Costa coffee owner Whitbread wary over prospects

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Costa Coffee cup on coffee machineImage source, WHITBREAD

Shares in Whitbread, the owner of Costa coffee and Premier Inns hotels, slid more than 7% after the company said it was "cautious" over its prospects.

Chief executive Alison Brittain said the company was expecting "a tougher consumer environment than last year".

Separately, floor coverings retailer Carpetright said it had seen "tougher trading conditions" in recent months.

Analysts have predicted a slowdown in consumer spending as shoppers' budgets are squeezed by rising inflation.

Last week, official data indicated that UK retail sales volumes posted their biggest quarterly fall in seven years in the three months to March.

Expansion plans

Speaking to reporters, Ms Brittain said: "Indications suggest that there is going to be some constraint on (the) pound in the average consumer pocket with inflation and higher petrol prices and a relatively static wage position."

The downbeat outlook from Whitbread, which also owns Beefeater restaurants and Brewers Fayre pubs, overshadowed news of an increase in profits last year.

In the 12 months to 2 March, underlying pre-tax profits rose 6.2% to £565.2m, with total revenue op 8.2% to £3.1bn.

Costa Coffee's like-for-like UK sales growth slowed to 2% from 2.9% in the previous year, although total sales at the chain grew by 10.7%, helped by the opening of 255 new cafes around the world and more Costa Express machines being installed.

Like-for-like sales at Premier Inn grew 2.3% and the company added another 3,816 new rooms during the year.

Ms Brittain told the BBC that the company was still hopeful of expanding its Premier Inn hotel chain, saying: "We now have 68,000 rooms, but we think we've got line of sight to at least 100,000 in the UK."

She also said that it was too early to make detailed plans for Brexit. About a fifth of Whitbread's 50,000 staff are non-UK workers from the EU.

Media caption,

Costa and Premier Inn boss says it's "too early" to make Brexit plans

Neil Wilson, analyst at ETX Capital trading company, said: "The company is growing sales but at a slower pace than in the past as it struggles to fight off consumer trends at its two key businesses - hotels and coffee.

"One big issue is the growth of artisan coffee - smaller independent outlets are a bit more fashionable these days, which is denting growth prospects at Costa. The other is rise of Airbnb and its ilk, which is crimping growth at the Premier Inn hotel chain."

However, Nicholas Hyett, equity analyst at Hargreaves Lansdown said Whitbread was continuing to "deliver steady growth across both Premier Inn and Costa".

"A downturn in the UK High Street would be painful short term, but it's unlikely to be the end of the world's love of coffee," he added.

Shares in Carpetright were down 5=more than 8% after it warned that the recent slowdown in trade meant profits would be at the bottom end of forecasts.

The retailer said sales at UK shops open for more than a year rose 1.4% in the 12 weeks to 22 April, but this was weaker than the growth of 1.9% seen in the previous quarter.

Carpetright chief executive Wilf Walsh said: "We have experienced tougher trading conditions over the last three months.

"Whilst we remain confident in our turnaround plan, the level of sales growth in our final quarter leads us to expect that full-year profits will be towards the lower end of the current range."