Costa and Premier defy economic gloom and consumer downturn

By SCOTT REID
Published on 23/10/2012 19:45

WHITBREAD, owner of Premier Inn and coffee chain Costa, expects its sales growth to moderate over the rest of the year after market-beating performances from its two top brands in the first half.

Pressure on consumer spending means that underlying sales growth is likely to be shy of the 4.3 per cent like-for-like gain achieved in the six months to 30 August.

Many leisure operators and retailers have been struggling amid the squeeze on disposable income, although budget hoteliers and coffee shops have been holding up reasonably well as people splash out on the odd affordable treat.

Unveiling an 11 per cent hike in interim profits, chief executive Andy Harrison said: “In the first half we saw Premier Inn have a small benefit from the Olympics, that won’t be repeated.

“Costa Coffee had a small benefit from the wet summer, and our restaurant business has also benefited from relatively weak comparatives.

“It was a really good first-half performance but there were a couple of things that gave us an extra lift… we see the background consumer markets that drive our business are pretty flat.”

Profit before tax came in at £193.4 million on total revenues up 14.2 per cent to just above £1 billion. The interim dividend was raised by 11.4 per cent to 19.5p.

Analysts at Panmure Gordon maintained a “hold” rating on Whitbread’s shares, saying: “We remain cautious on current trading and the increasingly competitive environment in budget hotels.”

Sheridan Admans, investment research manager at the Share Centre, said: “Despite Whitbread being on target to meet its growth plan and the attractiveness of its business model, we continue to recommend investors ‘hold’ in these challenging times as we believe the potential is currently reflected in the price.”

Whitbread, which has more than 40,000 staff at 2,500 sites in the UK, said Premier Inn had benefited from a shift towards “strong branded hotels” as it overcame a decline in the wider market with growth of 2.4 per cent in revenue per available room – a key industry measure.

Premier, which has benefited from an advertising campaign featuring comedian Lenny Henry, opened a further 1,500 rooms in the period, taking its total to 49,020.

It has plans to extend this figure to 65,000 rooms by 2016.

The group said Costa delivered an “outstanding performance”, with underlying profits up 30 per cent to £36.1m. The figure for Whitbread’s hotels and restaurants, including Beefeater and Brewers Fayre, rose 8.5 per cent to £181.3m.

Harrison said the firm had not seen any “demonstrable

impact” from the bad headlines its rival coffee chain Starbucks has attracted over its UK tax affairs.

“Every consumer including me has the right to choose Costa over Starbucks and that’s what I would recommend,” he said.

Harrison said sales had also been boosted this year by ice cold coffee and British-themed cake and biscuits ranges.

Costa is on track to open 350 additional stores worldwide this year, half of which will be in the UK.