Tough trading hits Costa Coffee and Premier Inn owner Whitbread
Chief executive Alison Brittain said the ‘well-publicised weak retail market footfall’ was harming Costa Coffee.
Whitbread has become a victim of tough trading in the third quarter after serving up lacklustre sales growth across Costa Coffee and Premier Inn.
Costa’s UK like-for-like sales slipped 0.1% during the three-month period and growth at its hotel business was flat, with the group expecting difficult conditions on the British high street to continue.
Chief executive Alison Brittain said Costa’s UK cafes were “highly profitable”, but the “well-publicised weak retail market footfall” was harming its stores – and would do so “for some time”.
On Premier Inn, she said there were signs of “market weakness”, with occupancy and average room rates dropping year-on-year.
However, total UK sales made for brighter reading, with Costa and Premier Inn expanding by 7.2% and 5% respectively for the three months.
Ms Brittain said the FTSE 100 firm was on track to hit its annual targets as it reaps the rewards of a group-wide efficiency drive.
She said: “We remain committed to delivering our strategy to invest in the attractive structural growth opportunities in the budget hotel market and the growing coffee markets, in both the UK and internationally.
“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.”
Focusing on the group, Whitbread said like-for-like sales were up 0.3% and total sales rose 5.8% across the third quarter.
Shares were up more than 1% during morning trading on the London Stock Exchange.
Neil Wilson, senior market analyst at ETX Capital, said: “The same old story at Whitbread as Costa’s slowing like-for-like sales growth in the first half turned into a decline in the third quarter (minus 0.1%).
“Last year LFL sales were running at 2%. The drop in Costa sales seems to be down to shoppers shunning the high street, resulting in lower footfall for stores, as well as pressure from the artisan coffee retailers who are gaining market share.
“At present it does not appear that higher-margin finer coffee products as well as the newly launched Cold Brew and Frostino lines are helping to improve sales and margins.”
The update comes amid reports on Wednesday that activist investor Sachem Head wants Whitbread to hive off Costa Coffee from its hotels and restaurant arm to increase the value of its individual businesses.
Whitbread announced at the beginning of the month that former ITV boss Adam Crozier would become chairman of the company, with Richard Baker retiring in February.