Langton Capital – 2021-02-26 – PREMIUM – Tough trading, Budget & Beer, W End, Escape Hunt, Airbnb, Fuller’s etc.:
Tough trading, Budget & Beer, W End, Escape Hunt, Airbnb, Fuller’s etc.:
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A DAY IN THE LIFE:
Don’t you ever find it a bit frustrating when people mix up data with insight?
A telephone directory, if such a thing still exists, is full of data, but insight is having a view as to who is the best plumber or restaurant etc and, whilst both are valuable, it’s much easier to get hold of the former than it is the latter.
Indeed, the Internet has made data virtually free.
We heard the other day that board packs were routinely coming in at 100, 200, even 400 pages in length. Just dig out an academic PDF on footfall, car sales, inflationary trends or whatever and hit print. The resulting product will be full of data but as for true insight, well that’s another matter.
Coincidentally, a reminder that our insight-packed premium email is £295 per single or £495 per multiple subscription see below.
Anyway, we added a Redwing and a Treecreeper to the list of birds seen in the garden since Lockdown 3.0 started. I think we’re up to about 30. On to the news:
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• Anything before Covid feels like ancient history but it’s worth remembering that 2018 and 2019 were tough for some.
• There was, arguably, too much capacity in certain areas of hospitality. We remember, it seems like a lifetime ago, bemoaning cheap money, me-tooism and the fact that private equity had ploughed too much money (alongside too little effort) into the sector, particularly casual dining and, to a lesser extent, coffee.
• These actions drove up rent and the cost of some labour and discounting kicked off.
• CVAs became a ‘thing’ and then, after all of that, came Covid.
A blast from the past:
• We asked, re the oodles of capital being spent on casual dining sites ‘how will this end?’ We said in 2018 ‘one needs to ask, what happens when the music stops?’
• We asked: ‘how many of these businesses are recession-tested?’
• We said: ‘if they are losing money when market conditions are relatively favourable, how will they perform under duress?’
• We had no idea that Covid was around the corner but the answer to the above question is ‘terribly’.
• Again, ancient history, but we said ‘one symptom we’ve already been seeing is the recent rash of CVAs from chains such as Carluccio’s, Prezzo, Jamie’s Italian and Byron.’
• Of course, we should have realised that the scale of the above disasters was relative and that we ‘hadn’t seen anything yet.’
• Nonetheless, in some cases, Covid issues were overlaid on pre-existing problems.
Case study. Conilon Ltd (trading as Black Sheep Coffee).
• Conilon, trading as Black Sheep Coffee, lodged accounts to end-December 2019 (yes, 2019) with Companies House this week.
• Black Sheep outlets are well-regarded but, to have a future, a company ultimately needs to make a profit.
• That may be ‘so last century’ but, unless investors are willing to fund losses indefinitely, it is true.
• Conilon lost £6.4m before tax on revenues of £10.8m in 2019 having lost £5.3m on £6.9m of revenues in the year before.
• We reviewed the December 2018 accounts over a year ago and noted that the balance sheet was running out.
• Investors’ capital had nearly been used up but, during calendar 2019, the company was able to raise a further £7.6m of equity and what looks like £3.2m of loans representing ‘simple agreements for future equity’.
• The FT in June 2019 said that the funding had all come from private individuals and valued the company, which had 36 sites at its year end, at some £109m. The company took over Taylor Street Baristas during the year (2019).
• As at end-2019, the company had £15.4m in accumulated losses.
• It is very unlikely that 2020 was better than 2019. The furlough, some grants and any rent-free periods that the company has been able to negotiate will help, but further major losses are probable.
• This is not specifically a comment on Black Sheep Coffee.
• We know that start-up phases and J curves do exist. We can talk about them more for Monday.
• But we also know that some businesses will be hard to salvage and, as the government, landlords, banks, creditors and administrators are up to their eyeballs in work and worry, attention may not be focused on the walking dead for some time to come yet.
PUBS & RESTAURANTS:
Covid – the state of play:
• We are on the path to reopening – but it is important to take our bearings from time to time & ensure that there is nothing coming in from left field that may upset things.
• The NIESR says, slightly worryingly, that the R rate ‘is starting to move up to 0.9 – 1.0 from a range of 0.8 – 0.9 where it had been since mid-January.’ It says the number of new cases per day should continue to fall and should be ‘around 6,800 on 8th March, when schools reopen.’
• The NIESR says there are regional differences (Mr Johnson has said there are not and that England will be treated as one area). It says ‘currently, London has the lowest R number while Scotland and Yorkshire and the Humber again have the highest, with both slightly above 1.0.’
• The NIESR says ‘strong data relative to that forecast in the previous week has increased our estimates of R number and regional differences remain pronounced with Scotland, Northern Ireland and Yorkshire and the Humber above 1.0.’ Worth keeping an eye on.
