Langton Capital – 2021-04-22 – PREMIUM – Demand, delivery, DOM, JDW, Sheps, Chipotle, Subway, G4M, Rank etc.:
Demand, delivery, DOM, JDW, Sheps, Chipotle, Subway, G4M, Rank etc.:
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A DAY IN THE LIFE:
Out in trade yesterday and rather bracing it was too.
Hence a little short of time but here’s a few questions for you: when did you last write a cheque? And, for that matter, when did you last use a stamp or draw money out of an ATM. Indeed, when did you last make a purchase for cash over, say, twenty quid? Take the answers to all of the above in months, add them up and see if you get to over 100.
The above may help pass the time but we’re running out of it so, without further ado, let’s move on to the news:
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PRIVATE COMPANY RESULTS:
There have been a slew of March 2020 results posted with Companies House over the past couple of weeks. Here are some of them:
Junkyard Golf Club
• The accounts are for the 16mth period between December 2018 and March 2020 inclusive. The company, which did not produce accounts on the same basis in the prior year, reports that revenue for the period was £13.7m and PBT was £2.4m. The group retained profit after tax for the year of £1.8m. It has positive shareholders’ funds of £1.5m with retained earnings of virtually the same figure. The accounts were signed on 29 March this year and the directors make some reference to Covid-19, saying that ‘the principal risks to the business are likely COVID-related, with reduced trading over the year FY22, and in to FY23.’
• Junkyard says this will be due to ‘regional and national shutdowns for the hospitality sector, with periods of reduced trade due to social distancing.’ It adds ‘the negative impact on sales and profitability have been offset with payment holidays and deferments with main creditors alongside successful applications for CBILS with the group banking partner, Barclays.’ The company says ‘the Directors are confident that trade will return to pre-COVID levels when social distancing measures are removed. The business remained popular and profitable during restricted trading periods, and retains cash reserves in order to return to full operation when allowed to do so.’
• Anything re the future may be tinged with hope but that is the case with every company. In the meantime, Junkyard Golf, which was at least profitable going into Covid, has adopted the Going Concern principle and its auditors have made no objection.
Running out of time now. Other companies – let us know if you have an interest – include Pie Minister, New World Trading, Power League, JW Lees, Rosa’s London, Drake & Morgan, Arc Inspirations, Flamingoland and others. We’ll cover them over the coming days.
PUBS & RESTAURANTS:
Pub & restaurant trading, customer demand:
• CGA reports that ‘nearly half of consumers in England have been back to pubs, bars and restaurants since they reopened for outdoor service’. It says ‘44% of adults have visited the hospitality sector since last Monday (12 April). The figure is 9 percentage points higher than the 35% of consumers who returned in the first ten days of reopening after the end of England’s first national lockdown in July 2020.’ CGA goes on to say ‘in further signs of enthusiasm for hospitality’s return, people who have been out have made an average of 2.4 visits each, and nearly all said their visit was better than expected (45%) or as expected (52%).’
• CGA has separately said that ‘food and drink sales at venues that are able to trade have been running well ahead of July 2020’s levels. However, with the majority of hospitality sites in England closed, and the sector still completely shut in Scotland and Wales, total sales remain well below pre-COVID levels.’ It says ‘some consumers are delaying visits to the On Premise because of doubts about crowds and the weather.’ Some consumers are being put off by the need to book (although many operators are allowing walk-ins (where there is space). Some 31% do not wish to sit outside. CGA says ‘it’s great to see that consumers have embraced outside eating and drinking in hospitality’s first week back. Pubs, bars and restaurants have worked very hard to make the most of their outside spaces, and the good weather has undoubtedly encouraged a speedy return. With four weeks still to go until
• Langton interpretation & comment: These are heartening numbers. CGA knows its stuff but the 44% of adults figure seems a bit high. It may include pasties and sandwiches and coffee etc bought to take away. It seems unlikely that 44% have had a sit-down meal or a drink over the period reviewed.
• We would concur with the ‘31% do not wish to sit outside’ and see this as perhaps one of the main reasons that drink is outperforming food. Drinkers are, perhaps, a hardier bunch. Added to which, the commitment in time and money needed to have a meal is greater than that to have a drink. It allows for choice if the temperature plummets or if the heavens open.
• CGA says ‘pubs, bars and restaurants have worked very hard to make the most of their outside spaces’ and it misses out the word ‘some’. Because it seems that some operators haven’t made as great an effort as others – and they will still be tracking at minus 100% as a result. Where operators have made a real effort, the demand appears to be there.
Other Covid news:
• Scottish first minister Nicola Sturgeon has said that pubs in Scotland will be able to reopen next week, from Monday. This is good news but the trade has not been given much notice. It takes more than 5dys to brew beer. This is effectively a move from level four to level three in terms of restrictions. Operators may be able to serve indoors from 17 May (though this is not yet certain) and Ms Sturgeon says she hopes Scotland will be back to virtual normality by July.
