Langton Capital – 2021-04-30 – PREMIUM – R number, Covid passports, prices, McDonald, Molson, staffing, RCL etc.:
R number, Covid passports, prices, McDonald, Molson, staffing, RCL etc.:
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A DAY IN THE LIFE:
The dog bullied me into sitting outside with him yesterday. It was nine degrees and drizzling.
He pulled his usual trick – insistent begging – but, when he was roundly ignored, he upped this to threatened incontinence.
I chanced it but, when he hit the nuclear button (explosive stomach upset, unpleasant events imminent north and south), I had to let him out and he wouldn’t come back in.
Needless to say, as I followed him out, he recovered immediately and lay happily in a puddle for an hour to watch me shiver. On to the news:
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PUBS & RESTAURANTS:
• The NIESR has reported that the R number in England is between 0.9 and 1.0. It says ‘for Northern Ireland the R number is in the range 0.80 – 0.95; for Wales, 0.80 – 0.95 and for Scotland, 0.90 – 1.00.’ It says that the path to indoor opening on 17 May remains open. The data includes ‘about two week’s data following step 2 of the roadmap out of lockdown’ i.e. the move to outdoor opening for pubs & restaurants and the reopening of non-essential retail.
• Langton comment: The path to further reopening looks to still be clear. The NIESR says ‘there is likely still room for cases to start rising again with increased social mobility from lockdown easing accompanied by the unvaccinated majority of the adult population below 40. Hospital admissions and deaths due to Covid-19 continue their steady decline.’ The latter must surely be what determines the degree of pressure on the NHS and, as all vulnerable groups and indeed most people over the age of 40 have been vaccinated, infections should fall and those infections that do happen should be confined to a demographic where the virus does less harm. That’s not to say that it’s a good thing.
• Michael Gove yesterday provided written statement to parliament following a trip to Israel. He says there are no plans to make vaccine certification compulsory in certain settings but gives no detail. He says ‘the Government will continue to explore the equity and ethical concerns about any form of COVID-status certification.’ The BBPA says ‘this empty statement gives our sector no long term clarity on whether it will be affected by COVID-status certificates or not.’ It adds ‘now more than ever our sector needs certainty as it looks forward to reopening indoors from May 17th and without any restrictions at all from June 21st.’
• Langton comment: It’s hard to prove a negative but more information would be a good thing. The BBPA says ‘if the Government is not looking to impose COVID-status certification on pubs, then it should simply come forward and rule them out now. Publicans have already faced enough stress and uncertainty as it is without having to worry about these unnecessary and unworkable passports.’ On balance, it feels likely that Covid passports will not be demanded in pubs but, in this rather febrile environment, who knows for sure?
• Covid passports would be divisive and intrusive. As we have mentioned before, where botheration is already a factor (taking a flight or a cruise etc) then a Covid passport could be accepted and incorporated into already complex procedures. But the same is not true if a consumer wants to pop into the newsagent to buy a packet of Polos or into the pub to grab a pint. Door staff would be required if passports were to be checked and, if they were not, then what’s the point.
• The MA reports that a number of its readers ‘have increased their prices amid reopening this month (April), following months of closure.’ It says ‘some 88 operators voted in the poll, with more than half (58%) saying they have increased their prices, less than a quarter (24%) haven’t pushed prices up but were planning to, and just 18% had no plans to implement a rise.’ There is no obvious split here between food (where publicans and restaurateurs are being funded by the taxpayer in that VAT is only 5% at the moment) and alcoholic drinks.
• Langton comment: Pubs & restaurants have had a tough time of it and the temptation to push up prices must be considerable. But other areas have had it worse (flight inclusive holidays, for example) and there prices are going down. Certainly, in the short term, strong demand has met restricted supply and prices would have been expected to rise. Going forward, the dynamics are a little less clear.
• Langton comment. Being mean, even for Yorkshiremen, we’re very much into ELP (everyday low pricing). It seems sensible and equitable and, whilst margin growth is finite, sales growth, in theory at least, is not. Certainly it’s easier to sell one thing for a million quid than it is to sell a million things at a pound each but, over time, consumers might have something to say about this.
• Interestingly, we’re seeing these dynamics being played out across the economy. Heathrow, which really has had it hard, tried to put prices up by 10% but was knocked back. The attempt to raise prices was understandable as companies can sense that there is money around (most consumers are emerging from the pandemic with more in the bank than they had going in and job losses have been modest) and they want to get their ‘fair share’ of it. A B2B business, such as Heathrow or a brewer, has to deal with other businesses when it puts prices up. Their customers may be B2C operators – and they then have to have difficult discussions with consumers.