• It will be hard to please everyone, but Beer Duty could be cut in pubs and possibly be raised in supermarkets in order to encourage people to go out post reopening. PM Boris Johnson has said that his chancellor is ‘looking closely’ at the potential move.
• On the above topic, some 68 Conservative MPs have signed a letter urging Rishi Sunak to cut Beer Duty. The British Beer & Pub Association has said the very cautious reopening of pubs will cost the sector £1.5 billion in lost trade in April alone, as 3 in 5 pubs will not be able to open or be viable with outside service only.
• The BBPA points out ‘the UK pays £3.6 billion in Beer Duty each year – more than Germany, Spain, Italy, Netherlands & Ireland combined. British beer drinkers pay 11 times more duty on beer than those in Germany as well as Spain.’ One of the 68 MPs above, Richard Holden, says ‘our pubs are at the heart of our communities and lockdown has hit them harder than any other sector. Whilst the government support has been welcome, it has not made up for the massive impact of being closed for so long on these vital local institutions. The best way for them to build back better after this crisis is to get people back into pubs and the best encouragement for publicans and the public is to see real action on beer duty.’
• BBPA CEO Emma McClarkin says ‘it is up to the Chancellor, Rishi Sunak, to deliver the support our pubs and brewers need. That includes a beer duty cut that allows them to survive and thrive in the future.’
• Charity the Plunkett Foundation has launched a UK-wide public appeal to help save pubs through community ownership. The charity supports around 700 community businesses including 150 community pubs across England, Scotland, Wales and Northern Ireland. The charity is calling for clarity on reopening.
• The Give Hospitality A Break campaign is urging the Government to further extend the moratorium on lease evictions for another three months. It says businesses should be allowed two years to pay back just half of the rent owed. The campaign’s founder Tony Lorenz says ‘clarity is urgently needed to avoid bankruptcies, and the follow-on mass unemployment in the sector. That too would have knock-on impacts on the tourism and travel industries, crucial parts of the UK’s domestic offering.’
• Mintel has suggested that the foodservice industry can learn from other retailers about how to keep in touch with and service customers through virtual events. It says that it has noted restaurant operators pushing meal kits and holding live stream cooking demonstrations via social media.
• The Guardian reports Tony Danker, the director general of the CBI, as urging chancellor Rishi Sunak to extend support for struggling firms and their workers and do more to boost companies in sectors of the economy subject to the longest lockdown controls. Danker says ‘the chancellor must finish what he started: doing whatever it takes to back UK business. The more businesses – the more jobs – that we can see through the crisis, the faster we can snap the economy back into shape.’
• The road out of lockdown is becoming clearer – but some companies, supermarkets, food producers, Zoom, delivery, outdoor equipment manufacturers, beer gardens and others, have been winners during lockdown.
• Premier Foods’ research suggests that ‘91% of Brits intend to cook as much, or more, in year ahead.’ It says that ‘people are experimenting more in the kitchen’ and says ‘one third of households have added a dish to their weekly ‘go-to’ evening meals over the last year.’
• The company’s ‘Premier Foods Kitchen Cooking Index’ finds that ‘how and what people cook in the pandemic has also changed. British households have turned away from ready meals and are instead opting to do a little bit more in the kitchen.’
• PFD CEO Alex Whitehouse says ‘it’s great to see Britain reconnect with cooking again, spending more time in the kitchen to experiment with different flavours and create new, often healthier dishes, for ourselves and our loved ones.’ He says ‘while the last year has been difficult for people across the country, for many, cooking and enjoying meals together has become a really important part of getting through it.’
• Research by the Social Market Foundation has suggested that up to 800,000 families are at risk of losing their homes when the ban on repossessions ends in April.
• The BBC reports that the number of people on furlough rose by 700,000 in January to some 4.7 million. Some 1.15 million of the total are hospitality workers. Official stats show that, by the middle of February, some £53.8bn had been claimed in furlough payments.
• The Resolution Foundation says that ‘Furlough has once again played a crucial role in protecting incomes and keeping a lid on rising unemployment’ but it adds ‘with almost five million workers still on furlough in the most recent data, our biggest labour market challenges may be ahead of, rather than behind, us.’
• ASDA is both consulting on cutting around 5,000 jobs and saying that it plans to add 4,500 jobs in its online offer.
Company & other news:
• Delayed figures. We have mentioned before that final results will be audited whilst companies have discretion re their H1 numbers. December year end companies may find that audit delays due to staff shortages or other Covid-related problems, could lead them to push back their preliminary results. This is not necessarily the warning signal that it would otherwise be. The only delay that we have seen to date is Wm Hill, which has pushed its figures out from 24 Feb to 4 March
• Comps will change radically in a couple of weeks. It’s perhaps worth remembering that comps will change radically over the next couple of weeks. Numbers relative to a year ago will soon look very good – or at worse, if sales are zero, they will be level with last year.
