Whitbread still expect to deliver its full year results in-line with expectations.
Costa Coffee sales hit by high street slowdown
- As Whitbread begin its early steps to demerge Costa from the group, the sales of nation’s biggest coffee chain dwindle
- Meanwhile, Premier Inn UK total accommodation sales increased by 4.3% driven by investment in new hotels
- The Share Centre maintains its ‘hold’ recommendation for medium risk investors seeking a balanced portfolio of income and growth
It appears that Brits have woken up and smelt the coffee as tips on how to stop dissipating money have hit home. Whitbread is the latest victim of Britain’s declining high streets with its Costa Coffee business blaming rising costs and falling consumer confidence for its 2% fall in like-for-like sales.
First quarter trading emphasised these problems and CEO, Alison Brittain, remains cautious on shorter-term trading conditions for the UK. Overall, the group saw like-for-like sales in the UK fall 1.3% compared to the year previous. The Premier Inn business’ sales fell 0.9% but total accommodation sales grew by 4.3% driven by investment in new hotels despite a weaker hotel marker in the first quarter.
With fewer shoppers on the high street and a lack of consumer spending, the group has increased its focus on self-service machines and placing its coffee business in more convenient locations with a higher footfall. The company is currently in the process of demerging its Costa business from the rest of the group and has stated that it is currently in “constructive early steps”, a further update on the demerger will be provided with its interim results in October this year.
Expectations for the year remain unchanged as the group is optimistic due to the long-term structural growth opportunities presented by both the budget hotel market and the coffee market, and whilst the group is cautious of shorter-term trading conditions, it remains confident.
Despite its isolated weaknesses, Whitbread’s total sales grew by 3.2% and have made good progress with efficiency savings. The group also highlighted proposed expansion in China; buying out the remaining interest in Costa’s Chinese joint venture will provide the company full control in what is an important growth market.
The shares rose 2.3% on the news this morning. The split, following pressure from an activist investor should increase shareholder value, but it may take a while to happen. The weakening of sales at Costa is a concern, so the shares are no better than a 'hold' for medium risk investors seeking a balance of income and growth.
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