Langton Capital – 2020-08-11 – Eat Out scheme, Domino’s, Intercon, cruise ships, hotels etc.:
Eat Out scheme, Domino’s, Intercon, cruise ships, hotels etc.:
A DAY IN THE LIFE:
A few firsts (for a long time) whilst on holiday.
Langton has, to its chagrin, been intensely ‘ordinary’ over the pandemic, very typical of the general population. Spending halved in April – but spending on food went up a bit and the proportion spent on essentials doubled, we shopped bigger but less frequently, we didn’t drive much, we stocked up the freezer, we got the bikes out, we plumped for a staycation etc., etc.
So, is this the road back? What have we re-started doing?
We drew cash out of an ATM for the first time since March. Some outlets, chippies and the like, still taking cash only out there but others, such as iced cream vendors, insisting on plastic.
We put the second car back on the road. The arrival of a humungous demand for Road Tax drove us to mothball it in March and suspend the insurance. We put more miles on it in a fortnight than it had done in all the other months of 2020 combined.
We went out to pubs and restaurants (quite a lot of them) for the first time since March. The experience was mixed. We could forget, at times, that there was a pandemic going on. At other times, being treated as though you were a lump of nuclear waste was a bit off-putting.
There was little evidence of anybody putting prices down as a result of the VAT cut. A number of operators said they were ‘mobbed’ as a result of EO2HO.
We masked up, used our gel and tutted at people who were tutting at us for walking too close to them.
We spent in shops but would suggest the idea of one-in, one-out, or even one-customer-only, puts an unwelcome pressure on you to spend and browsing is out. Many shops will struggle to achieve profitability in this environment.
We could go on, but time is the enemy. There were a huge number of out-of-office replies yesterday. On to the news and follow us on Twitter at @brumbymark.
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EAT OUT TO HELP OUT: Widespread agreement that this is a helpful, but temporary, fix. It has prompted some operators to open more units & many to call staff back from furlough. 11 Aug 2020:
• Chancellor Rishi Sunak’s Eat Out to Help Out scheme will pay half of the cost of meals & soft drinks eaten in pubs & restaurants (up to a maximum of £10) on Mondays, Tuesdays, and Wednesdays during August. See Premium Email for feedback & detail.
PUB & RESTAURANT NEWS:
Covid-19 – Eat Out to Help Out
• See notes above. Welcomed by food-heavy outlets, calls for it to be extended to beer (little chance of that) and some trepidation as to what will happen when it stops.
• Springboard reports that footfall on Monday to Wednesday last week was up by c19% after 6pm with smaller towns performing more strongly than major cities.
• The Treasury says that the scheme was used more than 10.5 million times in its first week. It says the average claim is close to £5, meaning that the taxpayer has thus far contributed around £50m so far. If the policy were to cost £200m in total, then it could represent good value for taxpayers’ money as it has encouraged many operators to bring workers back from furlough earlier than they otherwise would have done so.
• See also Premium Email.
• The Treasury has updated its numbers and said that 83,068 restaurants had signed up to the scheme.
Covid – Other news:
• C&C has announced hat David Forde will take up his position as CEO on 2 November.
• Unintended consequences.
• Glasgow-based operator G1 has confirmed that it has been ‘forced to rethink their scheduled re-opening dates due to new restrictions being announced on music and sports commentary within venues.’ The Scottish Government is proposing ‘a complete ban on background music in venues, as well as a host of other measures specific to restaurants, pubs and bars.’
• G1, which operates over 50 such venues all over Scotland, says ‘the measures have forced them to make some very tough decisions as a result, including a pause on the re-opening of Glasgow City Centre favourite Committee Room No 9, which they say is no longer viable due to not being able to have any sound in relation to the live sport for which they have become known.’
• Schoolchildren in Scotland return to school from this week. It will be interesting to see what happens to the R rate north of the border.
• McDonald’s is suing former CEO, Steve Easterbrook, for allegedly lying to the company during its internal probe into his behaviour last year. Easterbrook was terminated last November. The company alleges that he had a number of other sexual relationships with employees.
• New Look is reported to be considering a CVA.
• The BRC has said that retail sales rose by 3.2% in July, although the number of visits to bricks & mortar shops remains down significantly as people shop online. Food and homeware sales remained strong.
DOMINO’S PIZZA H1 NUMBERS:
• Domino’s Pizza Group has reported H1 numbers to end-June saying that system sales rose 5.5% to £628.9m with like-for-like sales up 4.8%.
• DOM says underlying EBIT fell by 2.7% to £51.4m with underlying PBT down 4.6% at £47.6m and EPS down by 1.1% at 8.7p. Discontinued operations, not included in the above numbers, lost £19.3m on the half-year.
