Whitbread plc (LON:WTB) shareholders woke up and smelled the coffee this morning, and it was not a good experience.
Shares of the Costa Coffee owner fell 4.3% in the first hour of trading, but it was not the coffee shops that were not the problem; it was the restaurants business.
Like-for-like (LFL) sales in the 13 weeks to 1 December in the restaurants arm, which includes brands such as Beefeater and Brewer’s Fayre, fell 1.5% from a year earlier.
Costa Coffee had a caffeine rush, with LFL sales up 4.3% year-on-year, raising the (fiscal) year-to-date growth rate to 3.0%.
The growth rate had fallen in the previous four quarters, raising fears that the coffee bandwagon was hitting the buffers.
The group said Costa had benefited from the timing of the quarter-end, which included a strong start to Christmas trading; had the cut-off point been 26 November, the growth rate would have been lower at 2.9%.
LFL sales at the Premier Inn hotels business were up 1.8% year-on-year, but revenue per available room (revpar) was down 1.3% from a year earlier, suggesting that with the number of rooms up by 9.7% since the start of the financial year, some cannibalisation of revenues may be taking place.
For the group as a whole, LFL sales were up 1.7%, narrowing the gain for the first 39 weeks of the year to 1.9%.
“Trading since the end of the quarter is such that we expect to deliver full year results in line with expectations,” said Alison Brittain, chief executive officer of Whitbread.
Shore Capital stuck with its ‘buy’ rating and 4,000p price target.
“Divisionally, Premier Inn LFL revpar growth of -1.3% may disappoint, driven by 4% decline in London, under-performing both the total market and the mid-scale segment, in part impacted by its room extension programme; however, the strength of Costa is very encouraging against concerns over the prospects for the operation with the likely de-rating of implied valuations responsible for a significant proportion of the fall in the share price over the last year or so,” said Shore’s Greg Johnson
David Jennings at Irish broker Davy said the results were ahead of expectations for the period.
“These results follow what was an encouraging Capital Markets Day in November and will provide further support to a stock that has already recovered c.6% year-to-date,” Jennings predicted – incorrectly, as it turned out.
“We continue to believe in the structural growth story of Whitbread and that its market-leading brands will gain share in its fast growing markets – budget hotels and branded coffee chains,” it said.
Mark Brumby of Langton Capital said: "Q3 was clearly difficult for hotels but there are some signs that the market improved in November and December and Christmas should have been good."
"Restaurants are finding the going heavy and, though Costa’s growth is moderating, it remains an engine for further expansion," he added.