Shepherd Neame, YUM, CINE, Just Eat, SBUX, Molson Coors, Amazon etc.

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

The number of out-of-office replies to our morning email is running at 3x normal levels and, rather than try to beat the holidaymakers in question, Langton will soon be joining them.

There won’t be an email next week or the week after as we jet, or rather drive, to the sunny climes of the Yorkshire Dales followed by the steamy environs of the Deep South (a.k.a. the Derbyshire Peak District).

We’ll be doing out bit, undertaking on-the-ground, staycation research. This will doubtless involve chatting up publicans, sampling beer, pies and chips and shovelling down ice-cream.

But we’re here for the remainder of the week and, come holiday-time, we’ll tweet the odd bit on @brumbymark. On to the news:

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SHEPHERD NEAME – FULL YEAR TRADING UPDATE:

Trading:

• Shepherd Neame has updated on trading for its full year to 26 June. The group, which last updated on 21 April, says that ‘since the resumption of trading on 12 April the Company has performed well, generating cash and profits ahead of our expectations. Initial outdoors trade from 12 April to 16 May was encouraging, but demand has taken a step up from 17 May when indoors trade was allowed.  The business continues to benefit from pent-up demand for the pub experience. Our rural and coastal pubs and hotels, in particular, are benefitting from their unique locations and great outside space. Beer volume in all channels is strong.

• Shepherd Neame continues ‘overall retail sales have been impacted by the extended closure of 15 Central London pubs. From 19 July, now that restrictions are lifted, we have re-opened almost all of these, although we expect their trade levels to remain below prior levels for some time to come.’ It says ‘for the 11 weeks from 12 April to 26 June, managed pubs that were open and trading achieved 84% of their 2019 revenue and total retail sales, including those closed pubs in London, were 60% of 2019 levels. For the initial period of outdoor trading between 12 April and 16 May open pubs achieved 62% of 2019 levels and from 17 May, when indoor trading resumed, to the year end, those sites that were open achieved 97% of 2019 levels. Since full restrictions have lifted on 19 July we have seen a modest increase in sales.’

• It says re its tenants, that ‘for the 11 weeks from 12 April to 26 June, our tenanted pubs achieved 77% of their 2019 volume. For the four weeks of June, they achieved 91% of 2019 beer volumes. After charging no rent for all the weeks of lockdown, our tenanted pubs returned to 90% of normal rent as from 21 June and, as from 2 August, will return to normal rent.’

• Total beer volume has ‘been resilient throughout the pandemic, and we have obtained new on trade customers and new listings in the grocery trade and export. As the on trade has re-opened, sales have been buoyant, with total volume in all channels in May and June up +8.4% versus 2019 and total own beer volumes excluding contract down -3.6% for the same period.’

Cash flow, debt & balance sheet:

• The company says ‘net debt has remained under control, with rigorous cost control and good cash flow since the restart – a significant achievement given the circumstances. At the year end, net debt was £89.8 million. This has reduced from £92.4 million in December 2020. Our banks have relaxed normal covenants through to September 2022 and these have been replaced by a minimum liquidity covenant.

• It adds that it ‘has sufficient and growing liquidity to restore its financial health over the next 12 to 18 months. Whilst costs are still tightly controlled and the business is being run very prudently, the Board is increasingly confident of a full recovery and a return to the prior growth path and dividend pay-outs for shareholders.’

Company & other comment:

• CEO Jonathan Neame says that ‘although we continue to trade below full capacity, we have benefitted from strong pent-up demand. The business is back on the path to recovery and has been cash generative and profitable since re-opening.’

• Mr Neame adds ‘although we naturally have to be cautious in case further restrictions are imposed during the winter months, we are now looking forward and planning beyond the pandemic with some optimism, driven by the rapid return to near normal trading levels in the past few weeks.’

• Shepherd Neame has mirrored the comments of some of its peers saying that trade has seen pent up demand cause spikes but that caution is still warranted.

• The company, with its presence in both Kent and the wider South East – as well as Central London – will see both benefits from this year’s staycation boom and have to face the problems caused by the lack of footfall in the Capital. It says that losses, though still inevitable, will be less than anticipated.

• The company says that the ‘restart has been most encouraging’ but adds that the ‘Company will inevitably report a loss for the financial year to 26 June, after such lengthy periods of closure, though less now than originally forecast.

