Morning Note: Market news and updates from Whitbread and Richemont.

Market News

US equities rallied last night – S&P 500 (1.8%); Nasdaq (2.5%) – on the back of slightly softer inflation numbers and positive bank sector earnings. December Core CPI rose by 3.2%, vs. 3.3% forecast. Notably, inflation for shelter registered its lowest reading since January 2022. The bond market reacted very positively – the 10-year Treasury yield fell by 14 basis points to 4.65%, while gold rose to $2,698 an ounce. However, while Fed members expressed confidence that inflation will continue to slow, they cautioned that restrictive policy is still necessary.

The Banks earnings season got off to a good start, leading to positive share price moves: JPM (+2%), Citi (+6.5%), Goldman (+6%), Wells Fargo (+7%), and BNY Mellon +(8%). Morgan Stanley and Bank of America report today.

On the geopolitical front, Israel and Hamas agreed to a ceasefire deal that will start on Sunday and last for six weeks, Qatari and US officials said. 33 hostages will be released, while Israel will withdraw from populated areas of Gaza and free hundreds of Palestinian prisoners.

In Asia this morning, equities tracked the US higher, albeit more modestly: Nikkei 225 (+0.3%); Hang Seng (+1.1%); Shanghai Composite (+0.3%). The yen climbed on Bank of Japan rate-hike expectations.

The FTSE 100 is currently trading 0.6% higher at 8,350. Companies trading ex-dividend today include Compass Group (1.20%) and Diploma (0.98%). Gilt yields fell back sharply to 4.73%, while Sterling trades at $1.2205 and €1.1852. The Bank of England’s Taylor has called for interest rate cuts to prevent a hard landing for UK, warning of a recession if officials act too slowly.

Brent Crude rose to $81 a barrel as the IEA warns on Russia curbs and stockpiles ebb.

Source: Bloomberg

Company News

Whitbread has today released a trading update for the 13 weeks to 28 November 2024, the third quarter of its financial year to end-February 2025. The statement highlights positive strategic progress and continued confidence in the full-year outlook. In response, the shares are down 1% in early trading.

Whitbread is the UK’s largest operator of hotels (Premier Inn) and restaurants (Beefeater, Brewers Fayre, Table Table and Bar + Block). Premier Inn has over 850 hotels and more than 85,000 rooms across the UK and Germany. A joint site model means that more than half of the group’s hotels are located alongside its own restaurant brands. Overall, the business is expected to benefit from the lack of branded hotel supply growth and permanent decline in the independent sector.

The strategy – Accelerating Growth Plan – is seeking to optimise the food and beverage offer through converting 112 and exiting 126 branded restaurants. The group is also planning to grow its estate to 98,000 rooms by FY2030, as it progresses towards the long-term potential of 125,000 rooms across the UK and Ireland. The 5-year plan is set to deliver incremental profit of at least £300m by FY2030 and release more than £2bn for shareholders through a combination of dividends and share buy-backs

During the latest quarter, total group sales were down 2% to £763m, held back by the expected reduction in UK food and beverage sales as a result of the Accelerating Growth Plan.

Total UK Premier Inn accommodation sales were broadly flat versus last year and 51% ahead of pre-pandemic levels (i.e. FY2020). Like-for-like sales were down 3%. RevPAR (revenue per available room) fell by 2.5% to £68.12, with good occupancy (83.7%) and average room rate of £81.35. The group is competitively well-placed to outperform other budget branded and independent operators, as both have become increasingly financially constrained. In the latest quarter, the group enjoyed continued outperformance versus the wider midscale and economy market with a RevPAR premium of £6.24.

UK food and beverage LFL sales fell by 1% year-on-year, performing in line with management expectations reflecting the impact of the Accelerating Growth Plan.

In Germany, total accommodation sales were up 23% (+19% LFL), led by the increasing maturity of the estate and commercial initiatives. Total estate RevPAR increased to €71, with the more established hotels RevPAR at €79, outperforming the wider midscale and economy market. Food & Beverage sales were up 21%.

The group’s strong operating cashflow funds the ongoing investment in both the UK and Germany whilst maintaining a healthy balance sheet – net cash less lease liabilities was £370m at the last balance sheet date at the end of August. The £100m share buyback was completed in November.

Whilst forward visibility in the UK remains limited, the favourable supply backdrop, together with the group’s brand strength and commercial initiatives, means management are confident that the business can continue to outperform the market. In Germany, the business remains on-track to break even on a run-rate basis this year.

The current quarter has got off to a positive start – in the six weeks to 9 January 2025, total UK accommodation sales were up 2% and total Germany accommodation sales were up 37%.

Looking further ahead to the financial year to February 2026, there is no change to the Accelerating Growth Plan guidance and the company expects to fully reverse the FY2025 PBT negative impact of £20m to £25m. Including the impact of the UK Budget, gross UK cost inflation is expected to be between 5% and 6% on a £1.7bn cost base. However, with efficiencies of £50m, net UK cost inflation is expected to be between 2% and 3%.

Source: Bloomberg

Richemont has this morning released an update on trading for the third quarter of its financial year which highlighted strong performance. In response, the shares have been marked up by 14% in early trading.

Richemont is a Switzerland-based luxury goods group which generates annual sales of around €20bn, split between retail, wholesale, and online distribution. The group owns a portfolio of leading international ‘Maisons’ which are recognised for their distinctive heritage, craftsmanship, and creativity. Jewellery Maisons include Buccellati, Cartier, and Van Cleef & Arpels. Specialist Watchmakers account for 16% of sales. Fashion & Accessories ‘Maisons’ (termed ‘Other’) include leather goods, clothing, and writing instruments, etc. This division now includes Watchfinder, a leading omni-channel platform for premium pre-owned timepieces. The group expects to complete the sale of its stake in YOOX Net-A-Porter (YNAP), the leading online luxury retailer, in the first half of 2025.

The company’s products are discretionary purchases. Currency movements, and their impact on tourist flows, can also have an impact on sales at the regional level. As a result, sales were impacted by the pandemic and remain vulnerable to a global economic downturn. Over the last year, the industry has been grappling with its lowest sales growth in years as shoppers, beaten down by economic uncertainty and high prices, have cut back on discretionary spending.

However, in the three months to 31 December, sales were up by 10% at constant exchange rates (CER) at €6.2bn, the highest ever quarterly figure and above market expectation for growth of only 1%.

By distribution channel, Retail sales increased by 11% at CER, led by the Jewellery Maisons. Wholesale rose by 4%, while Online Retail rose 17%. As a result, online sales now account for 7% of group sales. By segment, growth was robust at the Jewellery Maisons, up 14% at CER to €4.5bn. Specialist Watchmakers fell by 8%, while the Other division grew 11%.

The group achieved growth at CER in all regions except Asia Pacific (-7%), driven by challenging demand in China (-18%). Elsewhere, the Middle East & Africa grew by 20%, while the Americas rose by 22%. Japan and Europe were both up by 19%.

As expected, today’s announcement was a sales update, with no disclosure on profitability. We note that the business generates a high gross margin, helpful to cushion against increased costs. The group did highlight a robust net cash position at 31 December of €7.9bn.

Source: Bloomberg