Langton Capital – 2021-01-27 – PREMIUM – RW (real world) issues, JDW, Starbucks, markets, quarantines etc.:
RW (real world) issues, JDW, Starbucks, markets, quarantines etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We humans are both wonderfully intelligent and easy to fool.
We are intuitive and innovative but, at the same time, we’re much more likely to fall back on genetic, programmed behaviour than we would ever like to admit.
For example, we jump to conclusions, we spot patterns, and we go off half cocked.
That served us well because the downside (feeling foolish) of reacting to a stick that we thought was a snake or a shadow that we worried might be a leopard, was minimal when compared to the downside, which was clearly either getting eaten or poisoned or both’
Check YouTube for ‘cats and cucumbers’ and you’ll get the idea.
And, in the modern world, we’re much the same.
Reacting to the news ‘the fire is out…’ is great. But if you fail to read the following words ‘…of control’ then you might get your response wrong and risk ending up on the wrong side of Darwin’s suggestion that the brightest are likely to survive.
Similarly, whilst the headline ‘Pfizer vaccine only 33% effective’ grabbed the attention, what followed was largely ignored. The report mentioned 33% effectiveness after 14dys but much improved numbers after 21dys, 28dys etc. This was much as earlier reported.
Anyway, for news to be news it has to be news. On to the news:
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REAL WORLD COMMENTS.
• Langton was wondering where its schizophrenia came from.
• We’ve mentioned previously that operators are akin to accountants. They deal with facts and figures. The real world. But politicians are akin to (and often actually are) journalists. They deal in soundbites, deflection and alliterative or emotive comments.
• We chez Langton are accountants and analysts and operators and journalistic commentators. No wonder we’re confused.
• The trade will likely open quietly. Opening with a celebratory splash might a) be best for the industry but b) be illegal.
• This is perhaps sensible and, maybe, the sooner something is laid out, the more accurately the trade can plan.
• But there will be issues.
• We’ll touch on consumer behaviour perhaps tomorrow but the MA quotes an Isle of Wight publican who speaks for many in saying ‘I cannot draw people from sunny back gardens, the freedom to smoke and cheap supermarket beer with the prospect of table service and being told to sit down.’
• Grumpy, entitled service won’t help either.
• Nor, with our consumer’s hat on, will price gouging, failing to pass on VAT cuts and feeling that your problems can be projected onto the rest of the world (which has been happy with 50p bottles of Becks and Netflix for the past few months).
• Mr Johnson might have been crowd-pleasing in saying a mid-Feb review was possible. Indeed, it may be possible. but it is not certain that it will pre-empt change.
• A later reopening? The Telegraph speculates that ‘Lockdown restrictions may not be fully lifted until all over-50s have had their second dose of the Covid-19 vaccine.’ This suggests reopening initially with a whimper rather than a bang. It’s right to keep things under review.
• The Telegraph says the government is hoping for a move ‘in April’ allowing ‘pubs, restaurants and bars to reopen under similar measures that were in place last summer, including the rule of six and social distancing.’ It says ‘a full easing of restrictions would be delayed for another 12 to 14 weeks after that, ensuring most people in the higher risk groups would have strong immunity to the virus by then, a source claimed.’
• This is one possible (but quite likely) outcome amongst many.
The real world:
• The real world is inhabited by politicians, who understandably wish to raise ideas up the flagpole via the Press to see if they are popular before acting on them. They can judge scientific pushback, voter reaction etc. The inhabit the world where the best decision may not be the best decision.
• But the real world is also inhabited by operators who have to make binary decisions without many shades of grey. They look at the pile of pennies that came in during the week, and the knock off the pennies that went out.
• Ask yourself, for example:
o Do I order real ale with a short shelf-life? If I’m a brewer, when do I press the ‘go’ button? I certainly don’t want to pour more beer down the drain.
o What do I do with re labour scheduling? When do I ask my staff to come back in? With the UK population down by 1.3m and London’s population down by 0.7m are my staff even still in the UK?
o When do I clean my beer pipes? When do we spruce up the pub/restaurant? When do we order down the plywood shuttering that our insurance company may have insisted we put up?
o When do I put in orders for food? How much? What sort? What prices can I charge? What rate will VAT be chargeable at after March?
o Will my landlord chuck me out? Are my suppliers still talking to me? Are the VAT authorities preparing a writ?
Keeping it simple:
• Jerry Maguire said show me the money. No, he said, show me the money. The money. Show me the money.
• We need simple answers to simple questions.
• It may be there aren’t any. But even that is an answer of sorts.
• If there are, then when and in what form are we re-opening?
• In its simplest form, what will my customers be allowed to do, what labour do I schedule and when – and how much lettuce, a decent proxy for easily-spoiled produce, do I order and when?
PUBS & RESTAURANTS:
• Stuart Bateman of the Lincolnshire-based Batemans pub group has told The Morning Advertiser: ‘We are quite a fortunate company we have a very strong asset base and a low borrowing-based balance sheet. So we are quite well set, as it were, for the future. We definitely have no pubs that are going to close for good. The rent concessions we have given is approaching £1m but we’re here for the long term, not for short term profit, so I think all of our pubs will come out of this – for which we’ve had to give them an enormous amount of support’.
