Challenging high street and inflation leave marks on Whitbread’s sales

● Costa Coffee like-for-like sales off 0.1% ● Premier Inn’s revenues tread water

The tough high street environment and inflation have both taken a toll on trading at the owner of Costa Coffee and the Premier Inn budget hotel chain.

The lacklustre third-quarter trading update came as parent group Whitbread said it had an open mind about splitting up Costa and Premier after pressure from an activist investor for a break-up of the businesses.

Costa’s UK like-for-like sales slipped 0.1 per cent during the period to end-november, and the performance at Premier Inn was flat.

It was reported earlier this week that investor Sachem Head was urging Whitbread to consider splitting its coffee arm from its hotel and restaurant operations.

Sachem Head disclosed a 3.4 per cent holding in FTSE 100 quoted Whitbread last month. Alison Brittain, Whitbread’s chief executive, responded yesterday by saying the board continually assessed the structure of the company.

“We remain entirely openminded about the structure of the business and are fully committed to reviewing it on a regular basis at the board level,” Brittain said.

Sachem sees a break-up as a way of releasing value from Whitbread’s individual businesses. Brittain said Costa’s UK cafes were highly profitable, but the “well-publicised weak retail market footfall” was harming its stores – and would do so for some time.

On Premier Inn, she said there were signs of “market weakness”, with occupancy and average room rates dropping year-on-year.

However, total UK sales made for brighter reading, with Costa and Premier Inn expanding 7.2 per cent and 5 per cent respectively for the three months.

Brittain said Whitbread was on track to hit its annual financial targets as part of a groupwide efficiency drive.

But she added: “We do expect the tough UK high street environment and inflation in our sector to continue to pose challenges in the year ahead.

“However, we have good momentum in the delivery of our plan to enhance our UK market leadership positions, create an international business of scale in Germany, China and Costa Express, and develop a more efficient infrastructure.”

Focusing on the group, Whitbread said like-for-like sales were up 0.3 per cent and total sales rose 5.8 per cent across Q3.

The company recently announced that Scots-born Adam Crozier, the former chief executive of ITV and Royal Mail, is to become its new chairman in February.