Langton Capital – 2020-05-05 – High Street, finance, new normal, Carnival, the consumer & other:
High Street, finance, new normal, Carnival, the consumer & other:
A DAY IN THE LIFE:
I must have dropped a morsel of food from the dinner table some time in 2012 and, as a result, the dog has laid in the same spot for eight years waiting for me to do so again.
And, much to his disgust, I haven’t – or rather I should say hadn’t because, over the weekend, a gravy covered potato skidded off my plate, did that slow motion thing where it bounced of my trouser leg and then, bam, it was in the dog’s mouth.
So, like a cricketer in the slips with the openers on 180-0, his persistence paid off and, in his tiny little brain, all sorts of self-congratulatory fireworks must have been exploding because it was all he could do to stop himself from doing a victory lap of the living room before he got down to the serious business of waiting for the next bit of food to head in his direction.
Hence, with yesterday’s introduction in mind, whilst he thinks now that patience is indeed a virtue, he needs to be told that a rolling stone gathers no moss. Follow us intra-day on Twitter (@brumbymark) and see yesterday’s tweets at the foot of the email. On to the news:
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• Signs that the politicians ‘get it’.
• Changing shape of the High Street.
• Seasonal issues & Covid-19.
• Analyst comment
DO POLITICIANS REALLY GET IT? Or do they think that getting ‘back to normal’ will be as easy as flicking a switch? 5 May 2020:
Bish, bash, bosh. Job done? It’s easy to imagine that politicians do not comprehend the scale of the task facing the hospitality industry when it tries to get back to anything like what used to be called ‘normal’. See Premium Email.
PUB & RESTAURANT NEWS:
Government and other aid:
• The BBPA has said that ‘pubs [are] in desperate need of access to finance now, with 75% still waiting on loans and more than 50% yet to receive grants.’ It is urging the faster delivery of the Government backed loans and grants
• The BBPA has surveyed its members and finds that ‘thousands of the UK’s pubs are being left without the financial support they have been promised to get them through the COVID-19 lockdown, leaving many under intense strain and in real jeopardy of closing.’ It says 58% of leased and tenanted pubs were yet to receive a £10,000 grant they were eligible for and 61% of pubs hadn’t yet received a £25,000 grant they were eligible for. The payment here has been patchy across local authorities.
• Only 25% of applicants for government backed loans have been told that their applications have been successful. Individual pub lessees have had even less success with only 11% of them so far being told that they will be able to access loans.
• The BBPA’s CEO Emma McClarkin says ‘more than half of pubs are yet to receive the grants they are eligible for and 75% are still waiting on a decision on the Government backed loan they have applied for. Pubs and breweries have large costs to cover, so they are experiencing significant cash flow issues. How can the Government expect them to survive the COVID-19 lockdown without this vital financial support?’
• It says ‘if the Government doesn’t take decisive action now to both widen and speed up the delivery of grant payments and their loans, then pubs and breweries are at real risk of not surviving the lockdown and jobs will be lost across the UK’ and concludes ‘the UK’s 47,000 pubs urgently need the support they have been promised. The Government must deliver it now.’
• Some 85 Conservative MPs have written to Chancellor Rishi Sunak to call for an extended package of support measures to be made available for hospitality and tourism businesses.
• The letter calls for extended business rates support, VAT rebates and an adaptation of the furlough scheme to allow a partial return to work. This seems to be pushing in a sensible direction but the key problems and issues will be 1) the political will to continue supporting some but not other sectors and 2) the financial ability, drawing from a reduced tax base, to be able to do so.
The new normal:
• Pragma Consulting says that some F&B operators ‘are adapting in the short-term through switching to a purely takeaway and delivery service’ whilst others are ‘focusing efforts on trial re-openings.’
• It could be that there simply isn’t enough money in delivery and takeaway for businesses with a predominantly dine or drink in business model to stay in business. Pragma points to re-openings of 100 KFC restaurants, a number of Pret sites and other grab and go outlets.
• It is not possible for dine-in restaurants and pubs to reopen although some are delivering to customers and many are using this as a way to stop much of their physical and mental machinery from rusting up.
