Langton Capital – 2020-05-01 – PREMIUM – Ending lockdown, new normal, Intu, Carlsberg, Gregg’s etc.:
Ending lockdown, new normal, Intu, Carlsberg, Gregg’s etc.:
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A DAY IN THE LIFE:
The dog hasn’t been paying much attention to news reports that the binmen are a group of heroes in the current environment.
And hence he’s zealously guarding us (and our rubbish) from them meaning that he can’t go outside until mid-morning of a Wednesday and has to bark and drool impotently when he hears their reversing beeper and the clatter of last week’s chuck-out as it gets crushed up by the lorry’s snazzy squashing machine.
And that can leave him in a bad mood until he sees a rabbit, gets thrown a biscuit, or finds a yummy bit of yesterday’s food (or random garden rubbish) stuck to his fur somewhere that he can suck on for an hour or two.
Still, that’s not all bad. Not for him the stress and worry of the ongoing lockdown.
Anyway, we were confused as to whether this weekend or next weekend was going to feature the Bank Holiday. And then we realised that it didn’t matter. Follow our intra-day ramblings on @brumbymark. On to the news.
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• Smoothing us out of lockdown.
A SMOOTHED END TO THE LOCKDOWN? The industry would like to see government support maintained into the post-lockdown period. 1 May 2020:
• Not to be paid back. £10,000 for small rateable premises & £25,000 for larger units. Nothing for large sites. No business rates for anybody this financial year. Job Retention Scheme payments up to 80% of an employees’ normal wage.
• To be repaid. VAT deferred, other taxes not being chased up, government support for some smaller loans, little take-up of the large company loans as those that need it can’t have it (they’re not investment grade) and those that can have it don’t want it.
Support on the sly & other:
• Many operators are not paying rent. Some suppliers are going unpaid, many companies have cut directors’ wages, head office costs etc. Capital spending has been curtailed and companies have drawn down existing credit facilities etc.
Getting back to normal.
• This cannot be ‘if’. It therefore has to be ‘when’ and ‘how’. See our comments earlier in the week re Spain.
• The government in the UK is to outline its plans shortly. It would be surprising if these did not bear some resemblance to plans elsewhere in Europe.
• We might expect small businesses and outside areas to be freed up early in the process. Then maybe some inside areas – subject to distancing and perhaps a maximum number of people in any venue at one time.
• This may be necessary if the authorities are to have any realistic chance to track outbreaks. Twenty-five or fifty people in a pub might be comprehendible but 60,000 people in Wembley, a third each from Manchester, Newcastle and every borough in London is going to be difficult to track.
• Allowing Cheltenham may have been a mistake.
So much for supply. What about demand?
• The above assumptions may be wrong but, if they are ballpark, a large pub may be able to ‘supply’ around 25% of its previous product.
• Perhaps more if it has outside areas but a 50-maximum, as in Spain, wouldn’t work for big sites, let alone a very large nightclub or venue such as Dinerama.
• It would not be worth these units opening.
• Still, estimates vary. Fuller’s Simon Emeny has mentioned potential LfL sales drops of 80%. JD Wetherspoon has mentioned minus 10% to minus 25% but they can’t both be right.
• And demand could be muted. That word again but these really are unprecedented times and the response of customers is hard to gauge.
• Surveys have suggested 70% plus would be cautious or very cautious. Certain age-groups could be harder to coax out of doors than others.
The worst outcome:
• We have suggested previously that government may be tempted to privatise the problem. That is, withdraw support, throw the chick out of the nest to see if it can fly.
• But the problem is, we know that it couldn’t. At least not under the above conditions. Hence the concerted lobbying for maintained support.
Furlough vs subsidised wages? A smoothing mechanism.
• Furloughs have the advantage that they are here already.
• But people’s lives are on hold. And you need more than 25% of your labour force to sell 25% of the volume that you had been selling in early March. Meaning that surely a more sensible solution would be subsidised wages?
• This will go against everything that any true blues in the Commons may believe in but needs must when the devil drives.
• Pinching this straight from a reader’s suggestion, how about half the national wage paid by government to previously furloughed workers for 3mths and 25% for another 3mths?
• More smoothing may be necessary thereafter. And scrap business rates and cut VAT on hospitality sales for good measure?
• The bill to the taxpayer would be truly horrendous but, at the end of the day, at least we would have an industry left, a pub to sit in to swap war stories next summer etc.
