Whitbread warns tough UK trading conditions brewing

Hotel sales overall were flat, with like-for-like sales growth in the UK Premier Inn hotel business up 0.5%, while sales at the Costa coffee chain fell 0.1%.

Chief executive Alison Brittain said "well-publicised weak retail market footfall" was negatively impacting Costa's high street stores’ like-for-like performance, adding that she expected this to continue "for some time”.

The numbers will reignite calls for Brittain to spin off Costa. Activist investor Sachem Head took a 3.4% stake in the company last month and is reportedly pushing for the company to split up its assets.

At Premier Inn, Brittain said there were "signs of market weakness, most notably in London, with year-on-year declines in both occupancy and average room rate".

"Our performance in the quarter moderated as the budget hotel market weakened and we had a particularly challenging October," she said.

"We do expect the tough UK high street environment and inflation in our sector to continue to pose challenges in the year ahead. However, we have good momentum in the delivery of our plan to enhance our UK market leadership positions, create an international business of scale in Germany, China and Costa Express, and develop a more efficient infrastructure."

"This will create further customer loyalty and deliver long-term growth in earnings and dividends and a strong return on capital."

ETX Capital senior analyst Neil Wilson said while Whitbread results would always prompt "the usual round of breakup chatter" the decline in third quarter like-for-like sales and pressure on the UK high street "may indeed make this the time for Whitbread to at least look at its options".

"Break up rumours could support the share price even in the face of weaker like-for-like sales growth,” he said.