Langton Capital – 2021-07-21 – PREMIUM – Loungers, Nichols, Covid passports, trading, staycations & other:
Loungers, Nichols, Covid passports, trading, staycations & other:
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A DAY IN THE LIFE:
Not naturally attracted to sci-fi, we nonetheless read Ubik, by Philip K Dick the other day and drew a few lessons from it, chief amongst them that you may be wrong to extrapolate technological advances into the future.
Of course the book wasn’t about getting predictions right. It was about entertainment but, as it was set in 1992, virtually everything in it was now demonstrably wrong and, interestingly, there was a lack of consistency in the wrongness.
Mr Dick had ‘‘stant mail’, which approximated to email, but he also had telephone boxes, hard copy yellow pages and tons of small change with no plastic money.
He had hover cars, colonies on the moon and on Mars but still everybody smoked and nobody gave a monkey’s about saving the planet. You could travel to the lunar colonies in an hour (this thirty years ago) and jet from Zurich to New York in a few minutes.
Greta Thunberg wouldn’t approve but, as the book was written the year that men first walked on the moon, it probably didn’t seem so daft at the time and it made me think that, though 2050 seems ages away, 1992 doesn’t – but they are both equidistant from today.
Anyway, enough of that. On to the news:
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LOUNGERS’ FULL YEAR NUMBERS:
Loungers has this morning reported full year numbers and our comments thereon are set out below:
• Revenue for the year is down 52.9% at £78.4m with adjusted EBITDA of £13.9m versus £28.8m last year
• The EBITDA margin has risen to 17.8% from 17.3% in the prior year, illustrating the impact of the drop in VAT as well as strong trading in reopened units
• The group reports an adjusted loss before tax of £13.4m (versus a profit in the prior year of £2.0m)
• The adjusted loss per share is 9.8p versus a profit after tax per share of 2.4p in the prior year. Not surprisingly, there is no dividend (2020: 0p)
Balance sheet issues:
• The company says that ‘non-property net debt at 18 April 2021 of £34.2m [was] reduced to £18.2m at 11 July 2021 as our negative working capital rewinds’
• It says ‘seven new sites [have been] opened to date in the current financial year, and [the group expects to] return to opening sites at the pre-Covid-19 level of 25 sites per year
• Loungers says that it preserved liquidity during the lockdowns ‘with £15m additional credit facility arranged and £8.1m (net) new equity raised.’
• Net debt (pre-IFRS16) is ‘down year on year’
Current trading & outlook:
• The company says it has seen ‘significant market out-performance since full re-opening on 17 May, with net like for like sales growth of +23.7% in the nine weeks from 17 May to 18 July 2021 versus the same period in 2019’
• The company says it is ‘benefiting from post-Covid trends; flexible working driving traffic to local high streets rather than city centres, community presence, staycationing…’
• Loungers adds that it saw ‘strong trading and consistent significant sector outperformance when allowed to trade between lockdowns’
• The group is evolving its sites via, amongst other things, the ‘introduction of web-based app for orders at table, optimising and improving menus, developing dishes and redesigning external areas…’
• The group says that it has engaged in ‘positive collaboration with landlords and suppliers to manage cashflow’
• CEO Nick Collins says he is ‘delighted with the strength of our performance since re-opening, with LFL sales of +23.7%. Each time the business has re-opened over the past 18 months, we have achieved consistent, sector-leading sales growth.’
• Mr Collins adds ‘we welcomed the removal of all Covid related restrictions on Monday and whilst there is naturally short-term uncertainty, we are looking ahead with real confidence.’
• Re the future, he adds ‘we have already opened seven very strong new sites this year’ and says ‘we want to play our part in driving economic growth as we come out of Covid, improving high streets across the UK and providing amazing hospitality in communities.’
• Collins says ‘the last few weeks have been very challenging operationally, and as we head into the summer holidays, the operating environment will continue to be difficult as we face interruption due to positive Covid cases and self-isolation and a very tight labour market in a number of locations.’
• He concludes with a thanks to the group’s staff.
COVID PASSPORTS – AS MANY QUESTIONS AS ANSWERS:
There is something of a backlash evident against the PM’s decision to impose Covid passports on certain venues (details of exactly which venues are not yet available) from the end of September. Criticism centres perhaps on three (largely exclusive premises). The move lacks sense, it removes freedoms or it is misplaced.
