Langton Capital – 2020-05-29 – PREMIUM – Young & Co, Marston’s, Flutter, Safestay, VAT and other:
Young & Co, Marston’s, Flutter, Safestay, VAT and other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
The dog has been practising his ‘I haven’t been fed for a month’ face and, as he’s getting better at it, he’s putting on weight.
Which is a big win for him because, as far as he’s concerned, being thin is for losers and he’s never got the hang of the idea of deferred gratification, short term pain for long term gain etc so we have to do it for him and that can make us unpopular.
Still, being fed two meals a day by every person in the household was never going to be good for him. See our ‘please sir, I want more’ comments re the hospitality industry and state aid. On to the news:
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• The High Street. What will it look like?
• Holidays. Who will go where?
THE HIGH STREET: What will it look like post lockdown? Will its shops draw in diners and coffee drinkers? What’s the outlook for ancillary services?
• Does queueing, not being allowed to touch clothes and the like, being confined to a one-way system enhance the appeal of a trip to the shops?
• Well, in many cases, you may be asking the wrong person but the answer, patently, is no.
• Hence, unless consumers have gone stir crazy and would do anything to get out of the house, they may be less rather than more willing to visit the High Street in June and July this year than they were in the same months last year
Mintel – bringing the future forward:
• Mintel, see below, says that, to some extent, the virus has brought the future forward.
• Trends that were already in place may have been accelerated.
• Delivery, both food & drink and non-food, may retain some of its gains.
• Moves by retailers such as M&S to concentrate on stores where they had their own parking, may also be speeded up
• The flexibility afforded by edge of town stores over High Street units could allow click and collect, drive through services etc.
Bars, restaurants and coffee shops:
• In the first two weeks after retailers are allowed to open, pubs and restaurants will remain shut
• There may be some delivery or takeaway services offered
• From 4 July, hopefully, dine and drink in venues will be allowed to open
• Many of these, such as Marston’s new builds and those of some other operators, have their own parking, accommodation, beer gardens etc.
• Others may be landlocked and others depend on the draw of retailers around them to generate their custom
• This may be lacking. Linger times may be down. We could see this in airports. The temptation to grab something and get out may be greater in the near future than it has been in the past
• This will hopefully abate over time – but, in the long term, as John Maynard Keynes said, we’re all dead
HOLIDAYS: Resorts may ‘open’ but, as has always been the case, you need the ‘lift’ to get there and beds in resort need to be available. And, very importantly, the customer needs to be willing to travel. 29 May 2020:
• Spain, Portugal and a number of other destinations have said that they will be ‘open’ from mid-June or early July
• Some destinations, such as Greece, have said that they will potentially restrict arrivals from source markets that do not have a good Covid-19 record. The suggestion is that, at the moment, the UK could be amongst them
• Many are laying off staff & some others have said that they will not fly if they have to keep middle seats empty. And it’s a long swim to Tenerife
• The Iberian hotel association has said that only around 40% of its members are prepared to reopen in June or July
• This may change over time
• This is likely the most important unknown
• The UK government, and those in most European countries, have been very successful in locking down their people and this was the right thing to do
• However, it was partly done through appeals to social duty and partly through fear. The first may be ‘turn-offable’ but the second is not on a simple switch
• And there is fear and there is fear
• Hopefully many if not most consumers can be persuaded that the statistics suggest (at the right moment) that they are very unlikely to catch the illness if they behave cautiously when in the airport, the aircraft or their resort
The implications for the UK:
• Staycations should have a knockout year
• Some consumers may not consider the virus when booking holidays in the UK, but many, probably most, will
• This suggests that cottages, static caravans and the like may fill up before some hotel rooms with shared facilities, people coming in and out of your room all day and the rest
• There will be capacity issues pretty quickly and, for the consumer, it is about getting the timing right
• Book too early and lockdown restrictions may not have been lifted enough to make a holiday worthwhile
• Book too late and you won’t be left with anything left to book at all
• House swaps, (anybody interested in a dwelling on the outskirts of York?), could have a good year but, again, there will be issues re cleanliness and just who has been in the property and what sort of health were they in
• Reputations (thing Premier Inn over an Fawlty Towers) will be important.
• Pubs and restaurants in the UK, if they are allowed to function commercially, would, under normal circumstances, be looking forward to a good summer
PUB & RESTAURANT NEWS:
Covid-19 & ‘new normal’ news:
• Furloughed salaries and the tronc.
