Langton Capital – 2021-01-04 – Sector cliff edge, calls for help, request for feedback, sales down 98% etc.:
Sector cliff edge, calls for help, request for feedback, sales down 98% etc.:
A DAY IN THE LIFE:
So, yesterday was Christmas and today’s January.
It’s back to work for many and, though the grimmest day of the year (often deemed to be the third Monday in January, still nearly two weeks to payday, dark, miserable & credit card bills arriving) is still ahead, this Monday was still a bit of a shock to the system.
Because, though firmly in the past, Christmas did happen and, though we spent Christmas Eve buying emergency presents for our various animals in Pets at Home, a good time was had by all chez Brumby.
Emails might be slightly shorter this week (as there isn’t a great deal to talk about, Christmas trading statements won’t be the treasure chest of information that they often are) but we’ve got things to say.
And, in the meantime, we’ve got something sensible for you to spend those Amazon vouchers on as the book we wrote has morphed from being a wonderful Christmas present into a suitable January read. Thanks to those who have purchased the BOOK to date. You can buy it HERE (and on Amazon for Kindle). On to the news:
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IN TODAY’S PREMIUM EMAIL:
Here we consider the hot topics & hope to analyse as well as report.
CLIFF-EDGE FOR THE SECTOR COMING UP IN A MATTER OF WEEKS: See also comments reported in the Sunday Times, below. 4 Jan 2021:
• There really is something of a cliff-edge coming up. See premium email
FEEDBACK FOR REQUEST:
THE OUTLOOK FOR 2021:
Please drop us a line & let us know your views.
• The first working day of 2021 seems like an appropriate time to consider the outlook for the whole year.
• 2021 should be a ‘getting better’ rather than a ‘getting worse’ sort of year.
• But various plans, chiefly re inoculation & normalisation, need to be executed competently.
• And, though the drowning man may be nearing the surface, it is sadly likely that some operators will expire whilst things are improving – and even after they have ‘improved’.
The shape of last year:
• In terms of trade performance, 2020 didn’t fit neatly into quarters.
• Q1 was ‘normal’ but then the wheels fell off in the last 2-3wks, Q2 was awful, July bumped along but August was good.
• September was less good, October was poor, and November was locked down.
• December didn’t really have a chance – but it ended very considerably less well (in LfL terms) than it began.
What about 2021?
• On the basis that a rose by any other name would smell as sweet, we will be in virtual lockdown for a while, starting about now
• The target of inoculating 1 million people a week sounds hopeful but ‘boosterist’ language won’t cut it with the virus & actions (and injections) speak louder than words
• See p1 of the Sunday Times re current concerns
Some (very big) questions:
• How will we perform quarter on quarter? We had an early pitch from a wet-led operator who believes Q1 to Q4 versus ‘normal’ could be zero %, 80%, 85% and 95% based on an early lockdown and pent-up demand post reopening. What do you think?
• How will performance vary over outlet / product types? Through wet led, mixed, food-led pubs and restaurants?
• How will takeaway and delivery settle down? The sponsors of Deliveroo’s upcoming IPO will be pretty interested in this one.
• Some companies, unfortunately, like fire or exposure victims, will ‘die after their rescue.’ Some may not be revivable? What will this look like? We’re thinking zombie / accrued rent, VAT, duty, rent and bank debt.
• What’s the outlook for rents, tenant / landlord relationships and supply over the year and the longer term?
• We’ll leave these questions open for a few days as, with venues closed etc., there may be a trickle back to work this January rather than a flood.
• We’ll share answers with Premium Email subscribers and contributors / respondents to the above questions.
• Good luck to all.
PUBS & RESTAURANTS:
Urgent calls for help.
• The Sunday Times reports that bosses of leisure operators including JD Wetherspoon, Marston’s and Merlin have warned ‘of a cliff-edge for businesses in the spring as emergency Covid-19 support measures are withdrawn while the economy is still reeling from the effects of the pandemic.’
• The business leaders, reports the Sunday Times, said that ‘there was an urgent need to extend the measures — such as business rates relief and the cut in VAT from 20% to 5% for hospitality, tourism and accommodation — for at least a year.’ The leaders are also asking for a “road map” for recovery. The warning comes as c44 million people are now under tier 4 restrictions in England and more may follow in the coming days.
• JDW’s Tim Martin says ‘the handling of the crisis by the government has been very poor – mainly because of the constant chopping and changing of policies.’ The JDW Chairman says: ‘you just don’t know what you’re planning for.’