• Manchester night-time economy advisor Sacha Lord has tweeted that the judge considering his appeal against pubs not being allowed to serve indoors will rule this week. Mr Lord tweets ‘a decision WILL come this week.’ He tweets that, whether the appeal is ‘granted or not, we will finally be able to legally share the “evidence” the Government are trying to use against Hospitality.’ Lord says ‘Professor John Edmonds has confirmed ‘There has been virtually no cases of spread outdoors during the whole pandemic’’.
• TipJAR has reported that the ‘average tip per individual transaction increased by 56% compared to the previous week, suggesting that drinkers and diners are more appreciative of hospitality as a service at venues, as opposed to when it is received as an experience through takeaway and via delivery platforms.’
Purchasing & logistics:
• Prestige Purchasing has launched a White Paper for supply of food and drink. It writes ‘as the hospitality sector emerges from a winter of lockdowns and closures, their analysis has shown that a number of key factors will be critical to the sector’s recovery, and are calling for businesses throughout the value chain to unite in delivering them.’ It underscores five points saying there is one value-chain, it is important to build long-term collaborative relationships, smart supply chains are useful, operators should focus on low waste & sustainability and also innovation & new product development.
• Prestige says ‘the hospitality sector has suffered serious structural damage from the pandemic, and supply chain management represents one of the few remaining opportunities to create a step-change in returns within a challenging post-Covid environment. Food and Drink supply is entering a period where enhanced collaboration, use of sophisticated data, and leveraging technology will all be critical factors of success. We must be positive and grasp these opportunities fully as we exit the pandemic.’ It says ‘it can be difficult to spot when operator supply chains are sub-optimal, and business leaders are frequently unaware of a significant performance gap. 2021 must surely be the ideal time to tackle avoidable waste, inefficiency and unsustainable ingredients, creating better margin, and strong, enduring and long-term supply relationships.’
What will happen to delivery as hospitality reopens:
• Just Eat has mentioned the Covid provided it with a tail wind in regard to sales. Although there may be something of a secular uptrend in place, this will abate as the hospitality industry reopens.
• There will be three potential hurdles. The first was last Monday, when venues were allowed to open outdoors. The second will feature indoor trading, on 17 May and the third (and hopefully final) potential hurdle to delivery will be when all restrictions are removed, hopefully on 21 June.
• We have only passed the first date and there is not enough data to say much definitively. The little feedback that we have had has suggested that delivery is holding up. This is likely to be selective across industries, products and companies and it may change over time. It could be that delivery customers were under-represented amongst those willing to sit outdoors to eat and drink or it could be that the data is wrong.
• All that can be said, with some degree of certainty, is that when customers are presented with more in-restaurant opportunities, they are not likely to order more food to be delivered and may well order less. It could be that the number of app downloads stays the same (why delete the app?) but the frequency of use could fall.
• Begbies Traynor’s latest Red Flag Alert has suggested that the number of businesses suffering significant financial distress has risen to the highest level since 2014. Begbies says that there were around 723,000 businesses in this category, an increase of 42% over the last year. The rise was blamed on the latest enforced shutdowns of parts of the economy. Begbies said that the logistics and real estate sectors saw sharp increases.
• A partner at Begbies said ‘the dam of zombie businesses could be about to break. Opening the doors of consumer-facing businesses on April 12 may well seem like a big step in the right direction for many of these companies as they try to shake off the traumatic trading of the last 12 months. However, our experience shows that unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest profile businesses.’ The firm continues ‘businesses that were profitable before the pandemic, have manageable debt and are still relevant in the post-pandemic world could flourish and be the real winners in this climate. They need guidance and need to act quickly. In a market that is moving fast, dithering companies will be swept away in the sheer force of distress that is forcing its way across the UK.’
Company & other news:
• Deliveroo down another 10p yesterday to hit new lows of 233p (down 40% on IPO price in less than a month).
• Domino’s Pizza Group has updated on Q1 trading saying that ‘trading in the first quarter has been strong, with exceptional trading over the new year period, resulting in UK & Ireland system sales of £371.3m, up 18.7% on the first quarter of last year which was largely unaffected by the impact of Covid-19. Like-for-like system sales, excluding splits, were up 18.5% maintaining our performance momentum.’
• Further comment: The company says ‘the sales performance of our delivery business has been particularly good, more than offsetting the lower sales within our lockdown-impacted collection business. At an order count level, we have seen delivery growth of 6.8% in the quarter with collection reporting some recovery, now trading at 65% of 2019 levels.’ CEO Dominic Paul says ‘we are pleased with the strong performance of the business in the first quarter of the year. The investments we are making to deliver our multi-year strategic plan give us confidence in our ability to capitalise on the opportunities which lie ahead as the nation begins to emerge from the Covid-19 lockdown restrictions.’ He adds ‘with management focused on our core UK & Ireland business, we are working to fulfil our vision of being the UK & Ireland’s favourite food delivery and collection business. I look
• SSP Group has announced the results of its 12 for 25 rights issue saying that 98.05% of the shares were taken up.
