to be flat in Q4 due to: rent-rebasing now being complete; easier comparatives; better retail disciplines; use of iDraught dispense systems; and new agreements.
 
 “Despite offering one of the highest growth rates, Spirit has the lowest valuation in its sub-sector on most metrics (with or without the onerous lease provision), prior to considering its £80m of cash tax credits. Thus, we believe Spirit offers an attractive way in to the sector, given a low relative valuation, strong management team and improving prospects.”

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