Whitbread begins £0.5bn share buyback as outlook clouds

Like-for-like sales for the Premier Inns chain in its core UK business were down 0.2% in the third quarter, after 0.7% growth in the second quarter and a 0.3% decline in the first. For the 39 weeks of the year to 29 November, LFL sales were up 0.1%.

Total sales, which includes the effect of the company's plans of creating a portfolio of 100,000 rooms in the UK with net number of hotel rooms swelled by 438 in the quarter to 74,508, were up 3.5% in the quarter, down from 4.8% in the second and 4.3% in the first.

Revenue per available room fell 1.3% on a LFL basis to £52.55 and occupancy dropped 140 basis points to 80.9%.

The quarterly performance reflected a strong central London market and a weak regional market, said chief executive Alison Brittain. The start of the fourth quarter has seen a continuation of regional weakness, with a strong central London market.

Sales in the Food & Beverage division, comprising UK pub-restaurant brands such as Beefeater and Brewer’s Fayre, fell 1.5% on a like-for-like basis in the third quarter and are down 2.2% for the year to date. On a total basis sales were up 0.5% for the quarter but down 0.4% for the year to date.

Including international sales, which comprises one hotel in Germany and one in partnership with Emirates in the Middle East, accommodation sales for quarter were up 3.5%.

Total group sales were up 2.4% for the third quarter and 2.5% for the year to date.

Britain said Premier Inn has made "good progress" this year, with the total sales growth and strong results from the efficiency programme, means Whitbread is on track to achieve full year expectations for the current year.

"We are cautious about the macro environment for the next financial year due to increased uncertainty and continuing high inflation. Although we are confident in our ability to create value from ongoing investment in the UK and increasing investment in international growth, in this environment we expect underlying profit before tax in FY20 to be consistent with this year."

Flat, in other words. This is due to the cost savings programme undershooting previous guidance by £20-30m, likely to be "short-term operational dis-synergies" following the sale of Costa, higher international costs, a weaker UK regional hotel market.

Shareholders are likely to still be in a cheery mood after the sale of Costa to Coca-Cola for £3.9bn was completed on 3 January, much sooner than expected. This has allowed an "initial" share buyback of up to £500m to begin. Further details about plans to return a "significant majority" of the net cash proceeds to shareholders will be given at the capital markets day on 13 February, Brittain added.

There will also be more detail on the opportunity in Germany, about Brittain said she and the board continue to be excited, with a second hotel due to open in Hamburg next month as part of plans to convert a pipeline of 34 hotels in the country.

Shares in Whitbread, which rose by around a quarter last year, fell almost 2% to 4,688p on Thursday morning.

Broker Shore Capital said its current estimate is for circa £475-480m operating profit for the current year and had been expecting around £500m for 2020, which is now going to be downgraded due. "We see the guidance for 2020 as disappointing."

After repayment of short-term debt, pension and funding the proposed German acquisition we estimate the group could return circa £3.0-3.2bn to shareholders, equivalent to roughly £17/share.