• The MA says that Star Pubs & Bars suggested to its tenants that they put prices up. Rather, they should ‘consider reviewing their prices.’ But we know what that means. In this situation, Star is B2B and its tenants are B2C. The MA says it understands that Star’s communication with its tenants cited research from CGA, which suggested most customers were prepared to pay more for a pint of beer.
• IGD reports its view that both eating in and dining out will grow in 2021. It says the ‘food and drink industry forecast to grow 12% in 2021, taking it to 97% of its 2019 pre-COVID level. IGD says ‘the reopening of the eating out sector and lifting of social restrictions will increase social dining both in and out of home and will give the market as a whole a significant boost. The value of retail is up £1.8bn on 2020 and £14.5bn on 2019.’ IGD says that discount retailers will see most rapid growth. The research has been produced in conjunction with foodservice analyst Peter Backman. He says ‘affordability and accessibility will be the two watchwords for the eating out market. Those under financial pressure will be less likely to eat out, but when they do, QSR and food-to-go are the most likely options. On the whole, operators in these sectors have been in a much stronger position than
Other Covid news:
• Staff: Journal The Caterer reports that the hospitality sector has seen a “significant” reduction in the number of EU workers over the last year, dropping from 43.4% of the workforce in the first quarter of 2019 to 39.4% this year. This may put upward pressure on wages. See above for pre-emptive moves on sales price. Inflation could be the result. Fourth reports ‘as restrictions ease further and indoor trading returns on 17 May, the necessity to recruit will heighten, placing a greater spotlight on the availability of workers.’
• On the same topic, the BBC reports that ‘bars and restaurants are struggling to recruit enough staff and some may not be able to fully reopen in May, after thousands of workers left the sector.’ It says that ‘venue owners say they are expecting huge demand from customers, but staff shortages may mean they have to limit opening hours’ and adds ‘figures suggest more than one in ten UK hospitality workers left the industry in the last year.’ Inflation, as mentioned above, could be the result. In the US, Domino’s Pizza has said it is “experiencing one of the most difficult staffing environments in a long time.” There is a “very tight labour market” in the US. Staff may have learned that jobs in certain parts of the hospitality industry could be a little more fragile than some elsewhere. Dominos says ‘a combination of COVID-19, strong sales amid the broader economy reopening and the high
• Vacancies: The BRC has said that up to one in seven shops are currently empty. Data produced alongside the Local Data Company suggests that in Q1 this year the overall vacancy rate increased to 14.1%, from 13.7% in the previous quarter.
• Tech: The latest GO Technology report by Zonal & CGA finds that the speed and convenience offered by technology is appreciated by customers. The suggestion is that much of this will stick post Covid. The report says ‘technology not only removes pain points that have always existed, such as not being able to get the attention of a server or having to wait too long to settle the bill, but it also helps operators deliver more tailored and personalised experiences to their guests.’
• Molson Coors yesterday reported Q1 numbers saying that it had made ‘meaningful progress’ in the quarter, despite headwinds. Reported sales fell by 9.7% and by 11.1% in constant currency terms. Net income was $84.1 million or $0.39 per share. CEO Gavin Hattersley says the company made progress despite the abovementioned headwinds. He says ‘the Company faced three major events that had material near-term impacts on the business: a system outage caused by a cybersecurity incident, an abnormal winter storm in Texas that forced utility companies to shut off power to the Fort Worth brewery for eleven days, and government restrictions that shut down the entire on-trade channel in the U.K.’
• Langton comment: Molson Coors says ‘despite these three unprecedented and disruptive events that took place in the quarter, we continued to make progress against our revitalization plan focused on driving long-term top-line growth.’ It says ‘we entered 2021 with a healthier balance sheet and significantly improved financial flexibility’. It says ‘in 2021, we remain focused on reducing debt, investing in our business and returning cash to shareholders. At present, we continue to expect that the board will be in a position to reinstate a dividend in the second half of 2021.’
• In Europe, the company says ‘net sales on a reported basis, decreased 34.9% and 39.5% in constant currency due to lower volumes and lower net sales per HL, primarily as a result of the greater impacts of the coronavirus pandemic in the current quarter.’ The company says it suffered an adverse mix change ‘particularly from our higher margin U.K. business, which has a more significant exposure to the on-premise channel and was closed the whole first quarter of 2021.’ It adds that ‘brand volumes decreased 17.0%, driven by a significant decline in brand volumes in the U.K. related to the full closure of the on-premise channel during the first quarter of 2021.’
