Langton Capital – 2018-05-18 – CVAs, TGI Friday, gaming machines, Club 18-30 & other:
CVAs, TGI Friday, gaming machines, Club 18-30 & other:
A DAY IN THE LIFE:
I hope it’s not a sign that I’m becoming even more of a depressive character but, on more than one occasion recently, when I’ve meant to write ‘better’ as in better weather or whatever, I’ve written ‘wetter’ and, though I’ve caught myself a couple of times, it’s likely that there are more that have slipped through so, if you’ve read a comment from Langton saying that pubs etc. are praying for wetter weather, you can safely ignore it.
But if that’s the worst word that’s slipped through in the thousands that get sent out every day, I’ve not got too much to worry about on that score.
So, with the sun set to shine, a Royal getting married and the pubs’ beer gardens once again getting a quick hose down, let’s move on to the news:
CREDITOR VOLUNTARY ARRANGEMENTS:
• So, are CVAs a sign that discounting and high rents are unsustainable? Or are they an indicator that, if the latter can be brought down, the former can continue for longer than would otherwise be the case.
• They (CVAs) arguably protect jobs but they also, again arguably, reward or perpetuate failure. Often, but not always – Carluccio’s has changed its management recently – they feature previous management continuing in their roles with little else, apart from the rents paid, changing.
• There are pros and cons. There always are but, what CVAs most definitely are not, is capitalism in action.
• The credit crunch introduced us to the idea of moral hazard and, if operators can (albeit at great cost, both financial and to their credibility) shuffle off mistakes, then they may take more risk going forward than would otherwise be the case.
• On the other hand, landlords may just have been too greedy and they may now be getting what they always had coming to them.
• One of the other concepts popularised in 2008 and 2009 was that actions, in our case now CVAs, can have unintended consequences. They (CVAs) could extend discounting and the like. Perversely, they may even help support high rents in some areas whilst bringing them down in others.
PUB, RESTAURANT & DRINK PRODUCERS:
• Carluccio’s will launch a landlord-only Company Voluntary Arrangement (CVA), which will impact 34 of the group’s restaurants. If approved by at least 75% of creditors, the CVA will be followed by an investment programme seeing Landmark Group, which acquired Carluccio’s in 2010 for c£90m, putting in £10m of fresh funding to drive an investment and growth plan. Sites rumoured to be up for closure include Chelmsford and Bromley, plus London-based restaurants in Islington, Muswell Hill and Chiswick, as well as Westfield London.
• MCA data shows the branded restaurant sector grew market share in Q1 2018, although independents have seen losses. According to MCA’s consumer insights director, Gareth Nash, the performance appears to show consumer uncertainty driving the adoption of more risk-averse behaviour. Nando’s, PizzaExpress and Pizza Hut all saw impressive dinner share gains.
• Hotel Chocolat plans to introduce after-hours ‘lock-in’ style chocolate tasting events in 38 of its stores that will aim to engage customers with the story and provenance of Hotel Chocolat’s products.
• US better burger concept BurgerFi has closed both its sites in the UK, per MCA. The group had ambitions of opening 10 sites in London before expanding across the rest of the capital when it opened its first UK unit in 2016
• Pret A Manger has confirmed it will open its first site in Germany, at Berlin Central Station, in partnership with German firm Station Food. Michael Haley, partnerships director at Pret, said: ‘We’re thrilled to announce that we are opening our first shop in Germany at Berlin Central Station (Berlin Hauptbahnhof), the central hub for all rail traffic in the city.’
• C&C Group has agreed a repayment schedule with both HMRC and three banks which lent money to Conviviality, with £138m owed. The drinks group announced that it had agreed a repayment schedule with HMRC as well as resumed ‘normal credit terms with c.75% of suppliers’ and is ‘in discussion on repayment schedules’ with them.
• Brigid Simmonds, CEO of the BBPA, commented on government legislation on FOBTs, saying ‘The BBPA is disappointed that no changes have been made in particular to the stake for Category C machines – we had asked for an increase from £1 to £2 in the stake to allow innovation in the 50,000 machines in pubs for customers who enjoy playing these low stake and low prize machines.’