PUBS & RESTAURANTS:

Government support:

• The number of people on furlough is now at its lowest level since the scheme was introduced reports the ONS. A further 600k workers exited the scheme last month meaning that some 1.9m people were on furlough at the end of June (down from 2.4m in May). Chancellor Rishi Sunak says ‘it’s fantastic to see businesses across the UK open, employees returning to work and the numbers of furloughed jobs falling to their lowest levels since the scheme began.’ City AM reports the Treasury as saying ‘spending at pubs and restaurants has particularly risen sharply since the resumption of outdoor dining in April, prompting these businesses to recall workers the fastest of any sector. More than a million hospitality and retail workers moved off furlough over the last three months.’ Nearer to home, Marston’s and M&B have said that trading improved when indoor dining was allowed and, though it is
very early to say, they both indicated that revenues responded positively to Freedom Day last week.

• Further news. The Resolution Foundation comments ‘with employer contributions to furloughed staff doubling from this Sunday, and the scheme ending completely in just two months’ time, it’s vital that as many furloughed staff as possible return to work soon, in order to limit the rise in unemployment this Autumn.’ Chancellor Sunak says he will not extend the scheme again. This may be a politically expedient statement but, with the Treasury’s finances in tatters, he’s got to mean it one of these times.

Other covid news:

• The Scottish Hospitality Group has proposed that employers should be allowed to assess the risk of spreading covid when employees are pinged. It has sent its proposal to the UK and Scottish Governments and is urging them to adopt. It says ‘business owners want to do the right thing by their staff and the public, so the lack of clear, consistent guidance from both governments is really frustrating.’ It adds ‘the fact that we need to make decisions which affect our businesses, the health and safety of our staff and customers, means we can’t afford to sit back and wait for Test & Protect to get in touch. This is something that Holyrood and Westminster must take seriously ahead of restrictions easing further.’

• Commenting on the government’s announcement that Lifetime Skills Guarantees would extend to hospitality and catering courses, Kate Nicholls, CEO of UKHospitality said this is ‘a fantastic reflection of industry and Government working collaboratively to deliver workable employment and skills solutions.’ She says ‘despite being the nations’ third highest pre-Covid employer, our sector currently faces an acute skills and staff shortage. Hopefully today’s announcement, hot on the heels of a bespoke Hospitality Strategy, can be one of many steps towards upskilling our workforce.’ The BBPA says it’s is also ‘delighted to see the inclusion of hospitality and catering qualifications in the Lifetime Skills Guarantee.’ The BBPA says ‘as restrictions are removed on pubs and they begin their road to recovery, we know they have a vital role to play in helping the communities they serve build back
better. The inclusion of hospitality and catering qualifications in the Lifetime Skills Guarantee is a great first step for this.’

Company news:

• Just Eat is to overhaul its charging structure. It has raised its service charge from 50p up to £1.99.

• Further comment. The charge will be set at 5% with a minimum of 50p and a cap at £1.99. The Mirror says the company ‘just changed the small print on the help section of its website, as well as the payment section, leaving customers to find out by chance.’ Just Eat says ‘to help us ensure we continue to deliver the best takeaway experience for all of our customers on behalf of our restaurant partners, we have moved from the current fixed service charge to a variable charge depending on the food order value.’ It says ‘the change will only apply to orders from restaurants where Just Eat takes care of the delivery and simply reflects the continued investment in our delivery service.’

• Amazon yesterday reported record sales of $113bn for the second quarter with profits of $7.8bn. The revenue rose from $88.9bn in the same quarter in 2020 but it was slightly lower than Wall Street estimates. Sticking to the script that the company was more than just a profit driven enterprise, CEO Andy Jassy says ‘thank you to all of our passionate, innovative, mission-driven employees around the world for continuing to stay focused on delivering for customers – I am very excited to work with you as we invent and build for the future.’

• Shares in Robinhood, which rose to prominence as the facilitator of bear squeezes and Reddit-inspired stock market raids, saw its shares fall 8% on its IPO. It had priced its shares at the lower end of the range.

• Molson Coors yesterday reported Q2 numbers saying that it has seen its ‘best quarterly top-line growth in more than a decade as [it] continues to deliver on its revitalization plan.’ The company has reaffirmed its full year guidance. Q2 sales rose by 17.4% reported and 13.7% in constant currency terms, partly aided by soft comps and partial or full hospitality reopening in its main markets.