1. Opponents of the government (and a number of its supporters) say the rushed statement shows a level of general incompetence
2. Libertarians want restrictions removed and are not taking kindly to their reimposition (or strengthening) – even if they haven’t been to a nightclub for forty years (or ever).
3. Some critics see some of the logic but believe that the mechanics are not sound.
General Incompetence. Don’t just sit there, do something…
• The last age group of adults in Britain were offered a jab within one day of the forecast date meaning that the models have been in place for months and it was always clear that younger people would be slower to get both their first and second jabs.
• So just why the decision was announced to introduce Covid passports for some venues frequented by younger revellers a day after Freedom Day rather than three months ago.
• The policy may a) look like action and b) sound good but c) might be targeting the wrong people in the wrong way at the wrong time.
• Libertarians saw the removal of certain restrictions and the almost immediate reimposition of restrictions as a red rag. They can smell a move towards ‘compulsory vaccinations’.
• They may be wrong about a number of things but not when they say that this sends, at the very least, mixed messages. Ironically, the Lib Dems also say that the policy is ‘sowing confusion’.
• Targeting Ibiza and nightclubs may be a nudge for the young.
• But if you tell them they’ve got ten weeks to party hard before there’s some admin to deal with, it can be surely no surprise if that’s exactly what happens.
• And who is going to deal with the admin? Bouncers (now a.k.a. door staff) are better than they were but there could be 11pm problems at the door.
• Who will pay? Either prices will have to rise or margins fall. The latter won’t be palatable to clubs that have been shut for 15mths.
• Which venues are included? This may be apparent in due course but the industry could do with a clue. You can’t exclude Glyndebourne and the Royal Ballet but include Snogger’s or whatever it’s called these days in Hull.
• Will it extend to pubs? How busy do they need to be? What about crowded chip shops? The detailed notes on Freedom Day came with only a day and a half to spare. A bit more notice would be useful.
• Not surprisingly, this splits on party lines but, it seems safe to say, virtually nobody is happy. The Huffington Post says the PM’s policy has evolved from a shrug and a ‘meh’ to activity of an almost random nature. It says there is a ‘whiff of incoherence’ about the policy.
• The Standard points out that criticism is coming from backbench Tories, clubs themselves and opposition MPs.
• The NTIA’s Michael Kill says the government’s approach is “an absolute shambles”.
PUBS & RESTAURANTS:
• S4labour analysis shows drink sales in hospitality were down 17.7% year on year last week, with food sales down 0.8% yoy. Trading in London continues to lag with last week’s sales down 24.1%. This was largely attributed to drinks sales, which declined by 30.7%, with food sales down 12.6%.
• S4labour’s Chief Innovation Officer, Richard Hartley said ‘While the heat drove stronger performance for rural sites, London’s limited outside space made it difficult to capitalise on alfresco conditions. This coupled with the labour crisis, exacerbated by the Covid App, made last week a particularly challenging environment for hospitality.’
• Further comment. Numbers will be pinging around a bit and it is always possible, as with the Barclaycard surveys, that service providers are measuring a bit of the market rather than all of it. Barclaycard won’t see cash purchases, for example and, as cash is being squeezed out by payments on plastic, it may get an overly optimistic picture. On a week-by-week basis, the end of the football, the distance to pay-week and the weather, both in the year under review and in the prior year, will move the numbers around. We feel that operators are trading around 80% of last year. Perhaps better in a good week and less good in a bad. And there will be a great degree of variation over operator, operator types and geographies.
• The Cold Chain Federation has said food supply companies should be able to apply for an exemption from Covid self-isolation rules for fully-vaccinated workers. It is understood many sectors including transport, food supply and medicines are already in touch with government departments.
Company & other news:
• Nichols has reported H1 numbers saying that revenues for the 6mths to end-June were up 13.8% on the prior year with adjusted profits up 31.6% at £8.9m. EPS on an adjusted basis is 19.5p (2020: 14.9p) and the H1 dividend is 9.8p versus 28.0p last year.