• McDonald’s has reported Q1 numbers saying that Global LfL sales rose by 7.5% in Q1 and those in the US were up 13.6% against the same quarter last year. Langton comment – see premium email. The company says ‘we’re so far exceeding our projections.’ It adds ‘COVID is the catalyst for a consumer behaviour shift. We experienced an absolute surge in off-premise dining. We drove our digital sales mix and app usage in the first quarter. We had nearly $1.5 billion in digital sales, which includes app, kiosk and delivery, and we now have over 20 million active app users.’
• More from McDonald’s. The company says that net income in Q1 was $1.537 billion, or $2.05 a share, compared to $1.106 billion, or $1.47 a share, in the same period last year. Revenues rose 8.7% to $5.124 billion from $4.714 billion in the prior-year quarter. Global LfL sales increased 7.5% in the first quarter but the guest count remained in negative territory implying that more than all of the increase in sales came from higher spend per head. The company says it also saw strong growth in the UK, Australia and Canada, partly offset by declines in Germany and France.
• Texas Roadhouse has reported Q1 numbers saying that revenues rose by 22.7% to $800.6m with net income up over 300% at $64.2m. CEO Jerry Morgan says ‘a year ago today, all of our dining rooms were still closed and while we knew brighter days were ahead, we never could have anticipated where we are today. Our operating results have exceeded even pre-pandemic levels thanks to our operators’ ability to navigate a number of factors, including the easing of dining room capacity restrictions, guest excitement to get back into our restaurants and the continued strength of our To-Go sales.’
• Amazon more than tripled profits to $8.1bn in Q1 this year.
• Australian wine exports to China are reported to have dropped by 97% to A$12m as a result of the 200% levied by the Chinese government last year.
HOTELS & LEISURE TRAVEL:
• Transport secretary Grant Shapps has suggested that destinations in danger of being moved from “green” to “amber” status could be given 2wks’ notice when international travel opens up again post 17 May. Two weeks isn’t very long at all when it comes to scheduling flights, booking holidays etc.
• Data from Travel Supermarket suggests that would-be holidaymakers are becoming a little more confident and that bookings in July are picking up. It says ‘as the vaccination rollout and the latest lockdown continues to be heralded a success, in the last week there has been increased interest in summer 2021 overseas getaways.’
• On the Go Tours owner Go Travelling has raised £4.25 million in capital.
• The European Parliament has said that travellers who have been vaccinated should not be subject to additional restrictions such as quarantine, self-isolation or testing. It further says that Covid testing should be free.
• Heathrow announced Q1 numbers yesterday and announced another £329m loss. The company has lost £2.4bn since the beginning of the Covid-19 pandemic. UK boss John Holland-Kaye told Sky News that he is “deeply concerned” the UK’s Border Force will not be able to cope with additional COVID checks after 17 May.
• Yotel is to open its fifth UK property in Glasgow in May.
• Royal Caribbean has reported Q1 numbers saying that ‘we are looking forward to resuming operations out of various ports around the world in the coming months.’ In Q1, the company reports a loss of $1.1bn vs a loss of $1.4bn in the same quarter last year. CEO Richard Fain says ‘we have had very constructive dialogues with the Centers for Disease Control and Prevention (CDC) in recent weeks about resuming cruising in the U.S. in a safe and healthy manner.’ The average monthly cash burn rate for the first quarter of 2021 was approximately $300 million. US newspaper USA Today reports that cruises from US ports could restart in mid-summer, a USA TODAY report suggests. It quotes the CDC as saying that it ‘looks forward to continued engagement with the industry and urges cruise lines to submit Phase 2A port agreements as soon as possible to maintain the timeline of passenger voyages by
• Wyndham Hotels & Resorts has reported Q1 numbers saying that global comparable REVPAR fell 11% year over year in Q1 vs Q1 2020, and was down 31% compared to Q1 2019.’ It says REVPAR ‘improved significantly throughout the month of April’ at which time it was down by only 7% on 2019. The company signed 112 new sites in Q1 & is converting existing hotels to the Wyndham brand as well as catering for newly built units to join the flag. Wyndham says ‘we’re very happy with the progress we’ve been making in retaining our most valuable franchisees and I think it gives us great confidence in getting back to that 95% level. We’re not seeing anything out of the ordinary right now.’
• Travel management platform TravelPerk has raised US$160 million in equity and debt funding, bringing the total it has raised to date to US$294 million.
• Uber is reported set to sign on another 20,000 drivers in the UK this year if and when travel volumes pick up
• BT has confirmed it is in talks regarding the sale of BT Sport. The Telegraph had earlier reported that ‘BT is in talks with Amazon, Disney and others to offload a stake in its television arm.’ It says investment bank Lazard is working on a sale.
• Spotify Technology has reported subscriber growth below Wall Street estimates for Q1. The pandemic is annualising and the company is facing enhanced competition from Applr and others.
