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Sunday Retail News Roundup

Sunday January 31st 2016

Cotton queen, $1bn bonus hotel investors, Bookies open traps dog track sale, Google's UK eyeopener!, Tesco and Asda worse than rivals unpaid debt disputes, Lush Cosmetics 'coping with success', Sainsbury's locked in talks Home Retail Group, Tesco calls time 24-hour shopping 76 large stores, Sainsbury and Argos last-ditch bid talks, Ocado fails meet deadline international licensing, Lidl ramps up expansion , Big-time losers in waiting game.

Sunday Times.

The White Company almost doubled its profits last year, despite an expensive overhaul of its distribution centre. Sales at the retail chain, which sells homeware and accessories such as £70 luxury candles, increased by 14% to £163.6m in the year to last March. The takings were boosted by the opening of new stores in Milton Keynes and Norwich, bringing its number of shops to more than 50. Pre-tax profits rose from £6.6m to £12.8m, despite the cost of the relocation and expansion of its warehouse. Will Kernan, chief executive, described it as a “very solid result”. The White Company was founded more than 20 years ago by Chrissie Rucker, a former beauty journalist, after she struggled to find good-quality white linen and tableware for a flat bought by her boyfriend, Nick Wheeler. Rucker, 47, is married to Wheeler, 51, who set up the shirts-and-shoes mail order business Charles Tyrwhitt. The White Company has started selling in America over the internet and is considering opening its first stores there. It is also starting to introduce more products aimed at men.

The InterContinental Hotels Group (IHG) is lining up a $1bn (£700m) gift to shareholders after missing out on a series of big hotel deals. The Holiday Inn owner will announce the return, most likely in the form of a share buyback programme, next month at its annual results, according to market sources. IHG sold the five-star InterContinental Hong Kong for $938m in July last year, not long after offloading the Le Grand in Paris for €330m (£251m). The company had intended to use the cash to snap up one of its rivals, but two of the biggest deals in the industry have passed it by in recent months. In December, France’s Accor bought Raffles owner FRHI for $3bn, while Marriott is buying Starwood for $12.2bn. Just two years ago, IHG was the world’s biggest hotel operator by number of rooms, but it has now been overtaken by American giant Hilton and the enlarged Marriott.

Two bookmaking giants are preparing to sell hundreds of betting shops and a greyhound track, to satisfy competition watchdogs ahead of their £2.2bn merger. Ladbrokes and Gala Coral would sell about 400 stores, from a total of more than 4,000, to allay concerns raised by the Competitions & Markets Authority. A deal could bring in as much as £120m. The authority has warned that the proposed merger, announced last July, would result in a “substantial lessening of competition” on the high street. Its final decision will be made in the summer. Ladbrokes and Coral also own four greyhound tracks, including two in London, and are likely to sell at least one to appease the authority. Greyhound tracks are prized because of their property development potential. It is understood, however, that Ladbrokes would have to sell the venues as a going concern and not for development. The number of betting shops thought to be up for sale is less than many observers had first thought.

Mail on Sunday.

As it reveals an £11bn profit, internet giant could still avoid British tax if crackdown comes into force next year. Google will continue to pay minimal tax in the UK by heaping yet more costs on to its British business. The internet giant continues to insist its Irish trading arm has no ‘permanent establishment’ in Britain, though changes to tax rules may force it to revise this position as early as next year. However, Google sources said even then it could keep its tax bill low by adding more to its bills. Insiders said the UK arm could be charged billions of pounds more by its US parent for using technology and services, offsetting UK efforts to increase its tax bill. Even if HMRC had decided its Irish arm did have a presence here for the past ten years, that would not have significantly raised its tax bill. Fury over Google’s tax affairs will be further stoked tomorrow when it unveils its final results for 2015, which are expected to show global profit of nearly $16billion (£11.25billion), up from $14.5billion last year. The 

Grocery giants Tesco and Asda have been hit by a raft of county court judgments for not paying their debts showing a vastly worse record than rivals. The two groups between them were issued with 149 CCJs in the past six years, out of 185 issued against all supermarkets. The findings, which emerged from research by credit research group Creditsafe, are particularly embarrassing for Tesco, which last week was rapped by the grocery watchdog for its treatment of suppliers. It is also still under investigation by the Serious Fraud Office for a £263million accounting scandal. In the past six years Tesco was issued with 74 CCJs and Asda 75. Tesco has been handed nine CCJs in the past year. Asda received 13. Asda disputed the figures and said only 71 CCJs against it had reached the register over the six years while at least eight had been satisfied or made in error by the courts. The other seven major supermarkets in the survey, Sainsbury’s, Morrisons, Waitrose, Lidl, Aldi, Marks & Spencer and Iceland. received a combined total of only five over the past year.

It is a problem most companies would love to have. Remarkable growth of high street retail chain Lush Cosmetics has led the company to state in its latest set of accounts that it is now having to create a strategy for ‘coping with our success’. The chain, famed for its bath bombs, natural ingredients and its brightly coloured stores, was founded by majority shareholders Mark and Mo Constantine in 1994 and now has 940 shops in 50 countries, with 106 stores in the UK. Its rapid expansion has meant that its seven factories around the world have been ‘stretched’, producing more than 124million items last year, up 49 per cent, and the firm is opening new factories in Germany and Brazil to help meet demand. Figures for the year to June 30, 2015, show that group turnover jumped from £282million to £326million while pre-tax profits grew from £23.3million to £24.5million. A £2.3million dividend was paid out to add to the Constantines’ estimated £200million fortune and the company donated £5million to charitable causes. 

