Leisure giant Whitbread (WTB) is suffering a double whammy of cooling coffee sales and hotel competition, as another disappointing trading update sends the shares down 2.3% to £39.58.

The Premier Inn and Costa owner has reported like-for-like sales growth of just 3.2% in the 11 weeks to 11 February, with total sales up 7.7%.

This compares with like-for-like growth of 3.5% and total sales growth of 10.4% in the previous quarter.

WHITBREAD - Comparison Line Chart (Rebased to first)

Results for coffee chain Costa are particularly disappointing. Like-for-like sales grew by just 0.5% compared to 2.5% in the third quarter and 4.4% in the first half.

Whitbread blames lower footfall on the high street and an ‘unusually warm winter’ – suggesting people don’t drink as much coffee when it’s a ‘balmy’ 10 degrees.

Panmure Gordon analyst Anna Barnfather says the slowdown comes at a time when expansion is also dropping to around 200 outlets a year. ‘Greggs’ (GRG) recent trading results also give reason for caution, especially as we believe that the customer propositions of the two brands are converging – Costa becoming ‘value’, Greggs pushing breakfast and coffee and increasingly seen in the same service stations, travel hubs and high streets,’ she adds.

Premier Inn’s RevPAR (revenue per available room) grew by an encouraging 3.4% in the regions but London was much weaker, declining by 3.3%.

‘We expect a tougher outlook as competition steps up including Travelodge which recently has revealed plans to invest £140 million to open 19 hotels in 2016 and to increase its network to 542 hotels,’ says Barnfather.

The pace of growth is expected to slow further in 2016/17 which, combined with an increase in supply, could push up cost inflation and weigh on returns.

Panmure expects to cut its 2017, 2018 and 2019 forecasts by between 3% and 5%.

Issue Date: 03 Mar 2016