• Further comment: Chairman John Nichols says ‘the continued strong performance of the Vimto brand, the Group’s robust balance sheet and our diversified business model has ensured a resilient financial performance in the period with growth across each of our reporting segments.’ He adds ‘the UK Government’s planned roadmap out of lockdown continues and although at a more cautious pace than originally planned, the Group’s positive start to the year means that we remain confident that it will achieve the Board’s expectations for the year. Longer term, the Board is currently assessing the impact of inflationary pressures affecting logistics, labour, plastics and costs associated with increasing environmental legislation.’
• Fever-Tree shares closed down 7% yesterday in an otherwise buoyant markets on what it called a “curate’s egg” of a trading update. The company has said that revenues are ahead of expectations but that margins have fallen due to increased costs. The company may not be the last one to make such a comment.
• DoorDash and Grubhub are suing the city of San Francisco over a recently introduced permanent delivery fee cap. During the height of the pandemic, caps were widely introduced to dissuade profiteering but, as things have calmed down a little, San Francisco has made a 15% cap permanent.
• HMV may open as many as 70 new stores as vinyl sales soar.
• The Gin & Rum Warehouse is moving to a new 7,000 sq ft facility on the New York Industrial Estate in North Tyneside. The business expects to double its turnover from £1m to £2m and create 14 new jobs ahead of the Christmas season.
• In the US, Uber is more than doubling the number of grocery delivery service areas this week to over 400 cities and towns. The rapid expansion was partly fueled by a partnership with Albertsons Companies and its 1,200 grocery stores across the country.
• Apollo Global Management has said it ‘does not intend to make an offer for Morrisons other than as part of the Fortress Offer’ and confirmed that it is ‘in the preliminary stages of discussions with Fortress Investment Group, LLC regarding the recommended offer for Morrisons’.
• Homelessness charity Only a Pavement Away is launching its new cookbook in partnership with charity ambassador and Michelin Star Chef, Tom Aikens, featuring recipes from the social media challenge. It says ‘with the aim of raising further funds for the charity and its members, the Tom Aikens OAPA Cookbook will feature recipes from a combination of members of the public and world-class chefs that go to help consumers create tasty dishes in just 5 minutes.’
HOTELS & LEISURE TRAVEL NEWS:
• The inbound market caters for overseas visitors. On some definitions, it includes staycations (although, strictly speaking, nobody is inbound if a Brit takes a holiday in Britain). Inbound is weak, staycations are strong.
• Joss Croft, CEO of UKinbound, calls for the government to announce a date for the reopening of the international market amid fears that summer 2021 has already been lost. Croft said ‘Without a date nobody is going to travel to the UK. Nobody is going to quarantine for seven days on holiday.’ UKinbound goes on to say that 87% of the UK’s inbound tour operators and destination management companies have lost more than 95% of their 2021 business. It is calling for reciprocity on vaccine certification. It does not feel as though this is high up on the government’s list of priorities. UKinbound adds ‘no one is going to come on holiday here if they have to self-isolate for 10 days.’
• Further comment: The main problem here is that the UK government can’t dictate what other countries tell their citizens to do or not do. The US State Department, for example, has issued a “do not travel “ advisory for the United Kingdom this week due to the level of Covid infections. The US is on the UK’s amber list meaning that fully vaccinated Brits can go there (provided they are let in) and come back without isolating (but with tests).
• To say that inbound is weak but staycations are strong suggests, subliminally, that there may be some sort of symmetry but, in terms of spend, there isn’t. Living in York, we can see the absence of American, European & Far Eastern visitors. They will not be spending on hotels, hire cars, visitor attractions and souvenirs and visitors from Wakefield, Leeds & Barnsley will only pay three quid to park and buy an iced-cream. Stag nights down from Newcastle still spend – but they would do that come rain or shine and, although the number of bodies wandering the street may not look altogether different, the overall level of spend across the UK hospitality industry may not be the same at all.
Other travel news:
• Carnival Cruise Line confirms that half of its fleet will return to service by October, bringing the total number of operational ships up to 15 by that date. Christine Duffy, president of Carnival Cruise Line, said ‘By the end of July, we will have five ships in our restart plan, including the introduction of service on Mardi Gras, and we are seeing a great combination of strong demand and strong guest satisfaction scores tied to the positive guest experience onboard.’