• A report from Deliveroo has found that 85% of consumers will order delivery more often or the same as they did before the pandemic. It finds that 65% are spending more on delivery food as ‘something to look forward to’ during the pandemic.
• Chief Executive of the BBPA, Emma McClarkin reacted to the ONS Labour market statistics, commenting: ‘Rising unemployment and redundancies hitting a record high are extremely concerning. As one of the most devastated sectors by COVID-19, we fear it could get a lot worse unless action is taken’.
• Emma McClarkin continued with: ‘The Chancellor must act to get us over this final hurdle in the fight against the virus. A clear roadmap to reopening is needed to save jobs, along with an economic stimulus package so sectors like ours can bounce back and lead the recovery’.
• ClearSight has commented on consumer optimism saying ‘after a marked spike in pessimism, there are tentative signs that the population is adjusting to current circumstances as infection rates gradually come down and further vaccination progress is made.’
• The MA reports on a reduction of 381 in the number of regulated tied pubs (to 8,745) in calendar 2020 compared with 2019. There are only six pub-owning businesses regulated under the pubs code.
• Arc Consulting says that ‘it is no use sugar coating the fact that after furlough ends and the support measures put in place fall away there will be many losers and that reckoning has yet to be seen later in the year. These include those overburdened with debt, in high volume businesses where rental rolls were unsupportable and a significant loss of jobs in our sector for the most vulnerable in society. Familiar high street names including the plethora of restaurant chains we all thought were booming will be thinned out.’
• The Night Time Industries Association (NTIA) has called on the Government to immediately increase financial support measures, stating that the industry is losing c40 businesses a week. Michael Kill, NTIA CEO, stated: ‘Urgent action is needed from the Chancellor to extend the current furlough and self-employed provision, as well as extend the business rates holiday and VAT relief for wet led sales businesses until the end of 2021, to save hundreds of thousands of businesses and jobs, before he sets the Budget’.
Company & other news:
• JDW founder sells shares.
• JD Wetherspoon plc yesterday announced that founder and chairman Tim Martin ha sold 4,370,000 of the shares that he owns in the company at a price of £11.50 pence per share on 26th January 2021. It says ‘the sale was in response to significant buying interest following the company placing last week.’ The company says ‘Tim Martin has agreed to a lock up arrangement on his remaining shareholding that runs until the release of the announcement of the company’s results for the 52 weeks to 25 July 2021 that is expected to take place in September 2021.’
• JDW says that ‘as a result of the transaction, Tim Martin’s holding in the company now comprises 28,174,709 shares which is 21.88 % of the issued share capital of the Company.’
• Starbucks. China up, the rest of us down.
• Starbucks has reported Q1 Fiscal 2021 results saying LfL sales fell by 6% in the US but rose by 5% in China. It says it generated 53c in GAAP EPS, which is ‘reflecting substantial margin improvement from [the] prior quarter.’ CEO Kevin Johnson says ‘I am very pleased with our start to fiscal 2021, with meaningful, sequential improvements in quarterly financial results despite ongoing business disruption from the pandemic. Investments in our partners, beverage innovation and digital customer relationships continued to fuel our recovery and position Starbucks for long-term, sustainable growth.’
• Starbucks says ‘our results demonstrate the continued strength and relevance of our brand, the effectiveness of the actions we’ve taken to adapt to changes in consumer behavior and the steadfast commitment of our green apron partners to serve our customers and communities.’
• The company concludes ‘we remain optimistic about our robust operating outlook for fiscal 2021 as well as our ability to unlock the full potential of Starbucks to create value for our stakeholders.’
• The US saw a 19% decrease in comparable store transactions accompanies by a 17% increase in average ticket spend. LfL sales in the group’s home market were down by 6%. China, as mentioned, was up 5% with the rest of the world down by 3%. Transaction numbers in the RoW were down by 10% with an 8% increase in spend per head.
• Starbucks ‘opened 278 net new stores in the first quarter of fiscal 2021, yielding 4% year-over-year unit growth, ending the period with 32,938 stores globally, of which 51% and 49% were company-operated and licensed, respectively. Stores in the U.S. and China comprised 61% of the company’s global portfolio at the end of the first quarter of fiscal 2021, with 15,340 and 4,863 stores, respectively.’
• Deliveroo IPO. Get your timing right.
• Sky has reported that American businessman Will Shu, who founded Deliveroo in 2013, ‘could stand to gain a pay-out of more than $500m when the company completes its hotly anticipated IPO, expected as soon as April this year.’ Shu currently owns a 6.8% stake in Deliveroo. Sky speculates on a valuation as high as £8bn or $11bn.
• Amazon owns a 16% stake in Deliveroo. The purchase was cleared by the Competition and Markets Authority last year after Deliveroo said that it was close to collapse in the absence of further financial support. The covid-19 pandemic has led to a rise in revenues.
