Leisure group Whitbread set to extend sales run

Whitbread is expected to continue its record of strong growth but Debenhams will be under pressure to deliver better news after profit warnings.

The North East's pub sector is in 'robust' health according to a Newcastle commercial property specialist
The North East's pub sector is in 'robust' health according to a Newcastle commercial property specialist

Leisure group Whitbread is expected to continue its record of strong growth this week but Debenhams and Majestic Wine will be under pressure to deliver better news after recent profit warnings.

Britain’s burgeoning coffee shop culture will continue to benefit Costa owner Whitbread when it reports a solid first quarter trading update on Tuesday.

Brokers at Morgan Stanley forecast that Costa will grow like-for-like sales by 3%, alongside 8.5% like-for-like growth at its Premier Inn budget hotels and a 3.5% rise at its Beefeater and Brewers Fayre pubs and restaurants.

Overall growth of 5.5% will be slower than the previous quarter’s 7.2% but in line with trends seen over the last year.

Costa, which has 1,755 UK stores and is a strong driver of the group, is set for a slowdown on the previous quarter’s 7.3% gain but this is due to tougher comparatives from last year, when sales benefited from unusually cold weather.

Brokers expect Whitbread, which employs 43,000 staff and serves 22 million customers a month, to continue to benefit from the recovering UK economy with consumers more willing to spend on leisure products and services.

Analysts at Barclays said: “Whitbread is an excellent investment for the UK marcro economic recovery theme.”

This particularly applies to the hotel market, with industry figures pointing to strong trading in both London hotels and the regions during March and April.

In April 2011, the company pledged to grow the number of Premier Inn rooms in the UK by around 50% to 65,000 by 2016. It extended the target in April to 75,000 by 2018, with a further 4,500 rooms in the current financial year.

In April, Whitbread reported a better-than-expected 16.5% surge in annual underlying pre-tax profits to £411.8m on revenues of £2.29bn.

When the group reported its annual results chief executive Andy Harrison, said the first two months of the new financial year had started positively, but warned that comparatives will become tougher in the second half of the year.

Whitbread said Costa’s worldwide sales grew 19.4% to £1.2bn last year, and it plans to grow this to £2bn by 2018, with UK stores climbing to 2,200 outlets during this period.

Majestic Wine is expected to reveal flat annual results today after the retailer issued a surprise profits warning earlier in the year.

The market predicts the firm will turn in a pre-tax profit of £23.6m on sales of £280.6m, which comes after it issued a March trading statement where it said sales and profit would be “broadly in line with the previous financial year”.

The firm, which has 193 stores, said that although like-for-like sales rose 2.8% over the 10-week Christmas period, it has experienced challenging trading conditions since the start of the 2014 calendar year.

The business added that it also expects flatter profits growth in 2015 because it plans to invest in larger offices, a warehouse and its website.

The firm, which was launched in Wood Green north London in 1980, also believes it can expand to 300 stores, though it has not given a time frame.

At the March profits warning chief executive Steve Lewis admitted the group was “disappointed” by the firm’s performance, but denied it was being dragged into the crisis affecting the major supermarket chains.

Rather than trading down, consumers are instead “buying slightly less wine, but better wine”, Mr Lewis said. Brokers at Panmure Gordon are inclined to believe him.

They called the March warning “a blip” and said the range of investment the company is making would keep up the firm’s long-term growth characteristics.

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