Langton Capital – 2021-01-29 – PREMIUM – McDonald’s, March cliff-edge, void rents, Oakman, Various Eateries etc.:
McDonald’s, March cliff-edge, void rents, Oakman, Various Eateries etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Langton Capital’s email system, which we are beginning to have some doubts about, cut off us, that is Langton.co.uk recipients, from our own email yesterday saying that we had unsubscribed & shouldn’t be bothered again for fear of upsetting us.
Which was news to me.
Hence, as we can’t ask people who have been cut off previously if they have been cut off, just a note to say that, if the email stops coming through, it’s unlikely we’ve had a hissy fit and cut you off, more likely our system has done it without telling us.
On to the news:
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MCDONALD’S COMMENTS ON GRAB’N’GO WORLDWIDE:
• Consumer cyclical sales have been less strong than essentials (contrast, say, hospitality sales with those of the supermarkets).
• Within consumer cyclicals, hospitality, which relies to a large extent on face to face contact, has been weaker than online products (such as gaming).
• Within hospitality, sit down and dine-in has been worse hit than takeaway and, as McDonald’s does both (and it does them across the world), it’s interesting to hear what it has to say.
Global fast food giant comments on calendar Q4:
• McDonald’s says it ‘delivered its strongest quarter of the year [in Q4] recovering nearly 99% of fourth quarter 2019 global comparable sales.’
• US comparable sales were +5.5% in the fourth quarter and 0.4% for the year as a whole. Fast food takeaway is clearly currently in a better position in many territories than is sit down – but McDonald’s does both. and the performance looks pretty robust to many observers.
• McDonald’s says this makes 6 consecutive years of positive comparable sales
• CEO Chris Kempczinski says ‘2020 will be remembered as one of McDonald’s most challenging, yet inspiring, moments in our long history.’
• He says ‘the resilience of the McDonald’s System was on display’ and adds ‘against an uncertain backdrop, we are committed to staying true to our values.’ He adds ‘by investing for the future and leveraging competitive strengths within our Accelerating the Arches strategy in drive-thru, delivery, and our growing digital presence, we’re confident we can continue to capture market share and drive long-term sustainable growth for all stakeholders
By territory – for the quarter:
• Global LfL sales fell by 1.3%. This was better than Q3. The US was +5.5% LfL with International Operated down 7.4% and International Developmental Licensed (usually franchised) segment down 3.6%
• Systemwide sales rose by 1% (including new units) whilst consolidated group revenues decreased 2% (3% in constant currencies). Diluted EPS was down 12%.
Full year results:
• As for many operators, the quarters’ performances last year were radically different. Q1 was the best, Q2 the worst. For McDonald’s, Q4 was then better than Q3.
• For the full year, global comparable sales fell 7.7% ‘reflecting positive comparable sales in the U.S. of 0.4%, and negative comparable sales in the International Operated segment and International Developmental Licensed segment of 15.0% and 10.5%, respectively.’
• McDonald’s reports that consolidated revenues fell 10% with systemwide sales down by 7%. Diluted EPS was 20% down.
• McDonald’s says ‘quarterly global comparable sales results improved sequentially since the second quarter of 2020.’ This is in line with our thumbnail sketch of the year, above.
• It says footfall is down. In McDonald’s language, ‘comparable guest counts remained negative across all segments for the quarter.’
• Spend per head was up. The group puts this down to marketing (rather than necessity on the part of the consumer – or a reluctance to come out more than was necessary).
• Internationally was markedly worse. McDonald’s says ‘the comparable sales decline in the quarter was primarily driven by France, Germany, Italy and Spain. While comparable sales remained negative in most markets, comparable sales were positive for Australia and the U.K. throughout the quarter.’
PUBS & RESTAURANTS:
Covid-19 issues, March cliff-edge.