• Saga reports that its 2022 cruise plan is already 45% sold and that sales through the trade in three of the last six months are higher than in the same three months of 2019.
• Johan Lundgren, CEO of easyJet, has called on the UK government to add ‘many more’ European countries to the green travel list. The airline will operate up to 1,400 flights a day between July and September. EasyJet also revealed that fewer than half of its UK summer flights were sold, compared with 69% at this point in 2019.
• The Department for Transport has announced that it is providing £56m of recovery funding to light rail services across the country. Grant Schapps, transport secretary, said ‘ the light rail sector is important in helping local economic recovery, thereby supporting the government’s ‘levelling-up’ agenda.’
• HVS has commented on recruitment and staff retention in the hotel industry, saying that there as issues as ‘a combination of new immigration policies making it more difficult to employ foreign workers and the on-going impact of covid continue to threaten staffing levels.’ It says its recent conference was told that that ‘75% of attendees admitted to running at between 20%-25% fewer staff than pre-pandemic.’
• STR in the US says that occupancy is currently looking reasonably good but that it fears for sales post Labour Day (early September) when business demand has to pick up the slack. STR says ‘transient demand has nearly returned to pre-COVID-19 levels, but group demand remains well below comparable 2019 figures, which is an increasing concern as the fall conference season approaches.’
FINANCE & MARKETS:
• Bank of England MPC member Professor Jonathan Haskel has said that the Bank could choke off the economic recovery if it tightens policy too early. He says it would be a mistake to do so if inflation is temporary. There’s a lot riding on the word ‘temporary’ at the moment. Growth and inflation can be positively correlated and, if there is no slack in the economy, it might not be easy to engineer the one without causing the other.
• PM Boris Johnson is reported set to break an election promise not to raise taxes and increase National Insurance for both employers and workers to make a payment towards social care. Further comment. The Institute of Economic Affairs says ‘hiking National Insurance will be yet another burden on working age people at a time when jobs are insecure, inflation is rising and wages are squeezed.’ It adds it is ‘wrong to place the burden of this tax squarely on the shoulders of younger workers, without extending NI to post-state pension age taxpayers to help pay.’
• Sterling weaker again at $1.3614 and €1.1564. Oil a shade higher at $68.96. UK 10yr gilt yield up 1bp at 0.56%. World markets better yesterday with London due to open around 9pts higher as at 7am.
RETAIL WITH NICK BUBB:
Grocery Market Share Watch: The latest Kantar supermarket sales figures were for the 4 weeks to July 11th: on a “Total Till” basis, industry sales fell back by 4.3% on last year (up 8.1% on 2019), but on a pure “Grocery” basis (excluding Non-Food), overall Kantar sales fell by 5.6% in the 4 weeks to July 11th, with Aldi/Lidl outpacing the “Big 4”, with sales down by “only” c2.8% combined (given their weaker comps). Morrisons saw gross sales down by 8.3% on this basis, whilst Sainsbury was down 5.8%, Tesco was 3.9% down and Asda was 6.6% down. Outside the “Big 4”, M&S Food “at home” Grocery sales dipped by 1.8% gross in the 4 weeks and Iceland was down 7.5%. However, it is worth noting that as Kantar’s data does not include “out of home” food sales, it probably overestimated overall industry growth from the spring of 2020 to the spring of 2021 as the pandemic/lockdown hurt sales of
Today’s News: Today has brought an upbeat Wickes H1 update and the Mulberry finals, but the big surprise is that Next have brought forward their planned Q2 update on Aug 4th, to flag that trading has been so good that it is upgrading full-year guidance, notwithstanding the current uncertainty about the impact of the surge in Covid cases. Full price sales in the eleven weeks to 17 July were up by as much as 18.6% versus two years ago (the previous central guidance had assumed an increase of 3%) and although Next think this was a bit of a one-off (driven by Home and kidswear) it has increased the full price sales guidance for the rest of the year from +3% to +6% and decided to repay £29m of Business Rates relief to the Government. Allowing for that, Next is still increasing its central guidance for full year profit before tax by +£30m to £750m (towards the top of the previous guidance).