• JD Wetherspoon is to open more sites next week including those that will be by then permitted in law, 60 sites in Scotland, 32 in Wales and three in Northern Ireland, but also more units in England. By the end of the month, the operator should have moved from just under 400 units open to perhaps 533. JDW has 871 sites in total.
• Shepherd Neame, which yesterday released H1 numbers, has underlined the importance of its brewery’s off-trade business in times of Covid. The company says it ‘has maintained bottling production throughout and enjoyed good sales through the grocery and export channels. Our online shop, whilst small, has also performed well. Bottled beer sales have been strong as they were through the first period of lockdown and total volume was up +25.7%. During the period, export sales were good, but these have fallen in January and February 2021, in line with all UK-EU trade since Brexit.’
• Shepherd Neame also said it believes ‘there is significant pent up demand in the economy. The consumer savings ratio is at high levels, and all indications are that the demand for events, for festivals, for live sport, for going out for a meal and for socialising with friends is as strong as ever. Furthermore, with the ongoing restrictions in place on international travel, most people will choose to holiday in the UK this year. As a result, we believe that our recovery will be strong through late summer and autumn 2021.’
• Italian food hall concept Eataly will open its first site in the UK next week. The unit is next to Liverpool St in the City of London.
• Data from the US Census Bureau shows that restaurant sales continue to increase. The bureau has reported that sales rose from $54.8 billion in sales at eating and drinking establishments in February 2021 to $62.2 billion in March 2021. This is only around $3bn lower than the pre-pandemic number seen in February 2020.
• Chipotle in the US has reported Q1 numbers to end-March, saying that revenue rose by 23.4% to $1.7 billion with like for like sales up 17.2%. The company says digital sales grew 133.9% and accounted for 50.1% of sales. The company opened 40 new restaurants and closed 5 restaurants during the period. CEO Brian Niccol says ‘Chipotle is off to a great start in 2021…as vaccines roll out and we get closer to moving past this pandemic, I believe Chipotle is well positioned for growth. I’m excited about our future as we remain focused on innovating in culinary, leading in food with integrity, and providing convenient access inside our restaurants and through our expanding digital ecosystem.’
• Chipotle says it ‘continues to maintain a strong financial position with nearly $1.2 billion in cash, investments and restricted cash, and no debt. We also have access to a recently refinanced $500 million untapped credit facility with which to continue to navigate this crisis.’ The company adds ‘restaurant level operating margin was 22.3%, an increase from 17.6% in the first quarter of 2020. The improvement was driven primarily by leverage from the comparable restaurant sales increase and menu price increases, partially offset by increased delivery expense and wage inflation.’
• US franchise owner Subway yesterday denied it was for sale after media reports saying that it was open to offers. A spokesperson said ‘Subway is committed to the long-term success of our franchisees and provides multiple forums for franchisees to share feedback, working hand-in-hand with them to ensure decisions are focused on maximizing their profitability.’
• The Inn Collection Group has said that it will create around 200 jobs across Yorkshire and the North East.
• Drinks Business reports that global wine consumption fell to its lowest point since 2002 last year due to the virtual closure of the hospitality industry worldwide for sustained periods of time.
• Vegan ice cream brand Beau has announced that it has secured £400k of funding to fund expansion from a group of investors.
• Amazon is to open its first hair salon, in Spitalfields, London.
HOTELS & LEISURE TRAVEL:
• Health Secretary Matt Hancock has said the government has not yet decided how would-be travellers will be able to provide proof of Covid vaccination. This may incentivise consumers to postpone plans until the requirements are clearer.
• MPs have urged the government to give details as to which countries will be open for international travel by May 1. Separately, the University of Bristol has polled adults and suggested that nearly 60% of adults say they intend to fly less after being vaccinated against COVID-19 due to changed habits and to fears over spreading new variants.
• Seabourn will offer Barbados sailings from 18 July.
• The US has added about 130 countries to its Do Not Travel list. Covid stats are good in the UK (and getting better in the US) but infections and deaths globally are on the rise.
• Melia Hotels is to open a unit, the INNSiDE Liverpool, in the city this August.
• Gear 4 Music has updated on full year trading saying that total sales rose by 31% to £157.5m with UK sales up 27% to £78.7m.
• Further comment: The company says ‘gross margin improved by 360bps to 29.5% and adds that EBITDA is now expected to be not less than £19.0m (FY20: £7.8m; FY19: £2.3m), ahead of current market expectations. The company had net cash of £2.4m at 31 March 2021. CEO Andrew Wass says ‘I am very pleased to be reporting results that are ahead of our previous expectations, representing a transformational FY21 trading performance for the Group, and building on the significant progress we made in FY20.’