• Big Hospitality has reported that the end of the lease forfeiture moratorium will leave the hospitality sector with a multibillion-pound arrears bill. In a tweet by the co-founder of Loungers, Alex Reilley commented: ‘END OF MARCH 2021. Debt moratorium (sic) ends! Payment of deferred Q1 2020 VAT & PAYE falls due! Business rates holiday ends! VAT reverts to 20%! [Chancellor] Rishi Sunak, you surely must have a plan – please don’t wait until the March Budget to tell us what it is. Hospitality needs certainty NOW’.
• UKHospitality estimated that the sector had accrued £1.6bn in unpaid rent up to December last year, and with the additional quarter of arrears accumulated the figure could be nearing £3bn before commercial property protections end on 31 March.
• The latest BRC-LDC vacancy monitor has shown that 13.7% of all shops were empty in the final quarter of 2020, this up from 13.2% in the prior quarter. Retail parks stood still, with a vacancy rate at 10%, but shopping centres saw a rise from 16.3% to 17.1% in vacancies. High street vacancies increased to 13.7% from 13.3%. The BRC says ‘with the country in and out of lockdown, the forced closures of thousands of shops, and consumers reluctant to visit town and city centres, it is unsurprising that the number of shuttered stores continues to rise.’ It adds ‘over the past two years, one in every 50 outlets has permanently closed and this number will only go up. The big increase in vacancy rates during the crucial golden retail quarter, when demand is usually high, serves as a stark reminder of the pandemic’s impact.’
• Furlough numbers rose last month with the ONS showing that the number of workers rose from 14% of the workforce in December to 17% in January. The Mail reports that the latest survey found just one third of hotel and food businesses are currently trading.
• The Scottish Beer & Pub Association (SBPA) has welcomed the budget announced by Finance Secretary Kate Forbes to Holyrood. The budget includes a three-month relief on business rates. CEO of the SBPA Emma McClarkin, said: ‘This is a strong budget by the Finance Secretary and certainly will help support Scotland’s pubs and brewers through these unprecedented times. The business rates support in the form of a three-month cancellation will provide a degree of certainty for our members and help many businesses whilst the pandemic is still ongoing’.
• Oakman Inns has updated on trading and its opening programme saying that ‘rather than waiting for the green shoots of recovery to appear, the Tring based premium pub company is proactively going out and sowing the seeds of that recovery now.’
• Oakman says it ‘has a substantial pipeline of sites ready for development during 2021. In addition to existing sites in Buckingham, Wokingham and Epsom they have now added a substantial freehold site in Harpenden. Further announcements are expected in the near future with a number of negotiations taking place to further accelerate growth.’
• Oakman chairman Peter Borg-Neal says ‘we believe that there is a huge unsatisfied consumer demand for premium public houses right across the UK. Large pubs with a strong all day food offer, a high level of amenity and, most importantly, great people running them is the future of the pub market. We want to play a big part in fulfilling that demand.’
• Oakman says its ‘growth ambitions will require funding and, with private equity funds focussing on distressed assets, Oakman launched an equity fund raise just before Christmas aimed at private individuals. Despite the unhelpful backdrop of the national lockdown there has been an excellent response.’
• CIO Steven Kenee says he is ‘thrilled to announce that we have already received applications for over £3.6m of shares and we are quietly confident that we will reach the £4.5m target we set for this round. I am also really pleased that we have welcomed 170 new shareholders into the Oakman family. Their participation demonstrates the trust and affection our customers have for their local Oakman Inn. To meet all our ambitions, we will require further funding; however, we only want business partners who are interested in long-term, intelligent investment into a sustainable business model.’
• Oakman CEO Dermot King says ‘our remarkable performance last year has left us brimming with confidence for the future. Reopening will, of course, be a challenge but the fantastic teams that delivered that performance are still with us and are raring to go again. We will open all our pubs on the very first day we are allowed to do so, and we expect to trade very strongly from day one. During lockdown we have worked hard to keep our people engaged and we have also developed some exciting new products that will add to our forward momentum.’