• Pragma (and many others) point to the difficulty of making a decent return from a unit where customers have to try to keep 2m distant from both each and from staff. Pragma says ‘it is uncertain when non-essential retailers and eat-in restaurants will be able to reopen in the UK, and once the case, it will likely be a slow road to recovery to `normal’ levels of trading, as lockdown measures are gradually lifted. Consumers will likely remain cautious and show resilience for some time and consideration must be given to how quickly full store and restaurant portfolios should reopen.’
• Analyst Peter Backman has suggested that the impact felt by the foodservice industry from Covid-19 could fall into three stages. The first is the lockdown, the second is the stage between the lifting of the lockdown and anything approaching normality and the third stage could be the ‘new normal’.
• Backman says that ‘the first moment of truth will arrive at the end of June when rents are due. In March, a large percent went unpaid: will those landlords who were somewhat understanding last time, remain so?’ This is somewhat unlikely as landlords have bills to pay too.
• It’s perhaps easy for us to concentrate too much on the supply side. How can restaurants cope during the lockdown, how will pubs restock their cellars etc.? But it may, ultimately, be consumer rather than supplier behaviour that determines the longer-term impact of Covid-19.
• The Bank of England reports that households turned against debt in March, both to fund house purchases and to boost day-to-day spending. Households made net debt repayments of £3.8bn on the month.
• The government is now paying up to 80% of the wages of the wages of 6.3 million workers under its furlough scheme at a cost of £8bn. This averages out at £1,270 per person, per month, which seems a little low. That would equate to 80% of a salary of only £19k against an average salary in the UK of around £29k. Langton had a guestimate of around £40bn for the 3mth minimum period that the furlough will be in place.
• Just how the above will impact customers is unclear. Tips are not covered. Employers may or may not be making the 80% up to 100%. Consumers (workers) may therefore be moving gently backwards in terms of savings and they may have to cut back on some spending going forward.
• And the above number does not include out-and-out redundancies. British Airways, various shop chains that have called in administrators, Ryanair and Rolls Royce have all announced staffing reductions.
• The TUC is warning that it may oppose a return to work unless staff (and presumably commuters) can be offered some protection. TUC boss Frances O’Grady says that her body cannot back government advice in its ‘current form’.
• We will get details of the UK’s proposed exit from lockdown on Sunday. We are beginning to see the first moves from Italy, Spain, Ireland and others.
• In the US, Denny’s Corp has announced that LfL sales were down by 76% in April. The company says ‘the COVID-19 pandemic and various related government mandates restricting dine-in restaurant service have continued to disrupt domestic and international operations for Denny’s Corp. and its franchisees.’
• Texas Roadhouse in the US has reported that ‘for the January, February and March periods, comparable restaurant sales at company restaurants increased 8.0%, increased 4.2% and decreased 29.7%, respectively.’
• The company says ‘the March period was negatively impacted by the onset of the COVID-19 pandemic. For the quarter, comparable restaurant sales decreased 8.4% at company restaurants and 8.5% at domestic franchise restaurants.’ CEO Kent Taylor says ‘I have no doubt we will emerge even stronger than before.’ The company says ‘during the March period, with the onset of the pandemic, all domestic restaurants transitioned from full-service dining to an expanded To-Go operating model over the course of several weeks which impacted average weekly sales. For the period, comparable restaurant sales per week and the average weekly sales and To-Go sales for all company restaurants, were as follows:’
• Constellation Brands has increased its stake in cannabis company Canopy Growth to some 38.6% of the business.
• Fiona Dickie commenced her job as the new pubs code adjudicator yesterday. The Morning Advertiser quotes her as saying ‘I am acutely aware of the stress and uncertainty tied pub tenants are facing at this time, and of the potential for a long-term impact on their businesses and their relationships with their POB of large rental debts from the period of lockdown. My involvement in promoting code rights as the industry pulls itself out of the impact of the outbreak will be sustained for as long as it takes.’
• The IHS Markit Services PMI for April is announced at 9.30am this morning.
• Down day yesterday with DP Eurasia, Flutter, Hostelworld, Marston’s down 5%, Gregg’s, Hollywood Bowl, Gym Group and Rank down 6%. Wizz Air was 7% lower, Cineworld down 8%, New River down 9% and SSP was 11% lower.