• Furthermore, UKHospitality responded to the legislation on FOBTs, saying ‘The Government’s approach to Category C and D machines suggests that it is prepared to act pragmatically, and to entertain the notion of an increase in stakes and prizes if the sector can demonstrate that it has implemented measures that will manage the risk of gambling-related harm effectively…our members are keen to promote socially responsible measures, to show that these machines are used under supervision and with an absolute minimum of harm.’
• Garçon Wines is partnering with Bloom & Wild to offer its original letterbox wine in Merlot and Sauvignon Blanc varieties, both from Chile, and have them delivered directly to your door.
• Treasury Wine Estates (TWE) is experiencing customs delays in its shipments to China. The Australian wine giant seems to be the latest victim of growing friction between the two countries.
• Maze, a London Mayfair restaurant ran by the Gordon Ramsay Restaurant Group, will close next year to be replaced with a new ‘concept restaurant’ following a reported £3.8m loss. The business was also hit by a £1.75m legal bill for costs relating to a long-running legal dispute with Rowan Seibel, Ramsay’s former business partner.
• Workers at two branches of American diner TGI Fridays are holding walkouts over changes to the redistribution of tips that could cost them hundreds of pounds a month. The 24-hour strike will affect branches in Milton Keynes and Covent Garden and the Unite union anticipates a ‘summer of disruption’ by unhappy employees. Flagging consumer spending on casual dining combined with rises in the minimum wage are squeezing profits at mid-market restaurants like TGI Fridays.
• Asda has confirmed its fourth consecutive quarter of sales growth, up 3.4% like-for-like, ahead of its proposed £15bn merger with Sainsbury’s. Accounting for the Easter impact in the quarter, like-for-likes rose by 1%.
• PayPal has bought Swedish mobile payments company iZettle, which sells a card-reader aimed at small businesses, for $2.2bn (£1.6bn). The move comes just three weeks after iZettle announced it would list shares in Stockholm. When complete, the acquisition of iZettle will mean PayPal has an in-store presence in 11 markets in Europe and Latin America. PayPal president Dan Schulman said: ‘This combination brings together iZettle’s in-store expertise, recognised brand and digital marketing strength with PayPal’s global scale, mobile and online payments leadership, and trusted brand reputation.’
HOLIDAYS & LEISURE TRAVEL:
• Thomas Cook commented in its figures yesterday that it was switching summer capacity from Spain to the Eastern Mediterranean, as the group came under ‘margin pressure’ at its UK operating arm. Thomas Cook said: ‘We continue to experience margin pressure as a result of currency impact and hotel bed cost inflation in a competitive market environment. Strong growth to higher-margin destinations in the eastern Mediterranean, as well as higher web and ancillary sales, are helping to mitigate this impact’.
• Thomas Cook has stated that Club 18-30 is ‘not a priority’ for the group with CEO Peter Fankhauser stating: ‘We remain committed to Club 18-30 this summer [but] it is not a priority. It may be that someone else is a better shareholder for Club 18-30 and can develop it even better’.
• Butlin’s is to stop serving plastic straws at its three resorts and it is looking for alternatives to its use of plastic stirrers, cutlery and cups.
• The Transport secretary Chris Grayling had told parliament that he will end Virgin Trains East Coast’s contract and bring in government control. The DfT said: ‘We want to assure you that your journeys on the East Coast Mainline won’t be affected. Tickets, timetables and train services will all stay the same even though a different operator will be in charge’.
• The US hotel industry reported a 0.8% rise in occupancy to 68.5% for the week of 6-12 May, with ADR up 3.5% to $130.06 and RevPAR up 4.4% to $89.03.
• Manchester United has reported its third quarter of revenue rises, with income up 8.1% to £137.5m. Ed Woodward, executive vice chairman of the group, said: ‘As another season nears its close, we have achieved our highest number of points and finish since 2012-13 and we look forward to another trip to Wembley’.
• Google’s YouTube will launch a music streaming service next week to tap into the growing market for paid music streaming. YouTube Music, which will offer both ad-supported and $9.99-per-month versions, will launch on 22 May and compete directly with services from Spotify Technology SA, Pandora Media Inc, Apple Inc and Amazon.com Inc.