• Domino’s says it has been ‘resilient’ in the UK & Ireland. Collection orders fell by 87% in Q2 but delivery was up by 22%. Net debt is down to £202.1m, around 1.75x EBITDA on a continuing basis.
• The company says a deferred ‘FY19 dividend of 5.56p per share, amounting to £26m in total, will now be paid on 18 September 2020 to all shareholders on the register as at 21 August 2020. The Board will review the appropriate total dividend in respect of FY20 along with our preliminary results in March 2021.’
• CEO Dominic Paul says ‘I am pleased to report a resilient first half performance.’ He says, however, that ‘the relationship with our franchisees is challenging and this situation dates back several years. Although I expect this to take some time to resolve, our performance during the period is a great demonstration of what we can achieve when we work together. Fundamentally our interests are aligned.’
• DOM adds ‘the macroeconomic, consumer and competitive backdrop for the second half of the year contain considerable uncertainties.’ It concludes ‘while trading in the first few weeks of the second half has been encouraging, it is too early to conclude on how consumer behaviour will evolve. We look forward to the remainder of the financial year, and to the long-term future of the business, with confidence in the strength of the brand and our operations.’
HOLIDAYS & LEISURE TRAVEL:
• Travel Weekly reports a travel consultant ‘close to government talks’ as saying that countries with a Covid infection rate of at least 20 per 100,000 for a week or more will be added to the government’s quarantine list. The consultant says France’s rate per 100,000 has jumped from 17 to 26 in the last week.
• Intercontinental Hotels has reported H1 numbers to end-June showing revenue down by 45% at $1.248bn. The group reports an operating loss of $233m (2019: profit $442m). There is no H1 dividend.
• IHG says global REVPAR was down 52%. It has been reducing costs and watching the cash. CEO Keith Barr reports ‘the impact of Covid-19 on our business has been substantial. Global RevPAR declined by 52% in the first half and was down 75% in the second quarter, when occupancy at comparable hotels fell to 25%. Despite this challenging environment, we delivered an operating profit of $74m. Small but steady improvements in occupancy and RevPAR through the second quarter continued into July, with an expected RevPAR decline of 58%, and occupancy rising to around 45%.’
• IHG says ‘the impact of this crisis on our industry cannot be underestimated, but we are seeing some very early signs of improvement as restrictions ease and traveller confidence returns.’
• It adds ‘whilst the near-term outlook remains uncertain and the time period for market recovery is unknown, we are well positioned with preferred brands in the largest markets and segments, a leading loyalty platform and one of the most resilient business models in the industry. This gives us confidence in our ability to meet the needs of our guests and owners, and to emerge strongly when markets recover.’
• IHG reports Americas REVPAR down 47.6%, EMEAA down 58.9% and China down 61.7%. It says ‘for July, the comparable RevPAR decline in the Greater China region is expected to be ~36%, representing a ~13%pt improvement on the 49% decline for June. Occupancy levels in comparable open hotels improved to over 50%.’
• STR reports a ‘slightly improved’ occupancy number for UK hotels as a whole. REVPAR in the UK is reportedly down ‘between 59% and 69% compared with the same period last year.’
• STR reports ‘staycations and good weather have seen three southern coastal markets experience occupancy of more than 75%—Brighton (76%), Plymouth (80%) and Bournemouth (82%). Meanwhile, London…reported average occupancy for that week of only 25%.’
• Marriott has reported a drop of 84.4% in RevPAR in Q2. The drop was similar in North America (down 63.6%) and across the companies assets elsewhere in the world (down 86.7%). The company lost a net $234m in the quarter.
• Marriott CEO Arne Sorenson says ‘while our business continues to be profoundly impacted by COVID-19, we are seeing steady signs of demand returning. Worldwide RevPAR has climbed steadily since its low point of down 90 percent for the month of April, to a decline of 70 percent for the month of July.’ Sorensen says ‘worldwide occupancy rates, which bottomed at 11 percent for the week ended April 11, have improved each week, reaching nearly 34 percent for the week ended 1 August.’
• Marriott says ‘while the full recovery from COVID-19 will clearly take time, the current trends we are seeing reinforce our view that when people feel safe traveling, demand returns quickly.’
• Royal Caribbean Group, which is currently operating (or not operating) in an unenviable space in the leisure market, has reported Q2 numbers saying that it did not sail during the quarter. The group lost a net $1.6bn in the quarter (amounting to $6.13 per share).
• RCL CEO Richard Fain says ‘the COVID-19 pandemic is posing an unprecedented challenge to our industry and society.’ The company ‘continues to prioritize and bolster its liquidity.’ CFO Jason Liberty says ‘we have accessed the capital market in an opportunistic manner and continue to aggressively manage our spend.’
