Langton Capital – 2020-03-12 – PREMIUM – Tracker, Cineworld, Intu, cruising, footfall, C&C & other:
Tracker, Cineworld, Intu, cruising, footfall, C&C & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
I know technology is moving quickly but do you remember ‘double-clicking’?
It seems like only yesterday – because it was pretty much yesterday – when you had to double-click on things to open them but then, I suppose, some boffin asked ‘why?’
So now you only have to single-click on most things, to open a new link, for example, and the idea that you would have to work twice as hard to do the same thing seems somehow rather antediluvian.
Anyway, we’ll probably be saying the same about physical actions of any sort once voice-activated and then mind-activated devices take over.
It might be a toss up as to whether Surrogates (2009) or Wall-E (2008) prove to be a more accurate forecast as to the future.
Anyway, with most of us in the City donning our tin hats for what looks like another difficult day, let’s move on to the news:
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Here, we have curated a large number of those articles in order to logically sequence the major issues that are currently impacting the hospitality subsector or the wider leisure sector. The piece is available now. Please drop us a line.
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FEBRUARY COFFER PEACH TRACKER: LfL sales down 3.3%. A taste of things to come? 12 Mar 2020:
• The latest Coffer Peach Tracker, which covers the month of February, concludes that LfL sales in UK pubs, bars and restaurants, were down by 3.3% on the same month last year.
• The Tracker says that floods impacted the numbers with growing fears re the coronavirus coming rather late in the month
• Managed pubs were down by 4.2% whilst sales at restaurants were down by 1.8% on last year with bar chains down by 2.8%.
• LfLs across pubs, bars and restaurants were down by 4.4% in the last week of the month confirming that the exit rate for the month was worse than its average
• Storm Ciara was the weekend of the 8th & 9th of February and Storm Dennis struck exactly a week later
• The impact of the subsequent flooding lasted for most of the month and, in some places, the water has not yet fully receded
Tracker’s comments on the numbers:
• CGA says ‘the month started with flooding hitting sales in parts of the country, with pubs and restaurants actually closed in some areas. But as the month progressed, the impact of the developing coronavirus emergency began to take its toll on business.’
• It says: ‘we can only expect that will have an increasingly negative impact on sales in coming months.’
• CGA says ‘the weekly results for the last week in February showed like-for-like sales down 4.4%.’
• CGA points out that ‘it is impossible to predict how bad the effect of the coronavirus emergency will be on the market longer term’ but it says that ‘operators are expecting major disruption.’
• Unfortunately, CGA says ‘the worst is probably yet to come.”
Regional and sectoral splits:
• The Tracker reports that London LfLs were down by 3.7% whilst sales in the provinces were down by a lower 3.2%
• Given the number of tourists visiting London (or now not visiting London so much), the split is perhaps understandable
• Pubs ‘saw decline in both food and drink sales, down 3.9% and 4.6% respectively.’
• This is slightly counter-intuitive as food may imply lingering and, if we have learned much from footfall in airports, it is that customers seem to be less willing to linger than they had been a month ago
• Although both were down, restaurants outperformed pubs (see above).
• This is again slightly counterintuitive though it may be partly explained by the fact that, though restaurant sales were down by 1.8%, covers were down by a more-significant 4.9%, implying that restaurants had been either increasing prices or customers had been trading up.
More Tracker comments:
• Davis Coffer Lyons says ‘the exceptionally wet weather last month was always going to adversely affect turnover for most operators which wasn’t helped by Valentine’s Day falling on a Friday depriving operators of a good midweek day.’
• Coffer points out ‘as to the Coronavirus effect, regardless of the real level of medical risk the public is changing its behaviour, hitting city centres and travel hubs the hardest.’
• It points out that operators are concerned that staff may have to self-isolate ‘which would necessitate complete closure.’
• Though we are not seeing this yet, Coffer suggests ‘paradoxically, local pubs and restaurants might see trade sustained as people stay local – people will not shut themselves away indefinitely and will see smaller scale local pubs and restaurants as less of a health risk.’
• This may ‘lead to a re-distribution of trade’.
• Tracker sponsor RSM says ‘at the beginning of the month [which seems now like ancient history], it seemed that the Government’s new immigration proposals following Brexit would be the next big challenge for the sector.’
• It says ‘these proposals have been swiftly eclipsed by the social and economic disruption from coronavirus. The latest industry like-for-likes point to the start of a prolonged period of falling sales for restaurant and bar businesses.’
• The running 12mth number for LfL sales fell to 0.9%.
• Total sales were down 0.7% for the operators reporting into the Tracker suggesting that new capacity moved numbers up by around 2.6pps
• One might reasonably have expected bars to outperform the market. They have a younger clientele. They did better than pubs but underperformed restaurants.
• Sadly, and hardly a shock, we concur with CGA that the worst is yet to come.
