Langton Capital – 2020-07-23 – Job losses, Chilango, rents, Jet2, Carnival, G4M & other:
Job losses, Chilango, rents, Jet2, Carnival, G4M & other:
A DAY IN THE LIFE:
The number of out-of-office replies to our morning email has been multiplying in recent days and, rather than try to beat them, Langton will be joining them.
Hence, there will be no email next week or the week after as we jet, or rather drive, to the sunny climes and beaches of the Yorkshire Dales followed by the the steamy jungles of the Lincolnshire Wolds the week after.
We’ll be undertaking on-the-ground, staycation research, chatting up publicans and we’ll tweet the odd bit on @brumbymark. Email tomorrow as normal. On to the news:
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WHEN WILL JOB LOSSES REALLY KICK OFF? It feels as though this is the calm before the storm. The furlough scheme has temporarily stoppered what may in the end prove to be an unstoppable force. 23 July 2020:
Where we are now:
• The government, or at least its civil servants, have always known that restarting the economy after an enforced hard stop would be more difficult than the stop itself. See Premium Email
PUB & RESTAURANT NEWS:
Covid – the new (ab)normal:
• The campaign to persuade the government to step in and subsidise tenants by helping them with their rents for the next year is ongoing. The Sun ran an interview yesterday with London Union’s Jonathan Downey in which he called upon Chancellor Rishi Sunak to provide help. Just who would pick up the bills is open to argument.
• Downey reports that he has been offered a rent rebate by only one of his various landlords. Others are accruing rent and are beginning to press for payment – although they cannot at present take back their properties.
• Downey’s proposed Time Out scheme would see rents forgiven for the period that units are closed with a move to 10% of revenue being charged as rent for the remainder of the year. Downey says ‘landlords need to step in and support their tenants.’ He says ‘surveys show that 95 per cent of landlords of hospitality premises were still expecting full payment. That is just not realistic.’
• See our comments in yesterday’s premium email re accrued liabilities and disguised debt.
• Accountants PwC have reported that almost one in three furloughed workers in hospitality could lose their jobs by the end of this year. See premium email.
• NRN in the US discusses the prospect or massive restaurant closures saying that estimates as to the damage range ‘from 10% of the nation’s estimated 650,000 restaurants to 85% of the independently owned units. The Independent Restaurant Coalition says ‘without financial aid, we are looking at an extinction event for restaurants as we know them.’
• The Telegraph reports that facemasks may need to be worn in takeaways and sandwich shops. It suggests that buying food from the counter and then sitting down to eat will also be banned. It says takeaways with seating inside will be counted as shops, where masks will become compulsory tomorrow.
• The BBC has picked up on the fact that no-shows are currently plaguing the industry. The broadcaster quotes restaurateurs as saying ‘many people who make reservations are simply not showing up, which is having a major impact on the company’s bottom line, and ultimately their survival in the industry.’
• No shows are particularly damaging when capacity has been limited in order to allow social distancing.
• Chilango has announced its intention to appoint administrators. The operator underwent a CVA only earlier this year. We have run a number of stories on Mexican Food, Too Hot for Some, on CVA’s in general and on Chilango’s Burrito Bonds specifically. It was always possible that this would not end well.
• Chilango says while we have ‘done our very best to mitigate the pandemic’s impact… these efforts have not been sufficient to secure the future of our business.’ City AM quotes a source as saying that a pre-pack may be organised. Such a move could see the company purchased out of administration in short order. Existing shareholders and creditors could face losses.
• Chilango has a challenged balance sheet and its accounts are overdue. City AM says that the “burrito bonds” which were converted to equity will be worthless. Chilango is said to be in the process of recruiting a financial controller to be responsible for all financial aspects and the flow of financial information throughout parent company, Mucho Mas.
• City AM points out that the crowd-funded operator has never made a profit. The FT quotes one investor as saying that there had been “zero corporate governance” of the chain. There is talk of taking legal advice. The co says ‘the directors of Chilango have acted in the best interests of the business at all times, and would defend themselves against any claim that they had not done so robustly.’
• This was not how it was all meant to end. See premium email for potential job losses across the economy.
• Coca-Cola Co has reported a 28% drop in Q2 revenue due to global shut downs of pubs, cafes, restaurants and bars. Revenue for the period was $7.18 billion. The company says ‘we believe the second quarter will prove to be the most challenging of the year; however, we still have work to do.’
• Whitbread is to open all of its pub restaurants by 5 August.
• Punch announces that the Kings Head, located at the heart of the coastal town of Cromer, has reopened following a £420,000 investment by independent operators Punch.
• Beverage brand Something & Nothing has raised £450k ahead of its sales launch of its vegan seltzers in New York and LA this month.
• Chipotle Mexican Grill in the US is said to be considering raising menu prices on third-party delivery orders in order to offset commission fees. The co says ‘similar to what many of our peers are already doing, we’re about to experiment with delivery menu prices as a way to potentially help offset.’