• Furlough payments don’t take into account tips (the tronc system). Software provider Fourth has commented on this saying that its latest figures suggest that ‘Tronc payments make up on average more than 25% of hospitality workers’ basic pay, for the significant cohort that receive it.’
• Some workers, fast food, some pub companies (typically those taking food orders at the bar rather than at tables, grab-n-go etc.) don’t receive tips, but a lot of staff do. The employer has an incentive to encourage this where possible as such payments do not incur employers’ national insurance.
• So there’s a cost saving but, when we find ourselves in a tight spot, the government is (perhaps understandably) declining to bail out such schemes.
• Fourth says ‘60% of all workers in the sample received Tronc payments during 2019, including both back of house (BOH) and front of house (FOH) roles.’ It says that its ‘findings mean that the majority of furloughed hospitality workers are earning significantly less than 80% of their normal earnings. Because they no longer receive the average addition of 25% Tronc to their monthly pay, they are in fact only receiving 60% of their usual wage.’
• What this means. Perhaps some workers will be keener to get back to work than others. It could sway workers, particularly whilst there is a risk of a second or further Covid outbreak, to request higher wages & have the employer put the tips on the bill.
• Forth says that the ‘Tronc makes up a higher percentage of the basic pay for salaried workers (28%), than those paid on an hourly basis (24%). Further to this, the data set only includes Tronc payments made digitally, and not cash tips.’ There are all sorts of incentives in play here. UK Hospitality is calling for the government to make good on tronc payments but, in our opinion that won’t happen.
• Fourth says ‘in addition to graphically illustrating what an important component Tronc is for many hospitality workers’ pay, these findings also demonstrate why a tapering off of support could really hurt the finances of hospitality workers.’ It goes on to say ‘whilst an extremely challenging time, optimism is returning to the industry; many hospitality businesses are developing their reopening plans in line with government guidelines and timings and retention of their key staff will be crucial to successfully reopening.’
The 2m rule.
• As reported yesterday, Boris Johnson has given some hope to hospitality businesses by suggesting that the 2m distance being proposed could be reduced. Sage is looking into it. The PM could have been responding under pressure and holding him, Sage or the government to this suggestion could be a bit of an issue.
Addicted to state aid?
• The Institute of Directors has said that as many as 250,000 businesses may lay off staff because they cannot contribute to wage bills if and when the current furlough scheme is wound down.
• We have commented on a number of occasions that many thousands, possibly hundreds of thousands, of jobs have already been lost – but that the loss has been disguised by state aid. CGA recently found that a third of pub & restaurant owners were not intending to reopen all of their closed units and that another third had yet to make up their minds.
• The call for flexibility.
• Around a third of the directors taking part in an IoD poll said that they would bring the majority of their furloughed workers back part-time, if they were allowed to do so. If this is not an option, numbers may have to be reduced.
• The IoD says ‘the ugly truth is that if there’s no money coming in the door, many firms will be forced to make difficult decisions come August’. For some operators, facing a rent demand on 24 June for Q3’s rent, the decision point may come sooner.
• The Institute says ‘there is hope that as more areas of the economy return to work, more companies can keep people on board. However, despite best efforts, many firms simply won’t be able to work at fully capacity for the foreseeable future, and there’s no magic want to lift demand back up again.’
• Recovery Monitor: CGA and Alix Partners say in their latest Market Recovery Monitor that, unsurprisingly, the path to recovery is still unclear. Some 96% of bosses surveyed would like to see a phased reopening but only 36% believe that they will ultimately reopen all of their sites.
• Mintel has suggested that the Covid-19 crisis has ‘brought the future forward’. We agree that some trends will have been accelerated and other factors will have impacted the sector from out of nowhere. Mintel says wellbeing has moved up the agenda, as have the desire for experiences over things and an increased desire to feel ‘respected, protected, and supported.’
• Young & Co has updated on the Covid-19 situation saying that ‘all the Company’s lending banks have now replaced the Company’s financial covenant tests at June, September and December this year and at March next year with an additional monthly £20 million available liquidity test through to and including June 2021. They have also waived any technical ‘cessation of business’ breach resulting from the group’s pubs being closed due to the coronavirus pandemic.’
• YNGA says ‘the Company has now entered into its new £50 million syndicated term loan facility with NatWest and HSBC. This facility has been drawn and used to repay in full the £50 million syndicated facility with RBS and Barclays that was due to expire in March 2021.’ It has also entered into its new £20 million bilateral revolving credit facility with NatWest.