• King goes on to say ‘we have the teams, we have the kitchens, we have the sustainable food suppliers and now we have established a second-to-none delivery service, we will be powering ahead with our new services. Many of our regulars and neighbours have been asking us to make our food available across the 12 counties we currently operate in.’
Other company news:
• Newly-listed Various Eateries PLC has updated on trading (or lack of trading) saying that ‘the Group has minimised its cash burn during the closure period and has received an interim payment under its Business Interruption Insurance policy of £2.5 million.’
• It says ‘whilst this payment does not entirely compensate for the loss of business over the period of the epidemic, it does support the Group’s overall liquidity, which remains strong. Negotiations with its insurance company regarding additional claims and the final claim period are still continuing and further updates will be provided in due course, as appropriate.’
• The company says ‘while the business has been closed management has been exploring a number of desirable sites for expansion across the UK. Given the lack of guidance as to when lockdown and other restrictions will be lifted, the Company has so far chosen to hold off signing up to any new leases, but expects to be able to do so in the near future on terms that reflect the considerable and continuing fall in retail property values.’
• CEO Yishay Malkov says ‘the management team and I have run restaurants through numerous crises and challenging external events and we have always come back stronger. While Covid-19 is the biggest challenge our industry has seen, we have the team, the sites and the resources to get back on the expansion trail, just as soon as the Government fires the starting gun.’
• Meal kit delivery companies have profited from the pandemic, as nearly half of UK consumers were limiting the amount of time they spent in stores.
• PizzaExpress has stated that it is ready for its next stage of growth following the closure of 74 restaurants. Managing director of the group, Zoe Bowley commented: ‘It was a very long year, and we have worked tirelessly to strengthen PizzaExpress for the future. Perversely we are in a much stronger place than we were a year ago’.
• The Russian based Dodo Pizza has created a takeaway and delivery concept that aims to have 50 UK sites by 2023.
• Mintel GNPD has found that vegan claims in new global food product launches have doubled in 2020 compared to 2016.
• Drop Wine, the London wine delivery platform has raised £300k as it aims to expand its service nationwide.
• The Crobar in Soho has raised £40k on its crowdfunding page as it plans to reopen its doors as a live music venue.
• There are suggestions that Boohoo Group is in advanced talks with administrators about acquiring the remaining brands of Sir Philip Green’s struggling Arcadia Group, namely Burton, Dorothy Perkins and Wallis.
HOTELS & LEISURE TRAVEL:
• Former PM Tony Blair has suggested that the government should establish a single global vaccine passport scheme. The digital passport should verify a person’s coronavirus “status” wherever they travel. Blair told The Telegraph an option that saw everyone ‘doing their own thing’ would be ‘much more chaotic and difficult to manage.’
• FTI Consulting has suggested that ‘intense’ travel restrictions will be in place until at least May. FTI told the Institute for Travel and Tourism’s virtual forum yesterday that the government’s target to see 17.2 million people by April 30 ‘looks plausible as well’ as its aim to vaccinate the most vulnerable by 15 Feb.
• The winter ski season has now been largely wiped out as Inghams, Ski Total and Flexski have cancelled holidays until Easter.
• The Global Business Travel Association has polled travel professionals finding that what had been a ‘growing confidence’ in travel slipped back towards the end of last year as restrictions were intensified.
• Some 69% of European travel professionals said domestic business travel had been virtually suspended (up 7% on those saying the same thing a month earlier). Only 2% of those surveyed expected to resume international travel in the next 1-3 months.
• Around 35% expected to resume non-business critical travel in five to eight months, with 18 per cent saying they would do so in the next one to four months. The results will ping up and down depending on the success of the vaccine rollouts in various European countries.
• Several countries including Ireland and Norway have announced restrictions on international arrivals.
• STR reports that ‘London’s short-term rental sector reported its lowest levels in occupancy and REVPAR since the summer’ in December last year. Occupancy that month was 52%, down 11.5% on November as restrictions were increased. REVPAR was down by 7.9% month over month.
