Hotels, restaurants and coffee shops group Whitbread plc (LON:WTB) saw UK like-for-like sales fall year-on-year in the three months to the end of May.
Overall, the group saw like-for-like (LFL) sales in the UK fall 1.3% compared to a year earlier. The Premier Inn business’s LFL sales fell 0.9% while the Costa Coffee business, which is set to be spun off as a separate company, saw LFL sales fall 2.0%.
READ: Whitbread's Costa spin-off makes sense but challenges remain, say analysts
Thanks to new outlets opening the last year, however, Whitbread saw total sales grow 3.5% year-on-year in the period, with Premier Inn up 2.5% and Costa up 5.2%. Adding in international sales saw the group’s sales growth reduce to 3.2%.
"Whitbread has started the year growing total group sales by 3.2%. We expect to deliver in-line with expectations for the full year and we continue to make strong progress on our efficiency programme,”said Alison Brittain, Whitbread’s chief executive.
The company said constructive early steps have been taken in preparation for the demerger of Costa and good progress continues to be made on the core infrastructure and efficiency work that was already underway. A further update on the demerger will be provided alongside the interim results in October 2018.
Costa sales drop. Combination of factors but I also think they've expanded too rapidly https://t.co/f5wdPKDNWh
— lomelindi12 (@lomelindi12) June 27, 2018
"Whitbread results were pretty well in line and guidance for the full year is unchanged after what was a decent quarter overall; however, the continued weakness in like-for-like sales growth is a concern,” said Neil Wilson, the chief market analyst for Markets.com.
“Costa UK sales growth of 5.2% was driven by new stores and Express machines – we note particularly strong growth in Express of 9.6% in the quarter - but LFL declined by 2%, which management put down to the 'general retail market conditions'.
What's left to like about Whitbread once Costa Coffee is hived off?
“We have been seeing and warning about declining LFL at Costa for some time and this 2% drop is a concern about how the brand is performing on the high street. Lower footfall is one thing, but we continue to see Costa facing tougher competition from artisan coffee retailers who are taking market share,” Wilson added, while noting there was a much better performance for Costa’s Express offering, where machines can be installed at high footfall locations where competition is much lower.
“Growth in China was solid and remains an attractive feature of the brand,” Wilson ventured.
As for Premier Inn, this was a similar story to Costa, Wilson opined.
“The picture seemed to be one of excess capacity and a softer London market versus strong prior year comparatives,” he noted.
“The question is with food & beverage also lower on a LFL basis, what's left of the Whitbread rump after you spin out Costa?" he wondered.
Shares in Whitbread were up 1.3% at 3,944p in early deals.
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