Whitbread growth rolls on as Costa offsets Premier Inn revpar slump

Whitbread, the owner of Costa coffee and Premier Inn, reported third quarter revenue rose and that it will meet full year expectations, as it remains on track with its growth plans.

In the quarter ended 1 December 2016, sales increased 8.6% and rose 1.7% on a like for like basis, compared with the same period the previous year.

For the year to date sales were up 8.3% and LFL sales climbed 1.9%.

Sales from Premier Inn grew 9.2% and LFL sales increased 1.8% benefitting from the company's hotel extension programme which, as expected, diluted LFL revenue per available room, which fell 1.3%. Although the company’s restaurants business, which included Beefeater Grill and Brewer’s Fayre, reported that LFL sales fell 1.5%.

This follows Restaurant Group, the owner of Frankie and Benny’s and Garfunkels, which said on Wednesday that that sales were down 5.9% in the last quarter of 2016.

Since the start of 2017, Whitbread has opened 15 hotels in the UK, increasing the number of rooms available by 9.7%, while maintaining occupancy at 84.5%. The company said that it remains on track to open about 3,700 new Premier Inn rooms in the UK and its committed pipeline stands at around 14,000 UK hotel rooms.

However a 1.3% decline in LFL revenue per available room (revpar) was likely to disappoint investors, driven by 4% decline in London, which underperformed both the total market and the mid-scale segment, in part impacted by the room extension programme.

But on the bright side, Costa generated sales growth of 12.5% and LFL sales rose 4.3% which was supported by new advertising and promotional campaigns and it also benefitted from the timing of the quarter, which included a start to the Christmas period.

The company is to open 230-250 new Costa coffee shops worldwide and install at least 1,500 new Costa Express machines, after Whitbread surpassed its previous guidance of 1,250 in the current financial year.

Chief executive Alison Brittain said the company’s strategy is to carry out a modest number of sale-and-leaseback transactions for its property business in order to recycle capital into strong returning new growth opportunities, and completed two transactions in December, with total sale proceeds for the year expected to be in the region of £200m.

Brittain made no detailed comment on margins and cost cutting, which may have disappointed some investors, with the shares down almost 6% to 3,840p after half an hour of trading on Thursday.

Laith Khalaf, senior analyst, Hargreaves Lansdown, said that all is not well in the UK restaurant sector, with Resurant Group and now Whitbread, two big participants, saying that sales turned down at the tail end of last year, as costs are rising thanks to weaker sterling and higher commodity prices, while the return of inflation is likely to temper consumer demand for eating out.

He said: "For Whitbread however, Premier Inn and Costa are more important than their restaurant businesses, and these two brands continue to grow sales. Costa in particular is going great guns, and Whitbread are continuing to roll out more coffee shops and coffee machines to slake the nation’s seemingly bottomless thirst for caffeine.

"Premier Inn is likewise undergoing an expansion programme which has boosted overall sales, though the pace of growth has slowed, which has probably prompted today’s share price fall. Revenue per room is falling, particularly in London, where the hotel market looks to be softening, a trend that could be exacerbated if Brexit does lead to city jobs leaving the capital as a result of businesses moving operations to Europe."

He added that times look like they may be getting tougher for Whitbread, but it has a strong balance sheet and two market-leading brands, which have helped it deliver sales growth in a variety of economic conditions.

Shares in Whitbread were down 4.58% to 3,873p at 0951 GMT.