Whitbread split clouded by sales reverse at Costa coffee chain

The owner of Premier Inn hotels and coffee chain Costa on Wednesday cast a shadow over its decision to break up the two businesses as it posted falling sales.

Same-store sales at Costa in Britain, which has been seen as an undervalued jewel and a moneymaker at Whitbread, were down 2% for the first quarter.

In April, Whitbread said it is going to spin off its £3 billion Costa arm after bowing to pressure from activist investor Elliott and hedge fund Sachem Head, another shareholder.

The move, which should see the business listed on the stock exchange by 2020, might lose its appeal for investors if this decline continues.

Chief executive Alison Brittain insisted that High Street stores continued to make profits, while sales were hit “principally from footfall weakness in traditional shopping locations”.

Total sales, however, grew by 5.2% at Costa thanks to new store openings and self-service “express” machines in petrol stations and supermarkets.

“We have been seeing and warning about declining same-store sales at Costa for some time and this 2% drop is a concern about how the brand is performing on the High Street,” said analyst Neil Wilson of Markets.com. “Lower footfall is one thing, but we continue to see Costa facing tougher competition from artisan coffee retailers, who are taking market share.”

The High Street has been sliding towards a crisis in recent months with a string of retailers closing up shop altogether or slashing the number of stores with thousands of people at risk of losing their jobs. Whitbread saw same-store sales fall by 1.3%, including earnings from Premier Inn and restaurants Beefeater and Brewers Fayre.

Brittain said it has taken “constructive early steps” to carve out Costa. Elliott previously said the demerger should happen in six months.