• RCL is burning ‘approximately $250 million to $290 million per month during a prolonged suspension of operations.’ The company says 2021 bookings are ‘trending well’ but ‘the magnitude, duration and speed of COVID-19 remains uncertain.’
• Cruise company Seabourn is cancelling sailings by three of the five ships in its fleet until between November 2020 and May next year. The decision is ‘a proactive action to deal with the circumstances continuing to evolve from the global response to the Covid-19 situation.’
• Facebook will allow employees to work from home until the middle of next year.
FINANCE & ECONOMICS:
• The NIESR reports that ‘the Coronavirus pandemic has cast a dark cloud over UK economic prospects for the 2020s.’ It says ‘GDP will not return to its 2019 level until 2023 or 2024.’
• NIESR adds ‘the Bank of England is more optimistic about the potential for the UK economy to bounce back but it is still not expecting the 2019 level of GDP to be exceeded until 2022. The Office for Budget Responsibility (OBR) central scenario is for a recovery somewhere between the NIESR and Bank projections.’
• NIESR says the pandemic will have the effect of lowering UK growth from its long term average of 2.1% for a decade or more. It says ‘the pattern of a slowing longer-term growth trend is not confined to the UK. Across the G7 economies, GDP growth averaged 2.7 percent in the 1980s and 1990s and has dropped to 1.7 percent in the 2000s and 2010s. Relative to the G7, the UK economy has performed better than the average in the twenty-first century so far. We are not looking for a UK-specific explanation of slower growth – rather something which applies to a wider range of economies.’
• Sterling stronger at $1.3085 and €1.1133. Oil higher at $45.20. UK 10yr gilt yield down 1bp at 0.13%. world markets broadly better yesterday with London set to open up around 40pts as at 6.30am.
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 has been no Retail company news out today in the UK, but over in the US, JD Sports’ rival, Footlocker, pleased Wall Street with stronger than expected Q2 trading news, which provided a boost to JD. Back in the UK, Heathrow Airport has published its July traffic figures, laying bare the problems for operators like WH Smith, with passenger numbers down 89% on last year and plane movements down 72%, and providing another opportunity for the airport to moan about its predicament: “Largely grounded route network continues to strangle UK economy”.
• BRC-KPMG Retail Sales figures for July (the 4 weeks to Aug 1st): We thought that today’s figures, which came out overnight, would still show total sales up usefully again (after the 3.4% increase in June), given strong Online sales growth and the transfer of spending away from the service sector and the overall outcome was very similar to June, 3.2% up. The BRC again pointed to the strength of pent-up demand and noted that consumers are still focused on life at home, although Food sales growth slowed a bit. The key Food/Non-Food split of total sales last month is buried within the 3-month moving averages (of +6.1% and -4.3% respectively), but it looks to us as if total Food sales were over 5% up and that Non-Food sales were at least 1%. The overall positive Non-Food performance was driven by continued strong growth in sub-sectors like Computing, Furniture and Electricals, but sales of
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 10 Aug 20 Royal Caribbean Q2 numbers
• 10 Aug 20 Marriott Q2
• 11 Aug 20 Domino’s Pizza Group H1 numbers
• 11 Aug 20 Intercontinental Hotel Group H1 numbers
• 11 Aug 20 UK unemployment – ONS
• 12 Aug 20 Just Eat Takeaway H1 numbers
• 12 Aug 20 Hostelworld H1 numbers
• 12 Aug 20 UK Q2 GDP – ONS
• 13 Aug 20 TUI trading update
• 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
• 10 Sept 20 Rank FY numbers
• 11 Sept 20 JDW full year results
• 30 Sept 20 Compass Group FY update
• 30 Sept 20 Everyman Media H1 numbers
• 6 Oct 20 Restaurant Group H1 numbers
• 9 Oct 20 JD Wetherspoon FY numbers
• 3 Nov 20 DART Group AGM
• 24 Nov 20 Compass Group FT 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
• Buzzkill alert. Hospitality’s an upbeat industry. It doesn’t pay to be too negative. But, that said, optimistic talk is not enough as there’s a crunch out there when the weather worsens, furlough stops, EO2HO ends & VAT quadruples from 5% to 20%. May need more help.
• Re Eat Out to Help Out, 5% VAT, deferred rent etc. The problem with drugs, I’m told, financial or otherwise, is not the finding them & getting on them. It’s affording them and getting off.
• 2/3 of pubs & restaurants are open (more pubs than restaurants) & they’re doing 2/3 of normal trade. That’s ½ a V shaped recovery. It’s 1) an improvement over 100% of units being down 100% but 2) it only amounts to c45% of the total trade done a year ago
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