Improving UK economy boosts Whitbread sales

Originally published in The Financial Times

The improving UK economy underpinned a rapid expansion of Premier Inn hotels and the Costa Coffee shop chain to boost sales at Whitbread.

The hotels-to-cafés owner reported a 4.3 per cent rise in like-for-like sales in the quarter to the end of November, and an almost 14 per cent increase in overall revenue, driven by both the Premier Inn and Costa chains as well as an improved performance from its restaurants. The group said it remained on track to deliver full-year results in line with expectations.

The improved consumer outlook has spurred more people to buy coffee in its Costa chain across the UK, while the recession has helped add business traveller numbers at budget hotel chain Premier Inn. The UK’s largest hotel chain by number of rooms generates more than half its sales from business customers, particularly outside London.

Analysts at Barclays have said Whitbread is “a key beneficiary of the recovery”.

Sales at Premier Inn grew 12.9 per cent after opening 22 hotels this year with 2,718 rooms, including two international sites. Total sales at Costa rose more than a fifth for the year to the end of November to £882m, again on the back of a rapid rollout of 246 stores worldwide, including 133 in the UK and 54 in China, bringing the number of outlets to 2,773.

Whitbread plans to add roughly 3,500 new rooms across the Premier Inn chain, and open 300 Costa stores and about 850 Costa Express kiosks by the end of the company’s financial year in April.

By 2018, Whitbread plans to increase the size of Premier Inn by 45 per cent to about 75,000 UK rooms and roughly double the sales of Costa to about £2bn.

Although the recovery is often characterised as being focused on London, Andy Harrison, chief executive, said the business “was clearly growing outside London”.

The restaurant division, which operates brands such as Beefeater Grill and Brewers Fayre, fared less well, however, affected by the weather and the rising costs of food and wages. Whitbread said the restaurant market “continues to be challenging, particularly outside London”, but still reported a like-for-like sales growth of 1.8 per cent in the quarter and an increase in covers of 0.7 per cent.

Mr Harrison said Costa’s performance has also been weak in a few markets, such as Poland, where he blamed the imposition of VAT on milk-based products.

He said he was “excited” by the group’s expansion across cities in China. Costa Asia sales grew by 53.5 per cent to £51.9m, with slightly improved like-for-like sales growth in China for the quarter.

Shares in the group, which have risen almost 50 per cent in the past year, fell 1.3 per cent to £34.80 in afternoon trading.

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