Premier Inn: Q3 numbers show ‘challenging’ growth in UK
Premier Inn: Q3 numbers show ‘challenging’ growth in UK
18 JANUARY 2018 9:25 AM

Premier Inn’s parent company Whitbread PLC is soberly celebrating Q3 growth in a challenging U.K. market and more noisily its 275th birthday as rooms expansion continues domestically and internationally.

DUNSTABLE, England—United Kingdom group Whitbread PLC, which has in its portfolio economy hotel brands Premier Inn and Hub by Premier Inn, saw total sales growth company-wide rise 5.6% for the 13 weeks up to 30 November, 2017, and 6.8% year to date, according to its executives.

Its hotel division saw third-quarter sales increase 5%, up 6% year to date, which executives said was due to investment in new hotel capacity.

Like-for-like sales growth was more muted. Q3 numbers were completely flat numbers for the hotel division, increasing 2.4% for the full year, and up 0.3% for the entire company. That is evidence, according to CEO Alison Brittain, of tough market conditions, a euphemism for Brexit and the fall in the strength of the U.K. pound sterling.

During the conference call, Brittain referred to a weakening for budget hotels, particularly in London, and a very challenging October, saying there is “noticeable inflationary pressure in our sector,” but she added “despite short-term pressures … overall we continue to deliver good growth.”

Over its entire U.K. portfolio, occupancy was down 1.4% to 83.3%, according to the news release accompanying the results.

Whitbread’s mood during the analyst call sounded buoyant, as executives said the company still remained confident of meeting full-year expectations.

Nicholas Cadbury, group finance director, said while Whitbread did not yet wish to state numbers for any financial guidance for full-year 2018, revenue per available room, in his view, tends to move in tandem with gross domestic product growth.

“(In 2017), we saw £70 million ($97 million) to £80 million ($110.9 million) in terms of inflationary headwinds, with £55 million ($76.2 million) of that being in Premier Inn, and we expect 2018 to have similar inflationary pressure,” Cadbury said.

“But we will continue to grow in our core markets for Premier Inn. It might be a little tougher out there, but we will continue to invest,” Cadbury said, who added investment will occur in China next year.

“GDP is still looking good,” Brittain said.

Maturity over supply
Brittain added that despite Premier Inn adding many rooms, its hotels matured rapidly.

“One of the reasons for that is our recent refreshed network planning model, which allowed us to see what our pipeline would be, where growth can come from. It can pinpoint growth almost to a postcode capacity, and it has shown us that there is good runway beyond 85,000 rooms,” Brittain said, referring to the brand’s pipeline goal of that many keys by 2020.

“We’re not driving for numbers (of keys) but maximum returns. There will be continued expansion of the hotel business. Whether that happens internationally or in the U.K., or both,” Brittain said.

Cadbury said Premier Inn had opened 3,200 rooms in the first nine months of 2017.

Brittain said the pipeline of hotels in Germany was now 10, with the recent signing in the city of Dortmund.

Cadbury said Premier Inn added 2,500 rooms in London in the last two years, a 25% increase in capacity, “while maintaining occupancy.”

In the U.K., its room count now numbers 71,282.

“We front-loaded. Usually that (type of room openings) happens at the end of the year,” Cadbury said, who added he believed that that expansion had a 1.5% drag on 2017 like-for-like sales.

“But, again, our demand matures fairly quickly, so these openings will give us good returns,” Cadbury said.

That happens despite increased supply, Cadbury said.

“In London, this year supply (growth) was approximately 4.5%, and 1.5% regionally. In 2018, in London, we expect (supply) will moderate to approximately 3% to 3.5%,” Cadbury said.

Brittain and Cadbury referred to the hotel division’s strategic investment program that they said would leverage strength to permit growth in a more focused manner internationally, notably in Germany and China.

Like-for-like U.K. numbers for Q3 also showed average daily rate down 0.2% to £64 ($88.69) and RevPAR down 1.6% to £53.30 ($73.87).

Split sides
They also referred to chatter about one activist shareholder, believed to be hedge fund Sachem Head, which, according to reports, is urging Whitbread to split its coffee and hotel divisions.

“We have open and regular conversations with our investors, who look to us to increase shareholder value. We are always open to discussion as to the best way of doing that,” Brittain said.

According to the London Stock Exchange, Whitbread PLC has a market capitalization of approximately £7.07 billion ($9.76 billion).

At press time, Whitbread PLC shares spiked 1.9% on release of its latest numbers. The Baird/STR Hotel Stock Index was 4.5% for the same time period.

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