FINANCE & MARKETS:
• Sterling down vs dollar at $1.3505. Down vs Euro at €1.1439
• Oil up 10c or so at $79.52
• UK 10yr gilt yield up 6bps at 1.56%
• World markets: UK & Europe up yesterday, the UK to an all-time high. US down but Far East up in Friday trade
• Politics, Brexit etc.:
o All relatively quiet. Mrs May proposes staying in Customs’ Union for an undefined period of time. Brexiters ‘horrified’ etc.
PRIOR DAY LATER TWEETS:
• Later tweets: MARS & MAB lower on OK numbers. Market running scared? CVAs (shops, Carluccio, Prezzo etc.) not doing much to help sentiment.
• Carluccio CVA could be today. More shops back to landlords. Wm Hill says up to 900 shops may become loss-making. Even more keys handed back
• Random bumph. Ocado bites the bears. Paper straw production up 700%. Wm Hill threatens shop closures (but Paddy Power upbeat on £2 stake)
• £2 FOBT stake could leave more money in consumers’ pockets. Good news for pubs? No, really. It could be good news for pubs
• Closed betting shops, if operators make good on threats / worries, could leave another gaping hole in the High Street
• Thomas Cook H1 good but not good enough to sustain recent share price rise. MARS price up through 100p. Seems unduly harshly treated
• Cedar Dean reports 90% of restaurants in London saying they will close down if rents keep rising. Crying wolf? Because rents are still rising…
START THE DAY WITH A SONG:
Yesterday’s song was Rapper’s Delight by The Sugarhill Gang, well done to those that got it (some in record time)! With one eye on the weekend (and a wedding, apparently) who sang:
Feed animals in the zoo,
Then later, a movie too
And then home
RETAIL NEWS WITH NICK BUBB:
• Carpetright: The embattled Carpetright had said that it hoped to raise £60m of new equity today and the details have been confirmed: the news was widely discounted but the discount to last night’s close of c33p was pretty modest, at 28p, albeit that involves a massive 232m new shares being issued (an effective 88 for 27 rights issue). The earnings dilution is huge, but it has guaranteed the survival of the business. How many of its core hapless shareholders have stumped up is unclear, but Wilf Walsh, the CEO of Carpetright, says: “We are delighted to have received such strong support from our shareholders and other investors in achieving this fully underwritten fundraise”.
• Trade Press: The front cover of Retail Week magazine today features a photo of a House of Fraser store façade and the headline “Breaking point?”, to flag up the main feature on the rising pressure to reform the CVA process. And the Editor looks in his column at the High Street property crisis and thunders “Surely it is time for a ‘new deal’ between owners and occupiers of retail property that reflects contemporary reality”. RW also has a feature on “Walmart’s passage to India”: the acquisition by Walmart of the Flipkart ecommerce operation. The Editor of Drapers magazine also looks in her column at the High Street property crisis and thunders that “Government support is needed, not CVA’s”. In terms of News stories, Drapers focuses on the announcement of big losses at House of Fraser (“Chinese expansion forces House of Fraser Group
• John Lewis Watch: John Lewis was helped last week by the hot Bank Holiday weather, as Tuesday’s weekly sales overview from JLP flagged that w/e May 12th saw gross sales 3.3% up (just over 2% up on a LFL basis, on our calculations). Fashion sales were up by 7.4% gross and Electricals were up by 8.5% gross, but Home sales were down by 5.4% gross. Over the last 15 weeks, John Lewis was up cumulatively by 1.6% gross (c0.5% up LFL).
• Waitrose Watch: Over at Waitrose, momentum was also good last week, as the hot weather again helped picnic and barbecue fare fly off the shelves. Gross sales were up by 3.7% in w/e May 12th and the cumulative outcome for the last 15 weeks is now +1.7% gross, which is c1% up LFL.
• BDO High Street Sales Tracker: Today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday May 13th, was also flattered by the hot weather/Bank Holiday and weak comps. BDO Fashion Store LFL sales were up by 6.7% and, including Homewares and Lifestyle chains, total Store LFL sales were 2.4% up. Overall Online sales were up by c22%, with Online Fashion sales also up c22%.
• News Flow Next Week: A busy week kicks off on Tuesday with the Halfords finals, the Pets at Home finals and the Topps Tiles interims. The much-awaited Marks & Spencer finals are on Wednesday. Then Thursday brings the Kingfisher Q1, the Inchcape Q1 and the Shoe Zone interims, plus the ONS Retail Sales figures for April.