In an economic downturn there are winners as well as losers. Whitbread will be hoping Premier Inn comes out on top when Brexit starts to bite.
Premier Inn owner Whitbread plans to keep investing in its hotel portfolio despite the Brexit-related economic challenges in its core market.
The company, which operates almost 800 hotels mainly in the UK, warned of weakness in its UK hotel portfolio outside of London as consumer and business confidence declined during the third quarter.
But even in a more challenging market, the company’s management team wants to put the squeeze on independent hotels.
CEO Alison Brittain said on an earnings call with analysts on Thursday that in a tough economic climate “the independent sector fares quite badly,” which offers opportunities for bigger brands like Premier Inn.
“It does mean during the weaker environment, those that are putting capacity in do carry on putting capacity, and they’ve usually got spades in the ground and they’ve made the investments and they have to finish,” she added.
Group finance director Nicholas Cadbury said the company had studied what had happened in the previous downturn.
“[W]e did a review about what lessons were learned from 2008, 2010, and I think lessons learned was to keep investing because actually that puts the pressure on the independent market,” he said on the same conference call.
“It enhances your structural growth opportunities in the longer term and continues to make sure that you’re the best hotel company in the U.K.”
Third Quarter Update
While London continues to perform well with total sales up 9.8 percent, the rest of the country struggled with sales only up 1.8 percent during the 13-week period to November 29, 2018.
Whitbread’s management is pretty pessimistic about the UK’s economic fortunes over the next year or so and expects profitability to be at a similar level in 2020 as it will be in 2019.
Like other European companies, Whitbread isn’t required to give detailed quarterly financial updates.
The company completed the sale of Costa Coffee to Coca-Cola earlier this month for $5.1 billion (£3.9 billion.) It is about to start a $648 million (£500 million) share buyback program and said it will update shareholders with what it plans to do with the rest of the money at a capital markets day in February.
Whitbread will likely use some of the cash to accelerate its expansion in Germany.
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Photo credit: A Premier Inn employee. Parent company Whitbread recently sold Costa Coffee. Whitbread