The weather in the UK may be very hot, but there is still a chilly feel to the economic picture, with consumers remaining cautious and a slowing in Costa Coffee sales growth in a trading statement from Whitbread plc (LON:WTB) showed this today.
In its first quarter update, Costa’s owner reported a 1.1% rise in the coffee chain’s like-for-like sales in the 13 weeks to June 1, broadly matching forecasts.
But that was but down from the 2.0% like-for-like store growth seen for the previous 12 months, which was already a decline from the 2.9% reported the year before that.
READ: Whitbread makes good start to the year, with strong sales at Premier Inn, although Costa Coffee, as expected, sees growth slow
Neil Wilson, senior market analyst at ETX Capital said: “In a heatwave a hot coffee doesn’t quite hit the spot, so Costa-owner Whitbread will be hoping its Cold Brew and Frostino products will catch on.
“They will need to – like-for-like sales growth at Costa continued their slow decline as the nation switches to a wider array of pricier artisan coffees.”
“Nevertheless,” Wilson added, “total sales continue to rise quickly – up 8.7% this quarter and likely to do even better as the company plans to open between 230 and 250 Costa coffee shops and install around 1,250 Costa Express machines this year.”
And he said: “Slowing LFL growth is a concern but a top line growth and a focus on more expensive ‘finer coffee’ should help.”
Premier Inn “doing well”
Wilson also pointed out that Whitbread’s other main brand, budget hotels chain Premier Inn is “doing well”, with its like-for-like sales up 4.7% and total sales rising 9.2% as the company reaps the rewards of opening 9,000 new rooms over the last couple of years.
He noted that occupancy at Premier Inn also rose as Whitbread benefitted from what it admits is a ‘resilient hotel market’.
Meanwhile, Nicholas Hyett, equity analyst at Hargreaves Lansdown thought Whitbread’s trading update looked “pretty solid all things considered.”
He said: “They don’t show the spectacular growth of years past, but the UK business is a more mature animal than it was and that is inevitably going to slow growth.”
The analyst added: “The group continues to set some fairly chunky growth targets for the rest of this year, which could be challenging if the UK economy remains sluggish.
“However, it’s the international business that seems likely to become the long term growth driver. Although there’s little in the way of fresh news this time round, performance remains robust.”
Whitbread investors seemed to agree, with its shares the biggest FTSE 100 gainer in afternoon trade, up 3.71%, or 143p at 3,996p, albeit with the stock having fallen by 4.5% over the past month.
Hyett concluded: “With a PE of 14.7x versus a longer run average of 17.6x, the group’s valuation doesn’t look challenging for that long term growth potential.”