Coffee chain Costa has reported a 2% drop in like-for-like sales due to tough high street trading.
This is according to a trading update filed by Costa’s parent company Whitbread for its financial year first quarter.
The group said the decline reflected “general retail market conditions” but added that total sales grew by 5.2% through the addition of new stores, and travel locations continue to show good growth.
Whitbread has also taken “constructive early steps” in preparation for Costa’s demerger. The coffee giant will become a separate entity to Whitbread’s Premier Inn brand within two years, following demands from the company’s largest investor Elliott Advisors, it was announced earlier this year. Costa Coffee has been valued at £2b-£3b.
Meanwhile, like-for-like sales at Premier Inn also decreased 0.9%, and total sales growth slowed to 2.5%.
Flat like-for-like accommodation sales, which decreased 0.3%, reflect “market weakness and strong comparators”, according to Whitbread, following last year’s inbound tourism boom.
Total UK accommodation sales growth of 4.3% it said was driven by investment in new hotels (4,198 rooms have opened over the last 12 months; 644 this quarter), and the “robust” domestic business to business market.
Premier Inn still plans to add 4,000 to 4,500 rooms across the UK and Germany this financial year; 85,000 rooms by 2020.
Overall, the group saw like-for-like sales drop 1.3% despite total sales growth of 3.2%. Whitbread said it expects to deliver full year results in-line with expectations.
Alison Brittain, Whitbread chief executive, said: “Premier Inn UK delivered total accommodation sales growth of 4.3% driven by additional capacity. The hotel market was weaker in the first quarter due to strong comparable data this time last year and increased supply, including significant room openings from Premier Inn. Our new capacity has a short-term impact on like-for-likes but delivers good long-term sales growth. Forward bookings have improved recently, supported by the robust business to business market and comparatives ease later in the year. Our F&B sales declined slightly due to lower footfall from adverse weather.
“Both the budget hotel market and the coffee market present long-term structural growth opportunities, and whilst we are cautious of shorter-term trading conditions in the UK, due to well-publicised consumer trends, we are confident that we have the right strategies in place to enhance our UK and international market positions and ensure each business is well-positioned to thrive as a separate entity.”