• Companies with ‘pre-existing conditions’ will be least well-prepared to survive.
• Pre-existing conditions include stupidity, arrogance etc. This manifests itself often as high debt, mediocre product etc.
• We should point out that it is often a different management that has to attempt to stop the pieces from falling apart
• Co-morbidity factors will include, again, high debt, weak cashflow, low barriers to entry, an overreliance on generic, me-too products etc. See earlier emails.
UK 2020 BUDGET – PUBS & BARS:
Depending on who you feel inclined to listen to, the Johnson government’s first budget, and the first of any sort for 499 days, was either a massive boost to business and consumers, a move back to tax and spend (but without the tax) or was overshadowed by the coronavirus. Indeed it may have been all of the above. The trade has responded as follows:
• UK Hospitality is pleased with the suspension of business rates (for many smaller businesses), for sick-pay refunds and for the £3,000 cashback to businesses that are currently eligible for Small Business Rates Relief.
• UKH points out that larger operators were ‘utterly ignored at a time of business crisis.’ It says ‘punishing payments [to the taxman or rates collector are] still expected of companies whose venues may not be able to open or operate.’
• UKH welcomes the £5,000 pubs business rates discount and it is pleased that alcohol duties were frozen.
• The Small Independent Brewers’ Association (SIBA) says UK pubs (and the brewers who supply them) are ‘massively relieved to see the package of measures announced by the Chancellor to support us today.’ It is particularly pleased with the beer duty freeze saying ‘the government has shown it is backing Britain’s independent brewers, pubs and drinkers.’
• SIBA, referring to the Small Breweries Relief Review that will be announced in Spring, says ‘small brewers need certainty so they can plan for the year ahead. We need positive reform of SBR, much like we’ve had positive support today to allow that to happen.’
• The BBPA is broadly pleased saying ‘pub goers across the UK will be toasting the Chancellor tonight for freezing beer duty. This freeze alone will save pub goers £80 million and secure 2,000 vital jobs across the country.’
• The BBPA would like to see a further substantial reform of the business rates system and it points out that ‘pubs pay 2.8% of rates despite accounting for only 0.5% of rateable turnover across the country.’ It says ‘overall, this has been a great Budget for pubs, pub goers and Britain’s world-class brewing industry.’
• The British Institute of Innkeepers has ‘warmly welcomed the support shown to the hospitality industry by Rishi Sunak in his first budget as Chancellor.’ It says ‘we are extremely pleased that in these turbulent times, government is taking the radical step of abolishing business rates for pubs with a rateable value of less than £51k for the next year.’
• The BII says ‘pubs are at the core of high streets and rural communities alike and the challenges they currently face are unprecedented. This relief, coupled with the sick pay support for those self-isolating in the midst of Coronavirus, is great news for those working in the frontline of hospitality.’
• See comments re travel & hotels below.
PUBS & RESTAURANTS:
• C&C has updated on trading for the year to 29 February 2020 saying that numbers are ‘expected to be marginally ahead of current market estimates’ with EPS growth of c10% ‘in line with the Group’s stated guidance for FY20 and follows prior year double-digit EPS growth.’
• C&C goes on to say its CEO recruitment process ‘is progressing’ and it ‘reaffirms its medium-term guidance for the Group of mid to high single-digit EPS growth.’ However, it does add that ‘this guidance assumes no material or prolonged impact from COVID-19, which we are monitoring closely.’
• Intu has reported full year numbers saying that it lost £2.02bn after losing £1.17bn in the prior year. It lost, this year alone, some 145p per share. The group’s shares are trading at a little under 6p. It describes the year as challenging. It’s worth remembering that, as shares cannot go to negative values, they may at times fail to reflect the true ‘worth’ of a company.
• Re the outlook, Intu says ‘we would expect like-for-like net rental income to be down, but by a lower amount than 2019. The Covid-19 situation is rapidly evolving and we are closely monitoring the impact on our centres. Our footfall is broadly unchanged for the first 10 weeks of 2020.’ The group is attempting to raise funds.
• NRN reports that Seattle has become something of a hotspot for the coronavirus in the US. Sales across restaurants were down 10% in the week to 1 March. However, Black Box Intelligence does add that this period ‘includes a day or two of heightened public awareness.’
• PepsiCo is to buy energy drink Rockstar Energy Beverages for $3.85bn.
• The British Craft Beer Report 2020 from SIBA has highlighted that 50% of customers believe that genuine craft beer must be produced by a small independent brewery.
• Coffee shop sales have reached an all-time high of £4bn this year, however, nearly half of consumers are purchasing their coffees from fast food outlets and supermarkets.
• Camden Town Brewery founder Jasper Cuppaidge has announced the brewery is looking to develop its own 0% ABV beer, however, he stressed that it may not be anytime soon.
• Worker strikes at Greene King warehouses have been canceled after a pay agreement was reached this week.