HOLIDAYS & LEISURE TRAVEL:
• The cruise line body CLIA has said that 61% of consumers who had never cruised before would be ‘very likely or likely’ to take a cruise in the next two years. That seems rather optimistic. The 61% is down from a figure of 71% in autumn last year.
• CLIA says this is ‘not a massive drop and so suggests that cruising is still robust. Once the time is right and people can travel again, this shows that people will cruise again.’
• Carnival Cruises, which is being investigated by the US congress over the way in which it dealt with disease outbreaks on its ships, had said it plans to resume services on 1 August. With fixed costs at the levels that they are, one can see why the company would say that.
• This morning, the company has announced that it has ‘issued the following update to our news release today concerning a further delay of operations for most of our fleet until August 31.’ It says ‘some of the media reports have not fully conveyed the contents of our previous media statement and why certain itineraries were not being cancelled. Carnival reiterates that this is our current plan contingent on a number of factors.’
• Carnival says ‘any resumption of cruise operations – whenever that may be – is fully dependent on our continued efforts in cooperation with federal, state, local and international government officials. In our continued support of public health efforts, any return to service will also include whatever enhanced operational protocols and social gathering guidelines that are in place at the time of the resumption of cruise operations. We are committed to supporting all public health efforts to manage the COVID-19 situation and will continue to keep our guests, travel agent partners and other stakeholders informed.
• The company’s P&O subsidiary has said that it is pausing operations in Australia and New Zealand until at least 31 August.
• Travelodge has asked its landlords for £146m of rent reductions over the next two years. The FT has seen a letter in which the group tells its landlords that it expects to lose some £350m in revenue this year with a slow recovery thereafter. A group of 82 landlords has reportedly written to the company rejecting earlier requests for a 50% reduction in rents. Travelodge is owned by New York-based Golden Tree Asset Management and Avenue Capital alongside Goldman Sachs.
• Investors in airline Norwegian Air Shuttle have supported debt-for-equity swap. This should open the way for state aid.
• Hotel company Loews has said that its hotel division lost $38m in Q1.
• Ride Electric, an electric bike specialist in the North East of England, has launched a crowdfunding campaign to fund growth.
FINANCE & ECONOMICS:
• Accountant Deloitte has said that business confidence at British companies has sunk to an all-time low as a result of Covid-19.
• The head of the EU’s agency for disease control has said that the UK is one of a handful of European countries yet to lock in a downward trend in coronavirus victims.
• China has published a short cartoon poking fun at the US’s handling of the coronavirus outbreak. Several versions are available on YouTube entitled ‘Once upon a Virus’. It may do little to defuse trade & virus blame game tensions
• There were 1.8m additional claims for welfare payments in the UK between 16 March and the end of April says the government.
• Trade talks between the UK and the US will commence today. Observers say the deal could take many years to complete.
• New car registrations in the UK fell by 97% in April compared with the same month a year ago per the SMMT.
• Sterling stronger at $1.2462 and €1.1424. Oil higher at $28.27. UK 10yr gilt yield down 2bps at 0.23%. World markets mixed yesterday. UK & Europe lower but US higher. Far East mixed in Tuesday trade. UK market set to open up around 85pts.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• The Grocer Watch: The widely followed Grocer “33” weekly supermarket pricing survey in Saturday’s The Grocer magazine saw Asda win again, for the eighth week in a row, but by a much narrower margin. The overall Asda basket cost £69.22, with Tesco £1.24 behind, on £70.46. Morrisons was on £71.62 and Sainsbury was on £72.88, but Waitrose was miles behind on £83.02… The separate and newly extended Grocer “Mystery Shopper” weekly survey on Store Service and Availability was again won by Tesco, as its well-organised 36,000 sq ft superstore in South Queensferry in Scotland came top, with a huge 92 points out of 100, in a high-scoring week.