FINANCE & MARKETS:
• The US economy is reported to have grown at an annualised rate of 6.4% in Q1. It had been growing at an annualised 4.3% in Q4 last year.
• Sterling little changed at $1.3939 and €1.1505. Oil up at $68. UK 10yr gilt yield up 5bps at 0.85%. World markets mixed but heading lower yesterday. London set to open down around 15pts.
• Economics, the dismal science. Things that don’t matter until they really matter a lot. Just a few here – economics only, we’ll leave politics to the frothing loons: How about: beliefs that a) house prices can only go up, b) QE will not stop, far less go into reverse, c) the UK trade deficit will be funded by foreigners forever, d) state deficits don’t matter because debt is ‘free’, e) a blip in inflation is ‘temporary’. Common theme? Interest rates are more likely to go up than down. The results? Perhaps a reversal of one, two or all of the above beliefs.
• WH Smith points to damage done in travel where H1 revenues are down 65% on 2019. Customers don’t ‘linger’. Could mean it’s even more acute for airport F&B operators that expect customers to sit down, hang around etc.
• On a positive note, WH Smith says there will be opportunities to add travel sites as other occupants (always ‘the other guy’) may go bust. WHS raises £327m to re-fi debt and provide funds for site acquisition. The first more than the second?
• Everything’s relative. Pubs & restaurants had it hard. But ‘open’ now & some are ahead of FY19. But pity some other sectors. Cruises down 100% etc. Heathrow down 91% on a year ago & no simple road back. Hard to get perspective. See Day in Life in email today.
RETAIL WITH NICK BUBB:
• Today’s News: The Amazon Q1 results last night in the US followed in the wake of Apple and Facebook by comfortably topping expectations, with revenues of $108.5bn and earning per share of as much as $15.79 (versus the consensus forecast of S$9.54). The shares jumped ahead by 2.4% in after-hours trading, to $3553. Back in the UK, the retail cupboard is pretty bare today, but Card Factory has come to the rescue, with a short update to flag that “its performance following the reopening of stores in England and Wales from 12 April has exceeded its expectations” and that its long-suffering banks have agreed another one-month waiver of anticipated covenant breaches and agreed headline terms for a refinancing.
• BDO High Street Sales Tracker: Given the impact of the first lockdown on “non-essential” stores and Food shopping a year ago, Retail Sales figures are hard to measure at present and although today’s BDO High Street Sales Tracker for medium-sized Non-Food chains was bound to paint another very strong picture for w/e April 25th, given the very soft comps, BDO continues to embarrass itself with its suspect methodology…The BDO index is just an unweighted average of the percentage changes in the sales of their reporting retailers and it shouldn’t therefore be taken too literally, so the reported outcome for last week was again very silly! BDO Fashion LFL sales were up c79%, but Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as the Fashion retailers) were, laughably, said to be up by no less than c545% (up c16,183% in Store sales and up c3% in Online
• Retail Sales Watch: The Retail Sales month of April (the 4 weeks to May 1st) will soon be over and given the soft comps and the bright/chilly weather, it will be interesting to see how sales turn out overall, with non-essential shops back in action after the lockdown…but we haven’t seen the final word yet on how good March was. The Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported a week ago that non-seasonally adjusted total Retail Sales by value were up by 9.3% in March (ex-petrol), but the BRC-KPMG measure of gross sales for last month was nearly 14% up year-on-year. So, who was right? Well, the Retailing consultancy group, Retail Economics (RE), which was founded by Richard Lim (who used to run the monthly BRC-KPMG Retail Sales survey), has just come out with its own detailed overview of March (the 5 weeks to April 3rd) and their
• Trade Press: The new monthly Retail Week magazine is out Online and the front cover is a photo of the back of a Morrisons key worker/shelf stacker, with the headline “Life beyond the pandemic”, to illustrate the main feature on “From people to price – what is top of the to-do list for retailers as lockdown lifts?”. RW also have features on how “Amazon aims a cut above with hair salon launch” and “15-minute city: how to win in a hyper-local world”. And the Editor flags in his column that “Amazon’s experience ploy is a warning shot to retail”, thundering that “If the opening of a salon has reinforced anything, it is to expect the unexpected where Amazon is concerned. Nothing is off the table”.
• Next Week’s News: After the Bank Holiday on Monday, next week/May kicks off quietly on Tuesday, but Wednesday brings the Boohoo finals and the latest monthly Nielsen grocery sales. Figures. On Thursday we then get the much-awaited Next Q1 update, the Trainline finals, the Superdry pre-close, the Howden AGM and the Zalando Q1 results (in Germany), together with latest MPC meeting news and the Local Elections.