• CEO of Marston’s Ralph Findlay says that, unless the VAT cut and rates holiday are extended for another full year, ‘there will be many businesses that will not be able to make it through 2021.’
Footfall & trading levels:
• S4labour has reported that total hospitality industry sales were down 73.7% on last year for December. It says ‘food was down 63.7%, Drink was down 81.7% and Accommodation was down 71.4%. Given that December is usually hospitality’s busiest month, this is a hard blow for the industry.’
• The industry has effectively blown its joker card (through no fault of its own).
• S4labour says ‘to exacerbate the problem, New Year’s Eve sales were down by 97.8%, as all pubs and restaurants moved into Tier 3 or above prior to the 31st. The few takeaway sales that were left do not compensate for eating in sales.’
• S4labour says it will offer discounts to customers and says ‘as we enter the New Year, this is a dire time for our industry and it is the responsible thing to share some of the pain and to help our customers get to the other side of this crisis.’
• Covering the festive period specifically, S4labour says ‘total hospitality industry sales were 79.4% down on last year from Christmas Eve to Boxing Day. Drink was down 84.2% and food was down 64%. Given that households were prevented from mixing in hospitality venues, it is no surprise that bookings were cancelled and sales plummeted.’
• The numbers were on a declining trend as rules were toughened immediately post-Christmas. S4labour says ‘this unpredictable year has ended in very suppressed Christmas sales due to ever increasing COVID restrictions, and it’s not looking likely to change for a while yet.’
Other Covid news:
• The hospitality in several of its guises has made it clear that their presently-closed units could be put at the disposal of the government for the purposes of administering vaccinations. The nightclub industry stands ready. Elsewhere, Loungers points out ‘we have large venues and extensive refrigeration – we’re here to help.’
• Brewdog’s James Watt has said it is ‘now talks with the Minister For Vaccine Deployment’ in Scotland saying ‘we have offered all @BrewDog bars to help with a quick roll out of the vaccine. For free. We have waiting areas, huge refrigerators & ace people who can help organise. A number of travel operators have also come forward to offer currently shuttered sites.
• Many operators, chief amongst them casual restaurant operators, are attempting once again to make ends meet via delivery.
• JD Wetherspoon has called on politicians and the public to reconsider the evidence regarding lockdowns. It says ‘Sweden, which did not impose a lockdown, has had less Covid-19 fatalities per capita in recent weeks than the UK.’ Wetherspoon Chairman Tim Martin said that ‘a particular worry is that the UK is relying on a lockdown strategy, championed by Neil Ferguson, Imperial College and SAGE.’ It says that the most pessimistic estimates for Sweden failed to materialise.
• Mr Martin says ‘given the huge scale of job losses in the UK, especially in the hospitality industry, and the widely reported “collateral damage” to health, there should be a proper debate on this subject [of whether to lockdown], rather than reliance on politicised government propaganda and statistics.’
• Chief Executive of UKHospitality, Kate Nicholls commented on the announcement by the Health Secretary that the majority of England into either tier 3 or 4: ‘We have consistently pleaded for the Government to reassure hospitality businesses and allow them to plan for survival, by announcing an extension to the 5% VAT rate and to the business rates holiday, and to urgently detail new support grants. Without these steps, businesses cannot plan for any future at all, meaning hundreds of thousands of job losses’.
• More than three hundred independent breweries have signed a letter by the Society of Independent Brewers calling on the Prime Minister to commit to proper support for the sector.
• Kantar has reported that supermarkets achieved a record Christmas as virus closures pushed shoppers into their stores. Kantar says that the operators as a whole took in some £12bn spent on food & drink alone over the period. The Telegraph quotes Kantar as saying ‘people wanted to enjoy themselves at home after quite a tough year, even in spite of last-minute rule changes affecting many people’s plans and headlines about chaos at the borders.’
• The Telegraph goes on to suggest that 2021 could be a year of two halves for retailers. Much of the hospitality sector would agree with that suggestion.
• The Sunday Times points out that the demise of Jamie’s Italian led to a halving of profits at Jamie Oliver’s holding company, which also contains his TV rights, book publishing income and endorsements.
• Founder and chief executive of Soho House, Nick Jones has sold £14.8m of his shares to a US billionaire Ron Burkle.
• Sky has reported that Lord Sugar is leading a landlord-led revolt against a rescue deal for Caffe Nero.
HOTELS & LEISURE TRAVEL:
• The EU is expected to restrict travel from the UK, as it prepares to group the UK with the US and Canada and other countries that they deem to have ineffectively contained COVID-19.
