Whitbread's Q1 results continued to underline its exposure to UK corporate and consumer sentiment, as the Easter holidays and royal wedding saw sales growth for the group soften on the year.
However, the group saw shares increase by 7% following the announcement of its results, partially on reassurances from the company that the Premier Inn and Costa brands were trading "encouragingly well" since the extended break, but also as a result of relief that the numbers were not lower.s
The view was echoed by Nigel Parson at Evolution Securities, who said in a note: "The recent soggy share price performance suggests the market was braced for bad news from Whitbread but trading remains consistent with the outlook at the prelims and the stock could register a bounce."
Total like-for-like sales growth at Whitbread was 1.7% for the period, representing a slowdown on the rate of 7.6% seen a year ago, although much of that was attributed to the group's troubled pub restaurant division, where like-for-like sales dropped 1.4%.
Whitbread's shares are vulnerable to the uncertainty over spending in the UK. Earlier this month they fell after a note from Barclays Capital warned that a "prolonged period of uncertainty" was likely to affect the group over the next six to 12 months.
The brand, along with its budget rivals, has gone to efforts through its marketing to push the image of offering value for money and has, under former easyJet CEO Andy Harrison, pursued direct competition on price with Travelodge, trialling £19 rooms and pursuing dynamic pricing.
For the budget sector, one of the key attractions for the consumer was the argument that it was a cheap alternative to the friend or relative's spare bed/sofa/tent. Now that the leisure market is watching its pennies and rediscovering camping, Premier Inn must look to the business market, which it has targeted with specific corporate accounts.
The business traveller market now makes up two-thirds of Premier Inn's sales and suffered over the recent break. In a call to analysts, Harrison said: "That had a negative impact, particularly on our business customers, who had a two-week extended holiday."
Looking at the leisure market, he said: "There was maybe a bit of nervousness. All investors are concerned about the UK consumer and the business is exposed to the UK consumer. Consumers are clearly under quite a lot of pressure.
For the quarter, Premier Inn's like-for-like revpar grew by 2.4% with occupancy up 0.2 ppts and rate up 2.2%. However, the split between London and the provinces was marked, with revpar up 8.8% in London, but 1.2% in provinces.
Harrison added: "Although the consumer environment remains challenging, we are encouraged by the performance after the royal wedding."
Trading improved in the final six weeks of the quarter, but would not go into specifics, commenting that the improvement was across all parts of the business, not just at the London hotels.
Harrison said: "Generally London is stronger than the provinces. We're seeing positive revpar in the provinces but not nearly as strong as we're seeing in London. Since Easter, our two growth engines – Costa and Premier Inn – are trading encouragingly well.
"We are seeing positive rate in London and positive rate in the provinces – a lot more positive in London," said Harrison. "Dynamic pricing means we get the best price in our local markets and I would say we are still only half way up the learning curve with that. We are still targeting 80% occupancy and dynamic pricing is about giving us the best ARR to achieve that occupancy goal."
The division between London and the regions remained a concern for some analysts, with Simon French at Panmure Gordon saying in a note: "The commentary suggests the Premier Inn and Costa performances are on a rising trend which should reassure the market. We will likely see a bounce in the shares … but remain cautious on UK regional hotel revpar trends."
The CEO could not comment on its rivals, saying: "We don't have any of the comparative data at that moment for the hotel market, the Premier Inn numbers are reasonably good, but we can't comment against the market. ARR has been moving up."
The group said sales at hotels open more than a year were up 3% in its first quarter to 2 June, with the brand still planning to grow Premier Inn in the UK by 50% to at least 65,000 rooms in the next five years. Harrison said that margins were consistent with the prior year despite some cost inflation and those watching the brand expect that the expanded roll-out would compensate for more muted like-for like-sales, although some concerns remain.
Harrison also seemed to be erring on the side of caution, concluding: "The period since the royal wedding is a month and I see it as too short a period to draw any long-term conclusions."
HA Perspective: Given the now dominant role of business travellers to Premier Inn, the extended Easter and Royal Wedding was only ever going to be a problem. In fact, wider economic data has shown that the period resulted in something of slowdown in the whole service sector.
There is a clear message here for what the Olympics are likely to bring to the UK hotel industry. At a presentation in June given at the Boutique Hotel Summit held in London, STR Global's Sarah Duignan warned that hoteliers are likely to be disappointed with the extra visitors coming for an event.
Duignan said that the three most recent Olympics – Beijing, Athens and Sydney – had all resulted in fewer extra visitors than had been expected. Around half as many actually turned up compared to projections in the case of Athens and Beijing.
Despite this, STR are still forecasting a rise in UK revpar of 5.5% in 2012, up from the 3.5% expected in 2011.