• YNGA says ‘the Company does not now intend to draw on this facility but instead retain it as available liquidity to help the Company meet the liquidity test referred to above. This new facility matures next May, and the Company has the option early next year to request an extension of its maturity date by six months and can do the same again later next year. In deciding whether to make either of these requests, the Company’s board will take into consideration the fact that no dividend can be declared, made or paid whilst any part of this facility is drawn and that this facility, if undrawn, will be cancelled if any dividend is declared, made or paid.
• The company concludes ‘in view of the ongoing closure of the Company’s pubs, the expected lower levels of trade when they re-open and the terms of the new revolving credit facility, the Company will not be paying an interim dividend for the current financial year ending 29 March 2021. The Company’s board is very mindful of the importance of dividends to Young’s shareholders and intends resuming dividend payments as soon as is practicable, but no decisions have been made about when that will be.’
• The Times lends support to Marston’s today saying that the response of analysts to the Group’s creation of the Carlsberg Marston’s Brewing Company has ‘been overwhelmingly enthusiastic.’ It says ‘it’s not difficult to see why.’
• The deal brings in cash and enhances the growth prospects of the enlarged business. The Times’ Tempus column concludes with a positive recommendation saying that the company’s ‘debts [are] becoming manageable and the shares are very cheap.’
• US operator Popeyes Louisiana Kitchen has reported that LfL sales were rising by 40% in week three of May compared with the same week last year.
• Costa Coffee is to reopen 87 more branches from today.
• Pret a Manger is to reopen a further 200 stores from 1 June for takeaway and delivery. It makes perfect sense to rub the rust off before the official permission to reopen for sit-down on 15 June.
• Brewdog has released a new, Barnard Castle, eye-test beer. It doesn’t say you need to be blind drunk to imbibe it.
• Another good day for the sector with Revolution Bar Group up 47%, Cineworld 21%, Everyman & Fulham Shore up 19%, DART Group and Marston’s 16% higher, Gym Group up 15% and Hollywood Bowl and On the Beach both up 11%.
• Debenhams is reported set to make ‘hundreds’ of HQ staff redundant.
• Monsoon is reported to be near administration with some 3,500 jobs at risk. See our earlier comments on The Walking Dead etc.
• Halfords is to reopen 53 stores due to a surge in bike sales
• Germany is to reduce the rate of VAT on restaurant meals from 19% to 7%. There are calls for similar moves in the UK.
• With restaurants & pubs set to reopen around 4 July, the discount and voucher websites will be hoping for advertisers from those industries to become active again. No sign of that yet.
HOLIDAYS & LEISURE TRAVEL:
• Safestay has reported full year numbers to end-December 2019 saying that total revenues rose by 26% to £18.4m with a loss before tax of £0.6m. The group says ‘2019 was a transformational year for Safestay. We added 7 new hostels increasing our number of sites to 20 making us a leading premium hostel operator in Europe. Our financial performance reflected this expansion with revenues up 26% and while we also made a good start to trading in 2020, the sudden spread of COVID-19 has meant we have had to adapt quickly to an unexpected phase.’
• Safestay says ‘navigating the re-engagement of the business will require us to be highly flexible as we test and match demand in individual markets, however, we are confident of being able to do this and making sure that we balance increased operational cost with increased income. From an industry perspective, the hostel market is highly fragmented with a large number of small operators who are under pressure as a result of the pandemic and this may well create unique opportunities for Safestay.’
• TUI has further extended the cancellation of its beach holidays and cruises out of the UK & Ireland until 30 June and 30 July respectively. It is offering incentives to customers to re-book saying ‘all customers should receive their refund credit within four weeks before their original departure date; customers who booked on the Tui or First Choice website or via the Tui or First Choice app can amend their booking with their incentive themselves via Manage my Booking.’
• Matt Hancock has said that he would not now rule out overseas holidays this year.
• A cross-party group of MPs has begun to put pressure on the governent to review its proposal for a 14 day quarantine period on international arrivals
• Thailand reportedly opening its borders to international travel from 1 July.
• Hotel News Now in the US has said that it could take the hotel industry in the US ‘years’ to recover. It says recoveries have never previously been ‘v-shaped’.
• MGM Resorts International and Wynn Resorts are both to reopen some of their Las Vegas properties on 4 June.