• And that’s surely a good thing, isn’t it?
PUB & RESTAURANT NEWS:
• UK Hospitality has reiterated its view that government support will need to continue for some time after the lockdown has ended. See our comments on smoothing above.
The new normal:
• A survey of 260 restaurant and bar operators undertaken by Square Meal has found that three quarters of them have warned that they do not expect their businesses to survive with social distancing measures in place. Just over a quarter say they would not be able to impose social distancing at all. Almost half said that they will need to make staff redundant in the next month.
• The FT reports once more that the UK consumer is turning back to processed foods during the lockdown.
• Home Secretary Priti Patel has said that the government ‘will expect social distancing in every single work area.’ New norms will be introduced. Ms Patel said ‘the fact of the matter is we will not go back to how we were in early March.’
• Food equipment manufacturer Middleby corporation is the subject of a private equity company report suggesting that there will be no ‘v-shaped’ recovery.
• Various operators have suggested that the recovery from the current level of virtually zero sales will not be rapid. UKH says ‘social interaction is key to hospitality, so at a time when public health is rightly the Government’s top priority, it is essential that our sector is seen as a special case.’
• Wundamail research has suggested that employees would like to have fewer video calls as they believe that they could achieve more without them. Some 42% of remote workers believed that they were more productive without video conferencing. Will Ferrell does a lengthy but pointed spoof on meaningless communications in his Lang Haired Businessmen do Zoom.
• Wundamail says on video calls, more than 40% of participants dial in and contribute nothing.
• The ONS has reported that UK retailers cut the prices of non-food items by the largest amount since at least 2006 this month. Many will be stuck with ageing stock.
• Waiting for ‘exploring options’ news from Vapiano, Busaba and a number of others.
• Property company Intu has updated again saying that it ‘can now confirm we have agreed waivers for certain potential breaches which could have arisen, including in particular under our RCF.’ The company says ‘we have continued to collect rent and have now received 40 per cent of the rent and service charge for the quarter. We are now offering monthly rents to the end of 2020 and are in advanced discussions with customers representing a further 28 per cent of the amounts due.’
• Intu says ‘the remainder of customers are at various stages of discussions regarding revised payment plans. However, there are a very small number of cases where customers are not currently engaging with us to find a consensual solution – these are large, well-capitalised brands who have the ability to pay but have chosen not to. In these instances we are prepared to take more robust action to enforce the legally binding terms of those leases.’
• Carlsberg has reported sales down by 7.4% in Q1 with CEO Cees t’Hart warning that worse is to come. Sales in China were down 20%. The company says ‘we see some pockets of demand in bars and restaurants, but in general it’s a relatively slow recovery in China.’
• Carlsberg says on trade revenues were down 6% in Europe in Q1. They will clearly be much lower still in Q2. Carlsberg says ‘social-distancing requirements will continue and will impact consumer behaviour.’
• A number of operators have announced the reopening of (some of their) sites for delivery and collection. Caffè Nero has said it will be re-opening eight stores during the week of the 4 May on a trial basis for takeaway. Franco Manca will be opening five sites for takeaway from today, Honest Burger is opening sites, Pret is to open more in London and GBK is also to reopen a number of sites.
• Meanwhile Gregg’s has rowed back on plans to reopen 20 of its shops next week after a social media response that suggested the units could draw crowds. The company says that an ‘excessive numbers of customers’ could make it hard to implement distancing measures.
• El Pollo Loco in the US says that its delivery business has seen sales treble.
• Amazon has reported a surge in sales in Q1. The retail giant says that sales in the quarter were up by 26% on the same period last year. Jeff Bezos says ‘the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before, but it’s also the hardest time we’ve ever faced.’
• Remy Cointreau has reported that Q1 sales were down by 24% as a result of disruption caused by the coronavirus outbreak. The company now anticipates destocking in China and a sharp reduction in European and North American demand.
• Boparan Restaurants are in exclusive acquisition talks with the administrators to Carluccio’s.
• TGI Fridays is to launch a click & collect service at 24 of its UK restaurants next week.
• Everards has cancelled rents due from its business owners.
• Oasis and Warehouse have closed their stores in the UK permanently. Some 1,800 jobs are to be lost.
• Brinker International in the US has said that sales are running at around 57% of last year’s levels.