• McDonald’s USA has stated it will pay quarantined workers at corporate-owned restaurants. The McDonald’s Corporation commented: ‘The health and wellbeing of our people, our customers and our communities is our highest priority and drives our decision making. As we proactively monitor the impact of the coronavirus, we are continuously evaluating our policies to provide flexibility and reasonable accommodations. Our people are the heart and soul of the McDonald’s family and, of course, we will support them through this unique circumstance’.
• Starbucks is reported to be offering emergency catastrophe pay in the US during the current coronavirus pandemic. The company says any Starbucks employee that has been diagnosed with COVID-19 or has come into contact with someone who has will self-isolate at home and will receive up to 14 days of full pay, which can then be supplemented by additional paid time off benefits.’ There will be “additional pay replacement” for up to 26 weeks.
• The above may begin to put pressure on UK leisure sector employers to say something similar. The BBC reported that JD Wetherspoon was proposing to treat the coronavirus like any other disease for sick pay purposes.
• JD Wetherspoon has apologised for making a female customer feel ‘uncomfortable’ after she noticed CCTV in the pub’s toilets, even though the pubco defends its right to have cameras in lavatories in order to prevent crime.
• The World Health Organization has now labelled the coronavirus outbreak a pandemic. This changes little.
• Harrogate-based TEA PLUS expands to the Middle East following an increase in online orders from the region.
• Drinkaware has launched a new anti drink driving campaign in pubs, clubs and bars to encourage drivers to stay alcohol-free. The new campaign is called ‘Home and Dry’.
• Ardberg whisky distillery is set to launch its first beer, called ‘The Shortie Smoky Porter.
HOLIDAYS & LEISURE TRAVEL:
• Raising the stakes.
• The US has banned travel into the US from 26 European to battle the spread of coronavirus. The restrictions apply from midnight on Friday for 30 days. The UK is not included in the ban.
• Patchy or no insurance cover will not boost holiday sales.
• LV (was London Victoria) has said that it will not sell travel insurance in view of the coronavirus outbreak. It says it is doing this rather than hike prices. Which magazine says ‘it’s very alarming that LV have withdrawn the sale of travel insurance and that other providers have also started restricting the policies they offer customers.’
• PPHE Hotel Group yesterday updated on trading saying that ‘over recent weeks there has been reduced demand for international travel which has resulted in an increase in cancellations and a slowdown in future bookings across the travel and hotel industry, including the Group’s estate.’
• PPHE says ‘it is too early to provide any meaningful estimate of quantum on the Group’s earnings for the current financial year’ but adds ‘the necessary actions to minimise the impact on the business are being taken.’ There is probably little more that PPHE (or many other companies) can say at this point.
• HVS has said that a number of the Chancellor’s measures ‘should assist the UK hotel sector in the wake of the coronavirus, which has already precipitated a number of events and overnight stays in hotels to be cancelled or postponed, thereby causing a fall in hotel occupancy.’
• Travel leaders foresee the most-serious challenge in the sector’s history as coronavirus spreads and governments implement differing levels of lockdowns.
• Cola Holdings is seeking a £1bn offer for its Mayfair property estate which includes The Westbury Hotel, Bond Street’s Burberry store and a private members club.
• Heathrow saw 5.4m passengers in February, down 4.8% yoy largely due to lower demand on Asian and European routes.
• A study by the Global Business Travel Association has found that the spread of coronavirus is forcing companies to drop meetings and institute blanket business travel bans.
• The World Travel & Tourism Council has been forced to delay its annual Global Summit till autumn due to COVID-19.
• A British female passenger on a river sailing with Viking in Cambodia has tested positive for coronavirus. The other 62 passengers are being tested for COVID-19. An infection on another cruise ship will do little to steady nerves in the cruise industry, which has been challenging US advice to older would-be passengers should think twice before embarking on a cruise holiday.
• Chancellor Rishi Sunak ignored the aviation industry’s requests to cut or suspend Air Passenger Duty (APD) in the Budget and instead announced an inflation-linked rise in the tax on flying.
• Majorca currently has 10 confirmed cases of coronavirus, leading to several hotels reportedly staying closed. The Sun said ‘The Hotel Chain Association (ACH) told local media ‘there are more cancellations than reservations’’.
• Hays Travel has cancelled its homeworker conference in Tenerife, which was due to take place on March 24-28 at the Hard Rock Hotel.
• India suspends all tourist visas to prevent the spread of coronavirus in the country.
• Cineworld has reported FY numbers to end-December 2019 saying that revenues were $4.37bn (down from $4.66bn last year) and adjusted EBITDA was $1.03bn (2018: $1.07bn).