• In the US, STR says occupancy was down 31% on last year in the week to 23 Jan with rates down 28%. The resultant REVPAR was down by 50%. STR comments on calendar 2020 saying that ‘the number of unsold hotel rooms across the United States in 2020 far exceeded those left empty in the worst year of the Great Recession, putting the industry in a deep financial hole that could take years to fill.’
• STR says that US hotel room nights unsold last year exceeded a billion. It says ‘in 2009 during the last recession, the number of unsold rooms reached 786 million.’
• The Travel Trade Gazette reports that Liam Race has been appointed chief executive of the newly formed Leger Shearings Group of escorted coach tour companies.
• Book club start up Literati has reportedly raised $40 million. The founder and CEO, Jessica Ewing, was formerly a product manager at Google.
FINANCE & MARKETS:
• The US economy shrank by a less than feared 3.5% last year reports the US Commerce Department. The WSJ quotes economists as suggesting that the US should make good this loss this year.
• The UK economy is believed to have contracted by 10% or so this year with major European economies somewhere between the UK and US numbers. China and a number of economies in the Far East remain in growth.
• Zoopla reports that lockdown and the upcoming reintroduction of stamp duty on cheaper homes have triggered a sharp drop in the supply of homes for sale.
• Sterling up at £1.3702 and €1.1326. Oil little changed at $55.46. UK 10yr gilt yield up 2bps at 0.29%. World markets mixed to down yesterday. London set to open down around 70pts.
RETAIL WITH NICK BUBB:
Today’s News: There is still no more news on the mooted JD Sports share placing, but mighty Boohoo has confirmed the Sky News story last night that it is in exclusive discussions with the administrators of Arcadia over the acquisition of the Dorothy Perkins, Wallis and Burton brands (Sky News said the price could be little more than £25m…). And Dr Martens has announced the result of its IPO, with the offer price set at 370p, capitalising the group at £3.7bn, which is even higher than the £3bn that had been mooted, with the 35% offering no less than 8 times over-subscribed…Conditional dealings start at 8am and Kenny Wilson, the CEO of Dr Martens, says: “We have been delighted by the strong levels of interest, engagement and support from such a high-quality selection of institutional investors. The successful transformation of Dr. Martens is a great story, and what is even more exciting is
Trade Press: Retail Week magazine is now a monthly product and produced only in pdf form, but we should be grateful for small mercies…The front cover of RW today is a slightly odd image of the hands of an athlete touching the start line of a race, to illustrate the main feature on “The great retail reset” (“Why 2021 is the year the industry will change forever”), which includes a great quote from Archie Norman (“It’s a bipolar economy. Some people are losing their jobs, but for salaried Britain it’s not so bad”). RW also have features on “Boohoo’s plan to make Debenhams a force again” and the “IPO rush – which retailers will whet investor appetite?”. In his column, the Editor of RW thunders that “Sunak must act now to save our High Streets”.
Next Week’s News: As we move into February next week, there is very little company news scheduled, but first dealings in the Moonpig IPO will start on Wednesday morning and it will be interesting to see how the Dr Martens share price settles down after today’s IPO launch. In terms of the Economic outlook, the MPC meeting interest rate/QE news at mid-day on Thursday will be worth keeping any eye on.
BDO High Street Sales Tracker: Despite the impact of the lockdown on non-essential stores, the BDO High Street Sales Tracker for medium-sized Non-Food chains painted a less gloomy picture for w/e Jan 24th…BDO Fashion LFL sales were down by only 4.5%, even though Store Fashion sales were down by as much as 91%…And Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were down by just under 6% (down 84% in Store sales and up 161% in Online sales). The BDO index clearly tells a better story for last week, thanks to a renewed Online sales urge, but it is still just an unweighted average of percentage changes in the sales of their reporting retailers, so we would again warn that it shouldn’t be taken too seriously.