The owner of Premier Inn suffered a half year slump in sales and profit amid “challenging market conditions” due to Brexit uncertainty in the UK.
Whitbread today reported a 3.6% decline in like-for-like sales at the budget hotel chain, which has more than 800 UK properties, blamed on weak regional market conditions.
The company admitted that business confidence remained weak and leisure confidence was in decline “coinciding with heightened political and economic uncertainty”.
The UK economic and political situation was leading to weak hotel demand, especially from business travel demand in the regions.
Whitbread added: “With this uncertainty, it is difficult to predict how business confidence and business investment will evolve in the second half of full year 2020 and into full year 2021 and impact demand for short-stay, domestic travel.”
The company reported that revenue for the half year to August 29 had been broadly flat at £1.078 billion over the same period in 2018 with adjusted pre-tax profit down by 4.1% to £236 million and UK accommodation sales down by 0.6%.
The average UK room rate fell to £64.07 from £66.16 with revenue per available room down by 5.2% to £50.19.
Whitbread said: “Premier Inn’s 98% direct distribution is industry-leading and crucial to the unique operating model, providing customers with superior value for money.
“It also ensures that Premier Inn’s gross revpar [revenue per avail able room] is the same as the net repar achieved after cost of sales, unlike independents or other brands, which pay high commission rates to third parties such as online travel agents.
“The investment made in digital tools, including the website and digital marketing capabilities, results in a higher quality of revenues achieved.”
The company plans £220 million of cost savings over the next three years.
CEO Alison Brittain said: “We have delivered a resilient first half profit performance despite challenging market conditions in the UK.
“Shorter-term trading conditions in the UK regional market have been difficult, particularly in the business segment where we have a higher proportion of our revenue, whilst trading in London remained strong.
“Against this challenging backdrop, we have a number of activities underway which continue to build our brand strength as the UK’s favourite hotel chain.
“We are enhancing and optimising our UK hotel network and have successfully trialled new higher specification ‘Premier Plus’ rooms in two hotels, with fantastic customer feedback.
“We are on track to have 500 Premier Plus rooms this year, with ambitions for a total of 2,000 over the next year. We have also made good progress in delivering our ambitious efficiency targets, helping to offset part of the ongoing industry-wide inflation.”
She added: “In Germany, our confidence in the long term opportunities grows and our expansion plans are firmly on target.
“Our German pipeline has increased 25% to 7,280 rooms over the last year and we continue to look for ways to accelerate our ambitions.
“Whilst the near-term market conditions in the UK remain uncertain, we have confidence in the long-term structural opportunities available in the domestic budget travel markets in the UK and Germany.”
Rachel Fox, equity analyst at stockbroker Goodbody, said: “With business confidence remaining weak and leisure confidence in decline, Whitbread is the latest company to reveal lacklustre results against difficult market conditions.
“Political and economic uncertainty have impacted bookings, particularly in the regions. Meanwhile, its food & beverage offering has also seen underlying sales declines which is likely owing to the chronic oversupply of casual dining restaurants.
“Despite business bookings being under pressure for some time, it is telling that the Group notes that headwinds are now also being felt in its leisure offer, providing warning signs that macro weakness is now having a tangible impact across the board.
“Supporters will see the group’s German expansion as a promising route to growth, however there is undoubtedly a question mark over whether its UK success is replicable in this unfamiliar market.”
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