• EasyJet is to cut 30% of its workforce. This amounts to around 4,500 roles. The company says business could take 3yrs to return to normal.
• TTG reports that The Flight Centre in the UK is consulting staff about job cuts. The company has given no guidance as to the numbers involved. It says wants to ‘keep as many employees as possible in the business’ and support those who are obliged to leave.
• Marriott has been mining new language to describe job cuts saying it is rolling out a ‘voluntary transition programme for on-property and above-property associates in the United States who may choose to leave the company to pursue other opportunities.’ It says it does not see a full recovery during 2021.
• A travel agent has suggested the launching of a crowd-funding campaign to help save Shearing’s. Our opinion is that consumers, rivals and the like will not be willing to put their hands in their pockets to ‘save’ a commercial business.
• The leaders of over 70 UK travel and hospitality businesses have written to home secretary Priti Patel saying that the plans for 14-day quarantine restrictions on arrivals to the UK would seriously damage business. It is likely to lead to retaliatory measures overseas.
• Flutter has placed 8.045m new shares in the market to raise gross proceeds of £812.6m. The group says it ‘consulted with a number of its major shareholders prior to the Placing and has respected the principles of pre-emption through the allocation process insofar as possible.’
• Mintel says that summer concerts are likely now lost. Ticket holders will be out of pocket and, in many cases have been obliged to take 2021 replacement dates. Mintel says that streaming music will benefit from the lack of venue music. This is not altogether as straight-forward as it may first sound.
• Instagram has launched a new tool to enable video creators to make money from users.
• The Premier League in the UK has agreed a 17 June re-start.
FINANCE & ECONOMICS:
• Another 2 million Americans applied for unemployment benefits last week. This takes the coronavirus total to more than 40 million.
• The German IFO says that the German economy could shrink by around 6.6% this year. The economy could be down 12.4% in Q2.
• The International Labour Organisation, which says the Covid-19 outbreak could scar a generation of younger workers, is saying that one in six young people globally have lost their jobs already.
• UK car production was down 99.7% in April compared with the same month last year.
• Sterling stronger at $1,2342 and €1.1117. Oil higher at $34.96. UK 10yr gilt yield up 2bps at 0.21%. World markets. UK & Europe higher yesterday but US down. Far East lower this morning. London set to open down around 45pts.
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 still no news from the embattled Ted Baker on when its delayed finals will appear, but B&M has unexpectedly issued a bullish trading update (ahead of its finals for y/e March on June 11th), to flag that March saw an “exceptionally strong” performance on Grocery, pushing overall B&M LFL revenues up by 6.6% in the final quarter. B&M also flags that the first 8 weeks of the new financial year has seen B&M LFL revenue growth of an amazing 22.7%, driven by “exceptionally strong” DIY and Gardening sales growth, despite a significant fall in customer count. B&M note that the warm dry weather and the closure of other garden centres has brought forward DIY and Gardening sales, but even ex these categories the B&M LFL over the last 8 week period was +10.3%…And last night the struggling landlord of Covent Garden, Capital & Counties
• BDO High Street Sales Tracker: The BDO High Street Sales Tracker today for medium-sized Non-Food chains flags that in w/e Sunday May 24th, Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by c19% (down c83% in Store sales, but up by c108% in Online sales).
• Trade Press: Retail Week magazine has not been published this week, but the RW website has an interesting feature: Mike Coupe’s final (virtual) interview (“on the eve of his departure, Sainsbury’s boss Mike Coupe speaks exclusively to Retail Week about the merger that never was, dodging jail in Egypt and how the grocer has been transformed by Covid-19”). The RW website also flags that Morrisons is set to open its first standalone clothing and homewares store (in Bolsover in Derbyshire), to increase sales of its Nutmeg label, and that the fashion chain Monsoon Accessorize is on the brink of calling in administrators, putting 3,500 retail jobs at risk.
• News Flow Next Week: As we move into June and the easing of the lockdown, Monday sees the reopening of car showrooms, as well as the start of Simon Roberts as CEO of Sainsbury and the Intu Properties AGM. Tuesday brings the Card Factory finals, with their Q1 update due on Thursday. On Wednesday evening the latest FTSE All-Share index quarterly review is announced (with Homeserve and Kingfisher both candidates for promotion to the FTSE 100 index). And first thing on Friday we get the latest “flash” GFK Consumer Confidence report.