• STR reports November US hotel profitability fell back to levels seen during earlier months of the pandemic. Year-on-year GOPPAR fell by 97.5% to $2.13.
• Furthermore, STR reports US hotel occupancy down 33% for the week ending 26 December to 32.5%, with ADR down 28.8% to $92.08 and RevPAR down 52.3% to $29.94.
• Travel Weekly quotes cruise sector leaders as saying that the UK ban on cruises must be lifted this month to allow the sector to prepare to a return to sailing by Easter. CLIA says that getting the sector departure-ready could take 3mths. It says some 35% of advance bookings were usually made during December and January, underlining the need for a clear statement in favour of reopening the industry. In a letter to Chancellor Rishi Sunak, the sector says ‘we need concrete steps to be taken in order to proactively plan for a restart of the sector, primarily so that we are able to begin to take bookings for 2021.’
• Caesars UK Bidco is set to acquire he entire issued and to be issued share capital of William Hill not already owned by or on behalf of the Caesars Group. Caesars’s current expectation is that the remaining approvals required to be obtained from the Relevant US Gaming Authorities will be obtained in time to allow completion to occur early in the second quarter of 2021, but possibly as early as March 2021.
• The BBC reports that ‘US casino giant MGM Resorts is looking to buy British gaming company Entain.’ Entain owns the Ladbrokes chain of bookmakers ‘as well as a number of online sports betting and gambling sites.’ Entain is reported to have recently turned down a $10bn bid from MGM.
FINANCE & MARKETS:
• Betting is now on a ‘W-shaped’ recession as most of the country is in tier four already and much of the rest may follow this week.
• Concerns in The City that services have just endured a ‘no-deal’ Brexit as the Christmas Eve agreement does not cover services, which make up c80% of the UK economy (and c100% of The City).
• Sterling higher at $1.3677 and €1.1167. Oil up at $52.93. UK 10yr gilt yield down at 0.17%. World markets since last seen a little higher with London set to open up over 40pts.
RETAIL WITH NICK BUBB:
• Friday’s Press and News (1): There was no FT published on Friday (New Year’s Day), but all the other papers came out and many of the front pages carried photos of the surprise laser/drone and firework show over the O2 Arena and Tower Bridge at midnight. The Telegraph ran with a big photo of a smiling Boris Johnson, to highlight his upbeat column about the New Year, with the headline “”Welcome to 2021 – and two reasons to hope for a much brighter future””. The Times took a similar tack (“Johnson celebrates an “amazing” future for the UK”), but the Daily Mail focused on the delay in the vaccine roll-out (“A million jabs done – now get a move on”) and the Guardian noted the downbeat background to Brexit: “In crisis, without fanfare, UK finally ends the EU era”.
• Friday’s Press and News (2): In terms of Retailing stories, the Times and the Guardian both picked up the report from the Centre for Retail Research forecasting up to 200,000 Retail job losses in 2021, even more than the 177,000 lost in 2020: the Times illustrated the story with a photo of a Sale poster in a Top Man shop window, but the Guardian chose a curiously dull looking photo of the Debenhams store in Bury. The Times also flagged that five bidders are thought to be left in the auction of the Arcadia brands, with Boohoo, Frasers and Next amongst the front-runners to pay £200m plus for Top Shop/Top Man and final bids to the administrator now due by Jan 18th. The Times also had a snippet by the late announcement on New Year’s Eve by ABF that, after the latest store closures ordered by the UK and Irish Governments, Primark now expects to lose £220m more sales than it previously
• Saturday’s Press and News (1): The front-page headlines of the Saturday papers were split between the vaccine rollout row, eg “Doctors revolt on jabs” in the Daily Mail and “Two million Oxford jabs will be made every week” in the Times, and the skool closure row, eg “Number 10 U-turn on schools as pressure grows over Covid” in the Guardian and “Teachers demand all schools stay closed” in the Telegraph. The FT went with the growing risk of Scottish independence post-Brexit: “Sturgeon rains on Johnson’s Brexit parade”.
• Saturday’s Press and News (2): In terms of Retailing stories, there were thin pickings, but the Times had a feature interview with the DFS boss Tim Stacey (“Surge in home improvement during pandemic leaves chief sitting pretty”), highlighting that he used to work at Boots and still admires Stefano Pessina. The Times also had a bullish column by a City economist arguing that “Confident households can spend Britain back to health”. Lex column in the FT looked at 4 trends for 2021: cyber security, renewable energy, sustainable clothing and rollable phones.
• Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were also split between the skool closure row and the vaccine rollout row: the Observer went with “Teachers take legal action as chaos grips schools plan” and the Sunday Telegraph ran with the view of OFSTED that “”We must not furlough our children’s futures””, whilst the Mail on Sunday flagged the view of the Deputy CMO that “New jab policy will save many lives” and the Sunday Times highlighted the “Postcode lottery for life-saving jab”.
• Sunday’s Press and News (2): In terms of Retail stories, the Sunday papers were a bit thin and the Sunday Telegraph declined the opportunity for their Business journos to inform us of their Tips for 2021. The Mail on Sunday stepped up to the plate, however, and their Retail correspondent Neil Craven (who is also now Deputy City Editor) plumped for WH Smith as his recovery tip for 2021 (having underperformed with his M&S tip in 2020).
• Sunday’s Press and News (3): In terms of company news, the main Business story in the Sunday Telegraph was headlined “Virus curbs spur record Christmas for grocers”, highlighting the view of Kantar that December saw a record £12bn of grocery sales and that Morrisons will report c8% sales growth in its Christmas trading update. The Sunday Times flagged that Simon Arora of B&M and John Roberts of AO.com were among the Top 5 individual stockmarket winners in 2020, given the increased value of their shareholdings. The Sunday Times also noted that one member of the Clarks dynasty, one Galahad Clark, has criticised the previous management of the embattled family-owned footwear chain. The Sunday Times also had an interesting feature interview by Business Editor Oliver Shah with the Dixons Carphone boss Alex Baldock (“Dixons’ Action Man scrambles to keep superstores plugged in”),
• Sunday’s Press and News (4): In terms of all the Economics comment columns in the Sunday papers, we would, as usual, highlight the column by the Sunday Times Economics correspondent David Smith (“Five causes to be cheerful – and two reasons to worry”), in which he flagged that, given the very high savings ratio and lower than feared unemployment, the UK economy should grow by at least 4%/4.5% in 2021. We would also flag up the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“After a year of Covid, here comes the technology-driven boom”), in which he noted that “the UK economy has shown itself to be remarkably adaptable to the challenges of lockdown, with all kinds of new businesses in the digital and delivery spheres to compensate for the demise of the old”.
• Today’s Press: The front-page headlines today are dominated by the rumours of another national lockdown: the Guardian goes with “Schools crisis grows as PM warns of new Covid curbs”, the FT reports that “Johnson tells England to prepare for tighter Covid-19 restrictions”, the Telegraph has “Threat of national lockdown looms again” and the Times runs with “Stand by for new Covid curbs, PM warns”. The Daily Mail embarks on a campaign to have Grenfell-style cladding removed from the homes of four million people, saying they are victims of “Towering injustice”.
• This Week’s News: Next will, as usual, kick off the plethora of January trading updates tomorrow, albeit Next focus on the “full-price” trading period up to Christmas Eve. Morrisons will be the first of the “Big 3” supermarkets to report on Christmas trading tomorrow. The latest Kantar and Nielsen grocery market share figures (for the 4 weeks to Dec 26th/27th) come out at 8am on Wednesday, whilst Greggs will also be reporting on Wednesday and M&S Food will be the star of the M&S Q3 update on Friday. The Topps Tiles Q1 update is also on Wednesday, whilst the B&M Q3 update is on Thursday, along with the Walgreen Boots Q1 in the US.
• Quote of the Day: If you thought things couldn’t get any worse in 2021, here’s a cheery insight from the late Tommy Docherty, the famous Man Utd manager: “When one door closes, another slams shut in your face”.
TRADING STATEMENTS & EVENTS:
Upcoming results are set out below:
• 5 Jan 21 Morrison’s Xmas update
• 6 Jan 21 Gregg’s Q4 update
• 7 Jan 21 Constellation Brands Q3
• 8 Jan 21 M&S Q3
• 12 Jan 21 Nichols FY trading update
• 12 Jan 21 Games Workshop H1 numbers
• 13 Jan 21 Sainsbury Q3
• 13 Jan 21 Just Eat Q4
• 14 Jan 21 Tesco Q3
• 14 Jan 21 C&C EGM
• 15 Jan 21 Gym Group trading update
• 19 Jan 21 Premier Foods Q3 update
• 20 Jan 21 JD Wetherspoon H1 update
• 20 Jan 21 WH Smith AGM update
• 22 Jan 21 GfK Consumer Confidence numbers
• 5 Feb 21 On the Beach AGM & trading update
• 11 Feb 21 Pepsi FY numbers
• 3 Mar 21 Government Budget Statement
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