• Chipotle also says that it has reopened 85% of its dining rooms but it concedes that most consumers are still taking their meals home. It says ‘we’ve recaptured about 40% to 50% of that dining room business. But it’s a gradual thing. Every week goes by, I think the consumer psyche starts to build with the idea of going back into the dining room.’
• Despite its workload increasing in such areas as administrations, auditor KPMG is set to cut just under 200 jobs across the UK. Around 100 consultancy and 100 audit jobs will be lost
• MPs have voted against an amendment to restrict post Brexit food imports only to products with as good or better food standards as those currently in place across the EU.
• Bums On Seats, the UK’s largest outsource sales agency for the hospitality industry, has partnered with hospitality charity Only A Pavement Away to raise vital funds for its members.
HOLIDAYS & LEISURE TRAVEL:
• Jet2Holidays is to cut capacity next year by around 20% from its pre-Covid 2020 plans. It will operate some 20 fewer aircraft in what Steve Heapy has told Travel Weekly is a ‘sensible contraction’. Heapy says ‘I think 2021 has got to be a year of caution. And it’s got to be a year of companies strengthening their balance sheets and strengthening their resilience.’
• The Jet2Holidays CEO said ‘at the moment, we’ve got to be very, very careful. We’ve got to be very cautious about the decisions we make because we could be, in two weeks’ time, in lockdown again; there could be a second spike in winter; there could be countries that are off limits next year; or there could be social distancing that’s put in place on aircraft which will effectively drop our load factor to 50 or 60%.’
• In common with many other leisure operators, Jet2 parent DART Group has raised equity and taken on more debt in a move aimed at strengthening its finances. Speaking of the Covid-19 pandemic, Heapy says ‘this has highlighted that things can be very severe; have massive consequences and I think the whole industry needs to put more time and effort into making themselves more financially robust to be able to handle these storms.’
• Carnival brands Princes and P&O Cruises have announced further ‘pauses’ in their cruising schedules. Princess Cruises will not now sail in or out of Australia until October 31 and some other cruises until December 15. It says ‘we share in our guests’ disappointment in cancelling these cruises.’ P&O says it is ‘extending its rolling pause in operations across Australia and New Zealand to October 29, 2020 in response to the current impact of the global pandemic on the way we travel and holiday.’ It says ‘while everyone hoped sailings would resume soon, it had become increasingly clear that more time was needed for society to reinstate many modes of travel and community gatherings.’
• Spain may have its ‘safe’ status removed in light of the upturn in infections in that country. This would have implications for the thousands of British citizens currently on holiday in the country as they would be obliged to self-isolate for 14dys on their return to the UK.
• The Airport Operators Association has said that airports could lose up to £4 billion in revenue this year because of the pandemic. Passenger numbers were down by up to 99% at the peak of the lockdown. The AOA says ‘whilst we have seen passengers begin to return, passenger numbers are not expected to reach pre-Covid levels for a considerable period and airports will continue to face challenges and pressures unimaginable six months ago.’ It says ‘Airports have done everything in their power to weather the storm and have done so without the specific government support afforded to other sectors.’
• Portugal has commented on the UK’s exclusion of the destination from its safe list saying ‘we didn’t expect it. Portugal has done well in terms of controlling Covid.’
• TUI-owned Crystal Ski Holidays says that it has seen a ‘significant surge’ in sales for winter 2020-21.
• Cruise brand Swan Hellenic is to be resurrected as a cultural expedition line
• STR says ‘due to the COVID-19 pandemic, the U.S. hotel industry reported its worst quarter on record during Q2 2020.’ This will not come as a surprise. Occupancy was down by 52%, room rates were 37% lower and REVPAR was off by 70%.
• STR says ‘the absolute occupancy and RevPAR levels were the lowest for any quarter in STR’s U.S. database. The year-over-year declines in the each of the three key performance metrics were the worst for any quarter on record.’
• Christie & Co has said that there has been an uptick in hotel buyer enquiries (a rise of 84% up to 22 June) and viewings.
• Christie says ‘the last few months have been incredibly hard for the hotel industry, which has seen a severe halt on business operations. But, despite this, it has remained resilient and we are seeing that investors still have a strong appetite for this market.’
• Gear 4 Music has updated on trading for its Q1 saying that it has been ahead of the Board’s expectations. UK sales are up 80% on last year with total sales up 86% at £37.3m. CEO Andrew Wass says ‘as previously reported, the COVID-19 lockdown created an exceptionally strong period of trading for the Group during April and May 2020, and further strong trading in June resulted in Q1 revenue growth of 68% compared with the same period last year.’