• CINE adjusted EPS is 28.0c (2018: 25.7c) and dividend is up 3.3% at 15.5c. Re the outlook, CINE says it has seen ‘solid box office performance year to date with compelling film slate scheduled for 2020.’ This despite covid-19 fears etc. The group says ‘there can be no certainty as to the future impact of COVID-19 on the Group, however we are taking measures to ensure that we prepare our business for all possible eventualities. We have highlighted the potential impact this could have on the Group within our going concern statement in this document.’
• Adidas shares fell yesterday as the group said a sales collapse in Asia will cut €1.1bn from revenues.
• The Manchester City vs Arsenal Premier League match was suspended last night after players from the London club came into contact with a Greek football executive suffering from coronavirus. There are some concerns, at least in the Langton household, that the league could be suspended.
• The US National Basketball Association has suspended its current season after a player tested positive for covid-19.
• Former BBC boss Greg Dyke has said ‘the idea that you have a compulsory tax on the TV set sitting in the corner is dumb.’
• Cinemas: It’s probably fair to say that MGM, Universal and the producers of the latest James Bond film, No Time to Die, have spent a great deal of time and energy in coming to the conclusion that now was not the best time to be releasing a film.
• Regarding attendance at UK cinemas going forward, consumers will be the arbiter in the short term and they will vote with their feet. In the medium term, as is the case in Italy, cinemas may be obliged to close by the authorities. Ironically, this may allow them to enter into discussions with their insurers as to who, ultimately, will bear the cost.
• A digital tax is set to be introduced by the government from 1 April. The measure will tax 2% of online revenues made in the UK by companies such as Facebook, Google and Amazon.
FINANCE & ECONOMICS:
• The Bank of England has cut interest rates from 0.75% to 0.25%. Outgoing governor Mark Carney says the Bank has seen a “sharp fall in trading conditions” associated with concerns re the coronavirus.
• Moody’s has said that the above is credit positive for UK banks.
• The ONS has updated on GDP growth (backward-looking) & the NIESR has said the UK economy remains on course to grow by 0.2% in first quarter of 2020.
• The NIESR goes on to say ‘the outbreak of the Coronavirus poses a major threat to the economic outlook. With supply chain headwinds now arising as a result of the outbreak, there are substantial downside risks to the near-term outlook.’
• The UK stock market fell yesterday despite what was seen as a tax & spend Budget (but without the tax) and a rate cut.
• The Dow Jones Industrial Average is technically in bear market territory as it is now 20% below its peak (of only 4wks ago).
• Sterling lower at $1.2819 and €1.1349. Oil lower at $34.24. UK 10yr gilt yield unchanged at 0.28%. World markets lower with Far East down in Thursday trade. UK market set to open down by as much as 300pts.
• Michael Gove has said the coronavirus may delay talks with the EU.
START THE DAY WITH A SONG:
Yesterday’s song was It’s oh so quiet by Bjork. Today, who sang:
“I am going to the corner, gonna buy a diamond ring.
When she hugs me and kiss me make me ting-a-ling-a-ling”
RETAIL WITH NICK BUBB:
• Market Watch: The All-Share index ended down 1.5% yesterday, despite an initial rally on the back of the emergency interest rate cut ahead of the giveaway Budget. Wall Street ended nearly 6% down last night and the Nikkei index in Japan closed 4.4% down overnight (after the hapless US President imposed punitive restrictions on travel from Europe to the US, in a desperate attempt to stop the spread of the coronavirus epidemic) and so the UK stockmarket is expected to fall heavily again this morning, with the FTSE 100 likely to be nearly 300 points down
• Intu Properties: The delayed Intu Properties finals today lay bare the deadly combination of falling shopping centre asset valuations and a heavily indebted balance sheet, but the Outlook statement by CEO Matthew Roberts puts a brave face on things: “In a world where it is harder for retailers to increase profits, our centres offer them the best opportunity and many, such as Next, Primark and JD Sports, are thriving”. There is no analysts meeting or conference call, as there is nothing new on top of the detailed trading update last week.
• Other News: Moss Bros is being taken private at 22p by a consortium. The COO of Lookers has resigned with immediate effect. B&M has agreed to sell its loss-making German business. And Frasers has re-started its share buyback.
• TIPS Watch (3): The great 4-day Cheltenham Festival jumps racing continues today and our alter ego, “Honest Nick”, is bringing you his each-way Tips each day. Yesterday was a great day for the Irish horses in general and the Irish owner JP McManus in particular, and we are pleased to report that “Honest Nick” managed to pick his first winner, with Easysland winning the Cross-Country race at 4.10 at 3-1 (making up for the very disappointing performance of Copperhead in the 2.10 and Stratum in the 2.50). Today should be a better day for the English horses, with Paisley Park the banker in the big race at 3.30pm today. As our “Three to Follow” today, however, we’re going with Itchy Feet (e/w) in the 1.30, Relegate (e/w) in the 2.10 and Frodon (e/w) in the 2.50.