Langton Capital – 2020-08-11 – PREMIUM – Eat Out scheme, Domino’s, Intercon, cruise ships, hotels etc.:
Eat Out scheme, Domino’s, Intercon, cruise ships, hotels etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
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.
• The deal extends to registered participating venues including food halls and works and school canteens. It does not cover service charges.
• Businesses had to register before the start of August. Some 83,000 outlets have now done so. They will be paid by government direct into their bank accounts within a few days of providing the subsidised meal.
• The scheme suggests relevant venues within a 5m radius of any given postcode HERE.
• The scheme does not extend to alcoholic drinks or takeaway food. There could be some issues with venues, such as Gregg’s and Subway, which offer both dine in and takeaway options.
• It is capped at £10. One respondent reported a number of complaints from customers who had spent £30 or £40 per head and could not get ‘50% off’.
• There have been some issues where the bill includes alcoholic drinks, food and a service charge. The discount will be applied only to the food in this case.
Industry feedback – sales:
• Overall, the scheme has been very well-received. There may be a smidgeon of jealousy from wet-led operators.
• ‘The stimuli has been incredible’ says one operator, who goes on to acknowledge that it is temporary help.
• A number of operators have reported their highest every Monday sales with Tuesday and Wednesday also good. Sales were double or even treble those of similar early-week days last year.
• Thursday was weak, per several operators, but perhaps not as weak as had been feared and the weekend held up well as it may have been ‘a different crowd’.
• Turnover (including the subsidy as revenue) was doubled over Monday to Wednesday in a number of instances.
• Some managed pub operators were ahead of 2019 over the week as a whole. Some operators saw ‘pretty healthy growth over the week as a whole.’ Another was ‘more than 50% up on the week as a whole’.
• With VAT reductions not being passed on, margins should be higher, even taking into account additional cleaning costs etc.
• JW Lees yesterday said publicly ‘sales were up 44%, 42% and 60% on Monday, Tuesday and Wednesday.’ It said ‘Thursday and Sunday were both down on the previous year but the company’s managed pubs saw strong growth on both Friday and Saturday.’
• Some operators are mulling continuing the scheme into September. This will impact margins – but see comments on lower staffing levels and menu-simplification.
Feedback – concerns:
• The scheme is August only, week 2 is an unknown, the VAT cut unwinds on 12 Jan and operators may need to ‘change their model so they can exist on say 75% of previous sales.’
• This may require a discussion with landlords.
• There is some concern that ‘we are in a bubble at the moment’. Others mention that the weather has been helpful and that the kids are off school.
• Furloughed staff, ex-travel expenses and the like, may have more disposable income than usual. Some furloughed customers could lose their jobs.
Feedback – staycations:
• London isn’t busy but many other areas are. Also, ‘the weather has helped hugely.’
• Autumn trading could see the industry ‘brought back down to earth’ but one suggests the current trend towards staycations will ‘run through this year into spring and summer next year.’
• Pubs have adapted more rapidly than restaurants.
• Cost bases may be ‘re-set’. Operators that have not recalled all of their furloughed staff may question whether then actually need to do so,
• Menu simplification etc may mean staffing levels can be reduced.
• It looks like ‘forward bookings for next week appear similarly encouraging and we anticipate further growth in sales.’ Some customers have been into the same venue multiple times already.
• The boost is ‘helping build cash reserves and bringing new customers into our pubs that haven’t been before.’
• The grey market is still hesitant. Many EO2HO customers have been families.
• From a customer perspective, outlets in several instances have been fully-booked (albeit with increased spacing) and scarcity may make customers keener to take part next week.
• Spare a thought for the ‘losers’. These may include pure takeaway operators unable to offer a discount and high ticket venues for whom ten quid off is helpful but not game-changing.
• Very helpful (but temporary) and cannibalisation minimal. Trading in the early-week ‘went berserk’ and sales over the weekend were ‘more normal’.
• Drink sales, though not discounted, have remained strong (the weather will have helped). Customers, at some point, may begin to suffer from wallet-fatigue.
• The offer of cheap food is getting would-be customers out of their houses. There is something of a defibrillator effect.
• A slight negative is that customers may find themselves, come September, in something of a discount-mindset.
LATER IN THE WEEK: Over-renting, yes, it’s a thing. Over time, legacy rents will revert to the spot market. And the latter is well down.
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