• Mr Wass adds ‘the strong trading momentum has continued into July, and we continue to achieve higher gross margins and with a lower marketing cost than we would typically expect, alongside a controlled cost base.’ The company concludes ‘as a result, and whilst still early in the current financial year, the Board is confident that a significant improvement in profits will be achieved for the full financial year, which are now expected to be meaningfully ahead of our previous expectations.’
• The Book Publishers’ Association says book sales in the UK hit record levels in 2019. This was not Covid, for once, but rather was driven by a surge in audiobook and nonfiction titles.
• Book sales rose to £6.3bn in 2019, up 4% on 2018.
• Tesla has reported its fourth consecutive quarter of profitable trading. Its market valuation exceeds that of any other motor manufacturer worldwide.
FINANCE & ECONOMICS:
• The Telegraph, which may or may not have a line in to former employee Boris Johnson says that the UK government has abandoned hope of striking a Brexit trade deal with the EU. This may be wrong or signalling or true. There are some hopes that a ‘basic agreement’ may be struck in the autumn.
• PM Boris Johnson told PMQ that Russian interference did not sway the Brexit vote in 2016. The enquiry into Russian interference hadn’t seen Russian fingerprints because it didn’t look into the matter.
• Mr Johnson said Britain ‘leads the world’ in worrying about Russia. Labour leader Sir Keir Starmer said Mr Johnson didn’t appear to be taking the matter seriously.
• Sterling up vs dollar at $1.2741 but down vs Euro at €1.1002. Oil higher at $44.43 and UK 10yr gilt yield down 2bps at 0.12%. World markets mixed. London set to open around unchanged as at 7am.
START THE DAY WITH A SONG:
The song has been furloughed. See you on the other side.
RETAIL WITH NICK BUBB:
• Howden: In contrast to Kingfisher, the trade kitchen business Howden, has kept quiet about trading since the lockdown and today’s interims (for the 24 weeks to June 13th) show why, as the picture is disappointingly muted. Despite a solid Q1, overall H1 sales plunged by 29% and the group fell into a loss of £14m, vs a £78m profit last year. And in terms of current trading, the first 4 week period of the second half sales were only fractionally up on a LFL basis. There may be time lags involved in the release of pent-up demand, but all the company can say by way of guidance is “We continue to be cautious given the economic uncertainties that we face, with our key Period 11 trading ahead of us and with consumer and regulatory reactions to COVID-19 making predictions of future levels of demand difficult. However, despite this, we remain confident in our business model for the future”.
• News Flow This Week: Tomorrow brings the Kingfisher AGM and the trading update from Hotel Chocolat are on Friday, along with the widely followed monthly GFK Consumer Confidence index and the ONS Retail Sales figures for June. The hapless Frasers Group (aka Sports Direct) still hasn’t announced a date for its finals (although #MadMike did issue a long RNS yesterday afternoon raging about the Government’s inaction on Business Rates) and we are still waiting for the delayed McColl’s interims.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 23 Jul 20 C&C AGM
• 27 Jul 20 Gregg’s H1 numbers
• 28 Jul 20 Gregg’s H1 numbers
• 28 Jul 20 AG Barr trading update
• 28 Jul 20 Starbucks Q3 numbers
• 29 Jul 20 Wizz Air June quarter numbers
• 29 Jul Premier Foods AGM & Q1 update
• 3 Aug 20 Texas Roadhouse Q2 numbers
• 5 Aug 20 Rank H1 numbers
• 5 Aug 20 William Hill H1 numbers
• 6 Aug 20 Naked Wines AGM
• 7 Aug 20 Diageo FY numbers
• 11 Aug 20 Domino’s Pizza Group H1 numbers
• 19 Aug 20 Rank FY numbers
• 20 Aug 20 Tasty AGM
• 2 Sept 20 Gym Group H1 numbers
• 8 Sept 20 Fever Tree H1 numbers
• 10 Sept 20 Morrison’s H1 numbers
• 11 Sept 20 JDW full year results
• 6 Oct 20 Restaurant Group H1 numbers
• 9 Oct 20 JD Wetherspoon FY numbers
• 26 Nov 20 Britvic FY numbers
Many results are likely to be delayed. For information purposes, the results below were delivered at these dates last year.
2019 COMPARATIVE RESULTS:
• 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
• Premium email. Debt by any other name. Accrued VAT, duty payments, rental payments & government backed loans. No reason why that won’t end well, is there?? #hospitality
• NPD says is ‘clear evidence of a slow but encouraging recovery in the British out-of-home foodservice market.’ Andy Haldane says V shaped recovery is upon us. Is this what success feels like?
• Wireless Social reports footfall still edging up but growth has slowed. We certainly don’t want to be talking about topping out at this sort of level #hospitality
• Covid winner. Kingfisher says trading strong. With 2 weeks to go of Q2, LFL sales are still running over 20% up (with Online sales c200% up) & H1 profits will be ahead of last year. Nice business if you can get it
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