• Fuller, Smith & Turner has announced that CFO Adam Councell ‘has informed the Board of his intention to step down from his current position as the Company’s Finance Director.’ The company says ‘Adam has decided to return to the services sector’ and adds ‘the search for his replacement is underway and shareholders will be kept updated, as appropriate.’
• FSTA says ‘in the meantime, Adam will remain with the Company in the role of Finance Director, and on the Board, until such time as his successor has been identified and in order to ensure an orderly handover.’ The company adds ‘whilst the Board is naturally disappointed with Adam’s decision, it would like to take this opportunity to express its appreciation for the contribution that he has made during his tenure with the Company.’
• MOD Pizza in the US has reported a 5% decline in sales but a large increase, 275%, in its digital sales for FY2020. Systemwide sales were down by 5% at $461 million for the year with net company revenues down by 1% to $388 million. CEO Scott Svenson is reported in NRN as saying ‘as we started to come out of balance of the year we started feeling better about things and even though that line of recovery was not a perfectly linear curve from the deep decline in March — it had bumpiness to it — we had continuous progression in recovery week over week.’
• MOD says ‘we’re getting the growth engine going again,” Svenson said. “We’re going to selectively look for high-caliber franchise partners, and continue to pursue those discussions, along with more company-owned stores.’ It says ‘we’re going to exit a difficult 2020 with scars on our back and a much stronger company and culture, even though we’re not fully out of this yet.’
• Beyond Meat has reported numbers and partnerships with McDonald’s and Yum Brands.
• West End property owner Shaftesbury yesterday updated on trading sying that it has seen ‘economic activity significantly impacted by lockdowns and pandemic containment measures.’ This will not come as a surprise to the hospitality industry.
• Shaftesbury says the ‘continuing government measures to control the Covid-19 pandemic are having a significant impact on economic activity and consumer spending patterns.’ It has collected 45% of rents for Q4 2020 and 36% of rent for Q1 2021. The company says it is seeing ‘early signs of improving occupier interest.’
• On a brighter note, CEO Brian Bickell says ‘the relaxation of pandemic restrictions will herald the revival of the West End’s economy in the months ahead, with a gradual return of local and domestic footfall and the reopening of hospitality businesses, shops and its world-renowned cultural and leisure attractions.’ Mr Bickell adds ‘our portfolio is located in the heart of the most vibrant part of London and we are optimistic that the appeal of our carefully-curated destinations will drive the return of footfall and trading.’
• The Coca Cola Co has announced it will buy a controlling interest in sports drink brand Bodyarmor. Journal FoodBev, however, has been told by Bodyarmor that the announcement of a done deal was still ‘premature’ and there remains other potential courses of action for the business. It says ‘although Coca-Cola buying a controlling interest in Bodyarmor is a distinct possibility…this is one scenario for Bodyarmor, there are other potential options for the future of the business.’
• Homeless charity Only A Pavement Away has announced that it is ‘working with Pennies, the UK’s leading fintech charity, and is looking for partner hospitality operators to adopt its customer micro-donation solution to help raise vital funds and continue supporting vulnerable people back into employment.’
• Results due later: Shake Shack, Beyond Meat, Airbnb. See premium email.
HOTELS & LEISURE TRAVEL:
• Uncertainty remains.
• Transport secretary Grant Shapps has said foreign travel may be legal from 17 May but he says there are factors at play that are beyond the government’s control.
• Meanwhile, bookings are booming, both for domestic holidays and trips overseas.
• Aparthotel operator Staycity says ‘bookings across the group’s 11 UK properties rose 333% in the 24 hours after the announcement, compared with the previous week.’ It says the surge in demand was “exciting news” for Staycity, which suffered earlier than most from the impact of the pandemic with its property in York being at the centre of the first Covid-19 cases in the UK back in January 2020.
• Staycity says ‘this demonstrates the pent-up demand for travel and the fact guests are keen to book trips and to have something to look forward to. It’s a huge relief to us, and the hospitality industry as a whole, to have this clear evidence that people are keen to make up for lost time – and also that they have confidence in the stringent hygiene protocols the industry has put in place.’
• An overseas holiday specialist has told us they have seen a ‘fantastic surge in travel bookings.’ The company adds ‘we were 600% on Tuesday. And yesterday we had our best ever sales day in 19 year history of the company.’
• Heathrow says ‘we can be hopeful for 2021, with Britain on the cusp of becoming the first country in the world to safely resume international travel and trade at scale.’
• Spain is reportedly ‘in talks’ with the UK about vaccine certificates for visitors this summer.
• Jet2 boss Steve Heapy tells Travel Weekly ‘the fact that the end is in sight has given people the confidence to book.’
• Elsewhere, Carnival has extended the suspension of operations from its US ports until June.