• CRM and gift card platforms, Airship and Toggle, have been made free to operators that sign up ahead of June as part of the Come Back String campaign. Dan Brookman, CEO of Airship and Toggle, said: ‘It is a real pleasure to launch our #ComeBackStrong campaign this week. We are really excited that, in the coming months, the public will be reacquainted with our incredible sector, and we’re keen to support in every way that we can to ensure operators are in the strongest possible place to bounce back when the doors reopen’.
• HUN, the East London wine brand is launching a new £400k crowdfunding campaign as it looks to expand.
• Restaurant sales in the US are projected to increase 10.2% in 2021, data from the National Restaurant Association suggests.
• Rosa’s Thai Cafe is set to open its first restaurant in Birmingham this spring, the Caterer has reported.
• Helsinki-based online ordering and delivery company Wolt is reported to have raised $530 million in new funding. Wolt declined to disclose the company’s latest valuation. It says ‘we operate in an extremely competitive and well-funded industry, and this round allows us to have a long-term mindset when it comes to doubling down on our different markets.’
HOTELS & LEISURE TRAVEL:
• There is speculation that Home Secretary, Priti Patel, will announce the introduction of hotel quarantine requirements for people entering the country. There is some speculations as to whether this will be from certain destinations or if it will be a blanket requirement. This will be negative for the domestic tourism market, particularly in areas dependent on foreign visitors.
• STR reports that ‘hotel performance in the United Kingdom across December showed no real improvement from previous months as the country remained subject to tight restrictions.’ It says hotel occupancy on New Year’s Eve was just 14%.
• STR comments on the US market, saying ‘2021 is expected to be significantly better than 2020 but still much worse than 2019.’ Marriott has said ‘the tides will turn because of the development of vaccines but the hotel industry is still in the eye of the storm as COVID-19 case numbers remain high in many places.’
• Mark Tanzer, the head of Abta, says that government is “wrong” to insist that “now is not the time” to book a summer holiday. Tanzer says that the comments are “injudicious”. Tanzer told Travel Weekly ministers ‘are wrong, I don’t think they have a view of when and how the sector is going to open up. So, to take a view in January as to what it’s going to be like in May or June is premature.’
• Cineworld announced yesterday that its controversial incentive scheme had been approved by shareholders. Chair Alicja Kornasiewicz commented ‘we are pleased that the plan has been supported by a wide range of our shareholders. We acknowledge that there were a significant number of votes cast against the plan, and the board will continue to engage with shareholders on remuneration matters in the coming months in light of the feedback received during our consultation.’
FINANCE & MARKETS:
• The ONS reported yesterday that the UK’s unemployment rate rose to 5% in the three months to November, up from 4.9% in the prior three months. The ONS says ‘payroll numbers show the number of workers on payroll have fallen by over 828,000 since the pandemic began.’
• Pay growth ‘ended 2020 better than it had started. Average weekly earnings including bonuses (AWE) among employees increased from 2.8% in October to 3.6% in November 2020’ says the NIESR.
• It adds ‘despite a late surge in average pay driven by composition effects, 2020 will probably end up being the worst year for total pay growth since 2014, with AWE growing at 1½ per cent on average.’
• It says the effective ‘pay freeze for a large part of the labour force, in addition to lost income during the time spent in furlough have put more strain on the labour market than the latest pay numbers suggest. Given the current course of the pandemic and the pace of the recovery, unemployment could rise to more than 7 per cent even with a successful vaccination campaign.’
• The IMF has raised its estimate for global economic growth to 5.5% this year and 4.2% in 2022. It has meanwhile lowered its estimate for growth in the UK to 4.5%. It is estimating a 10% contraction in the UK for 2020.
• The UN says the Covid-19 pandemic has caused an “unprecedented” hit to the global economy last year, destroying the equivalent of 225 million full-time jobs.
• The BBC reports Amazon is set to withdraw some products from sale in Northern Ireland as a result of the newly imposed border in the Irish Sea.
• Sterling down at $1.3739 and €1.1249. Oil price higher at $56.28. UK 10yr gilt yield up 1bp at 0.27%. World markets mostly better yesterday but London set to open down around 30pts.
RETAIL WITH NICK BUBB:
Today’s News: There is no more news on the mooted JD Sports share placing, although the company put out a replacement announcement yesterday evening to clarify, for legal reasons, that the placing was not intended to be sold into the US. In terms of today’s news, the European discount chain Pepco has issued its Q1 trading update for the period to the end of December, with the UK chain of Poundland doing well to achieve 4.3% LFL sales growth, given the slump in footfall on the High Street (albeit the figures do include the Dealz chain in Europe). As it sells food, Poundland has been classified as an essential retailer, whereas the sofa and carpet retailer ScS is a non-essential retailer, so today’s update is hard to interpret: overall sales in the 26 weeks to Jan 23rd were nearly 14% up, but order intake was just over 9% down (after a 65% slump in the last 5 weeks). ScS remain confident