• The company says ‘further improvements in gross margins have driven our profits to record levels, amplified by the previously reported exceptional sales growth and marketing efficiencies which were driven by COVID-19 lockdowns, particularly evident during Q1 FY21.’ CEO Wass says ‘underpinned by our strong financial position, the Board is confident that our online business model and specialist market knowledge, supported by our Europe-wide operational platform, will continue to deliver long-term sustainable and profitable growth.’
• The Rank Group Plc has updated on the quarter to 31 March 2021 saying that ‘the Group ended the quarter with total cash and available facilities of £89.8m, comfortably achieving its minimum liquidity covenant of £50.0m.’ It says ‘the Group expects to make its scheduled £19.7m term loan amortisation payment on 31 May 2021. Based on HM Government’s current timetable for venues’ reopening, the Group expects to continue to meet its banking covenants.’
• Further comment. Re trading, Rank says LfL net gaming revenue was down 76% on the prior year for the quarter ended 31 March 2021. The group’s Venues revenue was down 98% and Digital down 3%. Total NGR was down 72%. CEO John O’Reilly says ‘we have ended Q3 broadly where we expected to be and are now very focused on the reopening of our UK venues from 17 May alongside continuing to drive digital NGR growth.’ He adds ‘we are now very much looking forward to reopening our casino and bingo venues, welcoming back our customers and providing the great entertainment and omni-channel service in a COVID safe environment we know they enjoy.’
• The would-be football super league looks as though it may be collapsing. All six English clubs have pulled out and Arsenal and Tottenham have apologised to ‘legacy’ fans (partly for calling them legacy fans).
FINANCE & MARKETS:
• The ONS has reported that the rate of UK CPI rose to 0.7% in March from 0.4% in February. Transport, clothing & footwear and other costs are higher. The ONS says, however, that ‘food prices fell back on the year, as prices of some staples were lower than at the start of the pandemic.’
• The NIESR says ‘annual headline inflation increased to 0.7 per cent in March, up from 0.4 per cent recorded in February, due largely to price increases in the transport category.’ It says ‘our measure of underlying inflation, which excludes extreme price movements, increased to 0.6 per cent in March from 0.2 per cent in February. We expect inflation to rise in the coming months as the economic recovery gains pace on the back of opening-up and the success of the vaccination programme, but we still expect inflation to remain below the Bank’s 2 per cent target in the year to March 2022.’
• The Lloyds Band Recovery Index has suggested that 11 of the UK’s 14 industries that it considers grew last month, up from six in February and three in January. It says ‘the UK’s recovery is clearly accelerating, as the economy continues to open up after a tough lockdown and optimism builds.’
• The HMRC has reported that UK house sales and prices bounced this spring. It suggests that prices are running up 8.6% year on year. The Telegraph reports that there are signs that ‘the property market is overheating, with demand stoked to an unsustainable level.’
• Sterling little changed at $1.3928 and €1.1570. Oil lower at $65.12. UK 10yr gilt yield up 1bp at 0.74%. World markets better yesterday and London set to open up around 28 points.
RETAIL WITH NICK BUBB:
• Today’s News: The Dignity EGM for shareholders to vote on the Phoenix proposal to get rid of the Chairman is being held at HQ this morning at 11am. At 8am first dealings start in the MusicMagpie IPO (under the ticker “MMAG”) and it will be fascinating to see what sort of premium can be achieved over the 193p placing price (which capitalised the business at £208m). Interestingly, Tom Joules, the CEO and founder of Joules, managed to get a small premium when he sold 5.25m shares at 232p on Tuesday (reducing his stake from 26.5% to 21.8%).
• Planet ONS Watch: In “the real world”, as per the BRC-KPMG figures for March (the 5 weeks to April 3rd), underlying Retail Sales were strong last month, given the anniversary of the first “lockdown” of “non-essential” Non-Food shops on March 23rd last year and the boost from the earlier Easter, but we will find out at 7am tomorrow morning what “seasonally adjusted” life was like on the High Street on that bizarre parallel world, the Planet ONS (aka the Office of National Statistics in Newport), via their official Retail Sales figures…Now, City economists (who still, unaccountably, treat the dubious-looking ONS figures as the gospel truth) generally expect a rise of 2.5% in month-on-month seasonally adjusted sales volumes (including petrol), but our friends at Capital Economics have pencilled in an increase of only 1.5% (+3.2% year-on-year), for what it’s worth. We will, of course, be
• This Week’s News: First thing tomorrow brings the ONS Retail Sales figures for March (see above) and the widely-followed monthly GFK Consumer Confidence Index is also out overnight.