Sainsbury’s first made a bid in November but was rebuffed the following month. The supermarket giant has until 5pm on Tuesday to make a bid or walk away for the chain. Since then Home Retail has sold its Homebase chain for £340m to Australia’s Wesfarmers. Sainsbury’s previous offer is reported to have valued Home Retail at close to 130p a share and it is believed the grocers’ board is unwilling to offer more than around 150p a share, valuing it at about £1.2bn. However, Home Retail has been holding out for at least 170p a share. Sources close to the deal suggest Home Retail’s management may have to come closer to what Sainsbury’s is offering. Sainsbury’s did not comment yesterday but earlier this month chief executive Mike Coupe highlighted that Home Retail’s share price was less than 100p at the start of the year before news of Sainsbury’s interest emerged. Sainsbury’s finance boss John Rogers earlier this month was reported to have said the deal is ‘not a deal that we have to do.’ He added: ‘We’ll look at this in a very financially disciplined way and we won’t overpay for this transaction.’ The supermarket chain can ask for the bid deadline to be extended. Some investors are even betting the deal will fall apart.

Supermarket giant Tesco will reduce opening hours at some of its 24-hour stores due to a lack of customers shopping though the night. The company, which began operating 24-hour stores back in 1996, said 76 out of the 400 stores currently open around the clock would be affected by the change: they will now close at midnight and reopen again at 6am. Instead of shopping at night, it is believed many customers are now heading online for their groceries, and the move is part of chief executive Dave Lewis's attempt to stem Tesco's recent profits slump by redesigning its operations. He wants to improve the shopping experience, simplify the supermarket's range, improve relationships with suppliers and win shoppers' affection back for the supermarket. Tesco has been under severe pressure over the last year, announcing big financial losses, while suffering accounting irregularities which have led to numerous litigation cases in the US. 

J Sainsbury and Home Retail Group were locked in takeover talks this weekend as they sought to thrash out the terms of a £1.3bn deal ahead of a looming bid deadline. Talks are on a knife-edge amid an ongoing struggle to agree on the price. It is understood Sainsbury’s has put forward a proposal of 150p-a-share, but Home Retail Group, which owns Argos, is pushing for 170p-a-share. A middle-ground of around 160p could be sufficient to clinch the deal, say sources. It is thought that Sainsbury’s board is keen to agree a price and terms so it can secure an extension to the bid deadline, which expires on Tuesday at 5pm. Announcing the terms would also allow the supermarket to brief the City on the value of synergies it expects to gain from the deal, which Sainsbury’s believes would help it win shareholder support. The supermarket is understood to have become increasingly frustrated by lofty valuations some Home Retail shareholders have asked for as the premium it is willing to pat is already higher than average takeover premiums of between 30pc and 40pc. 

Ocado has failed in its attempts to broker a technology licensing tie-up before a self-imposed deadline of the end of last year. The online grocer has repeatedly said that it is in “multiple talks with multiple parties” about signing a deal with an overseas supermarket, but it has failed to clinch a tie-up ahead of its annual results report this week.
Negotiations with prospective partners have been sensitive, sources said, and pointed to the difficulties of co-ordinating a share price sensitive deal announcement with full-year results. Ocado is expected to post a 14pc rise in full-year earnings before interest, tax, depreciation and amortisation to £81m on Tuesday. Analysts have questioned whether the time it has taken to seal an agreement with an international partner indicates something more worrying.

Lidl has ratcheted up its UK expansion plan by issuing almost three times as many planning applications as Aldi for new supermarkets in the last quarter of the year. Aldl filed 48 applications, worth roughly £150m in construction costs alone, during the three months to the end of 2015. Aldi filed 17, by comparison, during the same period. Property experts said the timing of Lidl’s flurry of applications was unusual and pointed to a significant acceleration in its store roll-out. In the first quarter Lidl filed 19 applications; 10 in the second quarter and 27 in the third, a total of 104 during the whole of 2015. Aldi filed 101. Sainsbury’s continued with its assault on the convenience market with 22, Tesco lodged just seven, Asda four and Morrisons only two. Aldi’s and Lidl’s expansion comes at a time when the major supermarkets have called a halt to the “space race” in the wake of sliding sales and profitability, and are now urgently seeking ways to repurpose their vast superstores.

Tesco was found to have deliberately witheld paying its suppliers to boost its own profts by the Groceries watchdog. The UK’s grocery watchdog last week found Britain’s biggest supermarket guilty of deliberately delaying payments to even its smallest suppliers in order to flatter profits. While Tesco was notching up £64bn of sales, it was prepared to knowingly defer paying money it owed suppliers, many of whom were barely making more than £100,000. The practice broke a legally binding code to protect Britain’s small suppliers and monitor the relationship between them and the big supermarkets. Tesco’s widespread mistreatment of suppliers has been exposed as part of a damning 52-page report by Christine Tacon, the Groceries Code Adjudicator (GCA). Tacon launched an investigation into Tesco last February, five months after the supermarket revealed a £250m hole in its account, which sent shockwaves through the industry and spooked investors. Tesco blamed the accounting error on booking what it called “commercial income” from suppliers too early.