• Property agent Jones Lang Lasalle has said that the restaurant industry will face a tough task when it reopens. It says capacity within venues may have to be limited and more customers could cook at home.
• JLL says ‘landlord-tenant collaboration will be key’. It says landlords and tenants will have to work with one another. This will almost certainly mean a sharing of the revenue hit.
• Down day for the sector with major moves including Cineworld & Saga, down 5%, Carnival, Compass, DART Group down 6%, SSP and TUI down 8% and Intercontinental Hotels 9% off. Risers included City Pub Company and Marston’s, up 8% and DP Eurasia, up 15%.
HOLIDAYS & LEISURE TRAVEL:
• PM Boris Johnson has said that he sympathises with ‘everybody in the tourism industry’
• The Competition and Markets Authority is to look into complaints that travel companies have not been paying refunds to their customers. The CMA says it has seen ‘increasing numbers of complaints in relation to cancellations and refunds, which now account for four out of five complaints being received.’
• Tripadvisor has cut 900 jobs.
• Hotstats has reported that US gross operating profit per available hotel room (GPPPAR) has fallen by 110.6% (to a loss of $12.71 per room) in March this year compared with the same month last year. Some markets have performed particularly badly. New York profit is down 273.8% to a loss of $112.17 per room.
• Spotify has reported Q1 revenues up sharply in Q1. The group reports revenues of €1.848bn with a positive net income of just €1m. Spotify says ‘despite the global uncertainty around COVID-19 in Q1, our business met or exceeded our forecast for all major metrics.’
• Blackstone has put $350m into casino operator Crown.
• Apple sales rose in Q1 though by only 1%. Sales in the period to march were $58.3bn.
FINANCE & ECONOMICS:
• UK car production was down by 37% in March compared with March last year. April will be further down. Q1 has seen the lowest volume since 2009.
• Another 3.8m American workers have filed jobless claims.
• Sterling up vs dollar at $1.2568 but level vs Euro at €1.1477. Oil up sharply again at $27.00 and UK 10yr gilt yield down 5bps at 0.24%. World markets down with the Far East mixed in Friday trade. London set to open down about 85 points (as at 7am).
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Today’s News: There is no sign of an AGM update from the Covent Garden landlord, Capital & Counties, but its former stablemate, the embattled Trafford, Metrocentre and Lakeside landlord, Intu Properties, has issued an update to flag that it has received some debt covenant waivers and is still trying to collect Q1 rents. Interestingly, Intu highlight that “a very small number of cases where customers are not currently engaging with us to find a consensual solution – these are large, well-capitalised brands who have the ability to pay but have chosen not to. In these instances we are prepared to take more robust action to enforce the legally binding terms of those leases”. Elsewhere, the Q1 results from Heathrow note a 97% collapse in passenger traffic in April…whilst the video game developer Frontier Developments have announced that it has acquired a licence from Games Workshop to
• BDO High Street Sales Tracker: We highlighted on Wednesday that, thanks to a big spike in Online sales, John Lewis sales were probably “only” down by c25% overall in w/e April 25th. However, the BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that in w/e Sunday April 26th, Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by 29% (down c84% in Store sales, but up by c90% in Online sales), albeit the comp was with the week after Easter last year.
• Trade Press: Neither Retail Week magazine or Drapers magazine have been published this week, alas, but both the websites have plenty of news and features. The Retail Week website has a feature on “Will Dixons Carphone’s ShopLive be retail’s answer to Zoom?”, whilst the Editor looks in his column at the question of whether the CMA should encourage more M&A activity and thunders that “Amazon-Deliveroo verdict must spark more collaboration amid Covid-19 crisis”. The Drapers website pushes the “Drapers Connects” Digital events, which show how to learn from various industry leaders, as well as the latest news from the fashion industry, eg the exit of the once well-regarded Oasis and Warehouse MD Hash Ladha.
• News Flow Next Week: As we move on into May, the pace of Retail company news should slow down a bit next week, ahead of the rescheduled Bank Holiday on Friday, but Wednesday brings the Ocado AGM update, whilst on Thursday we get the Superdry pre-close, as well as the Howden AGM update, the pre-close from The Works and (in Europe) the Zalando Q1. Thursday also marks the end of the latest 3-week lockdown period, that began back on March 23rd…with the Government set to at last spell out its exit strategy…Coincidentally, GFK will be issuing a “flash” UK Consumer Confidence survey first thing on Friday.