• News Flow This Week: The pace of Retail company news should be slower this week, ahead of the rescheduled Bank Holiday on Friday (aka VE Day) and today has been quiet, but tomorrow brings the Ocado AGM trading 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. And GFK will be issuing a “flash” UK Consumer Confidence survey first thing on Friday.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 29 Apr 20 YUM Brands Q1 numbers
• 29 Apr 20 Nichols AGM
• 30 Apr 20 Sainsbury FY numbers
• 30 Apr 20 Carlsberg Q1 update
• 1 May Covid-19 update: Intu
• 4 May Covid-19 update: Hotel Chocolat
• 4 May 20 Texas Roadhouse Q1 numbers
• 4 May 20 Shake Shack Q1 numbers
• 5 May 20 Coca Cola Q1
• 5 May 20 Disney Q1
• 7 May 20 AB InBev Q1 numbers
• 8 May 20 Marriott Q1 numbers
• 11 May 20 Marriott Q1 results
• 12 May 20 Morrison’s Q1 IMS
• 13 May 20 Ten Entertainment FY numbers
• 14 May 20 Premier Foods FY numbers
• 20 May 20 Britvic H1 numbers
• 30 May 20 Minoan AGM
• 7 May 20 Intercontinental Hotels Q1 numbers
• 7 May 20 Coca Cola HBC Q1 numbers
• 13 May 20 Stock Spirits H1
• 13 May 20 Compass Group H1
• 14 May 20 Flutter AGM
• 21 May 20 Young & Co full year numbers
• 27 May 20 Gym Group AGM
• 3 Jun 20 SSP H1 numbers
• 3 Jun 20 DP Eurasia AGM
• 3 Jun 20 C&C FY numbers
• 11 Jun 20 Fuller’s FY numbers
• 23 Jun 20 Gear4Music full year numbers
• 23 Jun 20 – Cranswick FY numbers
• 30 Jun 20 On the Beach H1
• 23 Jul 20 C&C AGM
Many results are likely to be delayed. For information purposes, the results below were delivered at these dates last year.
2019 COMPARATIVE RESULTS:
• 30 Apr 19 Whitbread FY numbers, 8 May 19 Elegant Hotels H1 numbers, 8 May 19 JD Wetherspoon Q3 update, 10 May 19 Millennium & Copthorne Q1 numbers, 14 May 19 Stock Spirits H1 numbers, 14 May 19 On the Beach H1 numbers, 15 May 19 SSP H1 numbers, 15 May 19 TUI H1 numbers, 22 May 19 Britvic H1 numbers, 22 May 19 C&C FY numbers, 22 May 19 Britvic H1 numbers, 23 May 19 M&B H1 results, 23 May 19 Young & Co FY numbers, 29 May 19 EasyHotel H1 numbers, 11 Jul 19 Dart Group FY numbers, 16 Jul 19 Fulham Shore FY numbers, 17 Jul 19 Nichols H1 numbers, 24 Jul 19 Marston’s Q3 trading update, 25 Jul 19 Fuller’s FY numbers, 25 Jul 19 Compass Group Q3 update, 25 Jul 19 Diageo FY numbers, 30 Jul 19 Gregg’s H1 numbers, 31 Jul 19 M&B Q3 update
• Covid ££ side effects #61. Polarising society? Lockdown zealots at one end with their weaponised frowns & empowered tutting & conspiracy, 5G Big Brother nut jobs at the other. Where’s the road back to normality? Note to self 3mths ago, where the hell am I?
• Test for conspiracy theory 5G Big Brother lizard people nut jobs: put these in the right order. Event, evidence, theory, conclusion. (Clue: The answer is not theory, theory, theory, conclusion)
• Lockdown observations #3. Gregg’s plans to reopen stores binned. Fears of pasty addicts being infiltrated by lockdown-defiance crowds? On balance, not a good look. Probably a good call.
• Lockdown observations #4. Business plan, thinking, vegetation, vegetate, to be devoid of conscious thought. Hence ignore the in-tray and, channelling one’s inner Trump, ‘it’s tremendous, it will all just, just go away, it’s like magic…’
• Covid ££ side effects #62. Questions for you. For a tenner, have we done a good job with lockdown? Easy one, answer is ‘yes’. And the second question, a tad tougher, this one. For a trillion quid, how do we get the country back to work?
• COVID Qs #19: Is it a coincidence that so many of the 2018 CVA companies are calling in the administrators or special advisors or both? No. Is this a market to sell mediocre assets into? It most certainly is not. Seems like creditors akimbo.
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