• Network Rail says there could be around 10% fewer train services running the country opens up again.
• Airbnb has reported FY2020 numbers saying that it expects a ‘significant’ rebound in travel as coronavirus lockdowns are removed. The company reports revenue down by 30% to $3.4bn last year. The company says that revenue was down by a lesser 22% in Q4. It says ‘travel is coming back and we are laser-focused on preparing for the travel rebound.’
• Time Out has suggested that travellers will be in search of a ‘fusion’ of city and nature when looking for trips post Covid-19. The company says ‘it’s been a hard year for city life and for travel, so it’s incredibly heartening to see our Time Out Travel Survey identifying a huge interest in city breaks for 2021.’
• Time Out says ‘we believe that cities will bounce back more quickly than anyone expects, given the huge pent-up demand for food, drink, culture and nightlife. Nevertheless, we’re expecting the surge in nature travel to continue too, with many people still preferring outdoor activities.’
• Escape Hunt has announced that it has exchanged contracts to acquire its French master franchise partner, BGP Escape. It says the acquisition is expected to complete on or before 15 March 2021 with the terms of the deal the same in all material respects as set out in its earlier announcement.
• ESC also updates on trading saying that it will reduce EBITDA losses in FY20 ‘modestly’ and adds it has made ‘significant progress…in all aspects of the Company’s strategy.’ Its company operated estate expanded by 89% from 9 to 17 during the year. Cash balance at end-Jan was £3.95m.
• ESC says ‘trading in 2020, both in the Company’s UK and international business, was severely impacted by government mandated restrictions on the leisure industry in response to the COVID-19 pandemic. However, as previously announced, the Company was able to take action to mitigate the impact of the site closures.’
• The Co says ‘whilst the continuation of lockdown restrictions means that it is difficult to plan for the months ahead, the pace at which the vaccination programme is being rolled out in the UK and the recent Government announcement outlining a route towards re-opening the economy gives reason for a more positive outlook than the Company was faced with only a few weeks ago.’
• Experiential. A ‘TV-inspired ‘Ninja Warrior’ venue is to open in The Broadway shopping centre in Bradford.
FINANCE & MARKETS:
• Lloyds, which owns The Halifax, has said it expects house prices to fall at the end of this year. The suspension of Stamp Duty on some houses will stop at some point. House prices hit new highs last year.
• The SMMT has reported that the number of cars built in the UK fell by 27% last month against the same month last year. The fate of the Vauxhall plant at Ellesmere Port is said to remain in doubt.
• Sterling weaker at $1.3951 and €1.1474. Oil lower at $66.11. UK 10yr gilt yield up by 6bps at 0.79%. World markets lower yesterday and London set to open down by around 92pts.
RETAIL WITH NICK BUBB:
Today’s News: The Pets at Home share price has been wilting a bit recently, but that should change today after an unexpected trading update this morning that flags that “our performance over the last eight weeks has been ahead of expectations, with continued strong and broad-based growth across all channels and categories” and that “we now anticipate full-year underlying pre-tax profit, including the previously announced repayment of business rates relief of £28.9m, to be c£85m, which is ahead of our previous guidance of at least £77m”. However, with February rapidly coming to an end, the embattled Card Factory has still provided a “liquidity update”, to keep its banks happy about their covenants, even though the share price has jumped nearly 50% over the last few days…
Trade Press: The new edition of the monthly “Retail Week” magazine is out today and the front cover is a photo of a “Retail rebel”, ie the Beauty Pie founder Marcia Kilgore, to flag up a feature interview on how she is rejecting Beauty’s status quo. RW also have features on “The retail forecast: sun or storm?” and “Do you need shops? Learn from High Street brands turned pure-plays”. And the Editor thunders in his column that “JLP knowingly undersells itself by closing stores”.
BDO High Street Sales Tracker: Given the impact of the lockdown on “non-essential” stores, the BDO High Street Sales Tracker for medium-sized Non-Food chains again paints a surprisingly solid picture for w/e Feb 21st…BDO Fashion LFL sales were actually up by c2% (even though Store Fashion sales were down by c87%) and Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were just about flat (down c81% in Store sales and up an impressive 178% in Online sales). As usual, it should be remembered that the BDO index is only an unweighted average of percentage changes in the sales of their reporting retailers, so it shouldn’t be taken too literally.
Next Week’s News: As we move into March, the highlight of next week will be the Budget on Wednesday lunchtime, but there’s other stuff going on, kicking off on Tuesday with the Hotel Chocolat interims, the Travis Perkins finals, the latest monthly Kantar grocery sales figures and first dealings in the Virgin Wines IPO. On Wednesday morning we get the Vivo Energy finals, with the latest quarterly FTSE Index review out in the evening. Thursday brings the Q4 results from Ocado’s big US client, the supermarket giant Kroger.