• Molson. CEO Gavin Hattersley says ‘in the second quarter, we made significant progress against our revitalization plan that we laid out nearly two years ago’ He says ‘we continued to invest in our capabilities, including the announcement of a new hard seltzer canning line in the U.K. and investments to quadruple our production of hard seltzer in Canada.’

• Further comment. Regarding the outlook, Molson Coors says ‘while uncertainty remains regarding the coronavirus pandemic, including the timing and strength of the recovery, we continue to expect…net sales revenue [growth in the] mid-single digit increase versus 2020 on a constant currency basis.’ The group should see flat EBITDA. It will cut debt further.

• Yum! Brands has also reported Q2 numbers saying that it opened a record 603 Net-New Units. It is reinstating its growth programmes and is raising its new unit guidance. YUM says it generated worldwide system sales growth of 26%, with 23% ot this coming from same-store sales and 2% from unit growth. EPS in the quarter wias $1.29 (up 91% on soft comps). Excluding ‘Special Items’, EPS was $1.16, an increase of 41% over the prior year quarter.

• YUM CEO David Gibbs says ‘our strong second-quarter results, led by record unit development and 23% same-store sales growth are a testament to our iconic brands, world-class talent, and best-in-class franchisees.’ He adds that ‘this sustained momentum was underpinned by our investments in digital and off-premise and the agility of our brands to meet the needs of consumers in an ever-changing environment.’ Gibbs says ‘on the basis of these strong results, we’re reinstating our long-term growth algorithm and revising the unit growth component of this algorithm from 4% unit growth to between 4% and 5% unit growth. The resilience of our diversified global business positions us perfectly to drive growth and maximize value creation for all our stakeholders for years to come.’

• Further comment: YUM says that same store sales at KFC grew by 10% in Q2 in the US but rose by 248% in the UK – which reflects the differing impacts of shutdowns in the UK and the US in Q2 last year. China LfLs were up by 14% but, in other countries more impacted by lockdowns, such as Western Europe and India, sales in Q2 were up by 65% and 221% respectively. Pizza Hut sales were flat in Q2 in the US but up by 26% in Europe (where the sales in the UK were not separately reported). India was up by 163%. YUM’s embryonic Habit Burger Grill Division ‘opened 4 gross new restaurants in the U.S and Cambodia.’ It says the division’s same-store sales grew 31%.

• The FT reports that Pret A Manger could be considering a move into coffee vending machines. The company, which is owned by coffee giant JAB Holdings, is reported to have trademarked the name “Pret Express” under the class of “vending machines” and “coffee vending and dispensing machines”, as well as “Pret Perks”.

• Big Table Group (formerly Casual Dining Group) has appointed Paul Stokes as the company’s Head of Acquisitions.

• Further comment: Big Table Group says ‘Paul will be a fantastic addition to team as we look to grow our business.’ The company has been into contraction recently but, with supply now removed from several parts of the market, there could be opportunities around. Big Table Group has c150 restaurants across the UK and Ireland and has brands including . The Group was formed in July 2020 to acquire and operate the Las Iguanas, Café Rouge and Bella Italia brands.

• Accountant in Bankruptcy have reported  that the number of firms entering liquidation in Scotland has risen sharply to 163 in Q2 this year, up 65% on the same quarter in 2020. Insolvency & restructuring body R3 says ‘with an uneven easing of restrictions across the country, a number of businesses are still adapting to the ‘new normal’ and will have to wait a while before they return to pre-pandemic trading.’

HOTELS & LEISURE TRAVEL NEWS:

• Dominic Raab has told Sky News that he is “increasingly confident” that more countries will be added to the amber and green travel lists. There is, at the moment at least, quite a difference between the two lists meaning that it will be important which list countries find themselves on. Raab says ‘we keep an eye on the variants, but because of the 70% double vaccination of our population and because we are insisting only people from the US, the EU and perhaps in due course, as we build up confidence in the system other countries, we proceed on that basis.’ Raab was criticised for putting France on the amber plus list, simply because of high infection rates in Reunion, which is 6,000 miles away in the Indian Ocean.

• The Telegraph reports that there will be a staycation boom this year as destinations in the Eurozone suffer from a lack of British visitors.

• Further comment: Although true, this is akin to opening the window and saying that it is raining. We know that pubs have been struggling to find accommodation for their staff in resort towns, that cottages sold out a while ago and that tent sales have boomed etc. We also know that there is a row about why France is now on the amber plus list because of high infection rates in Reunion, which is a former colony in the Indian Ocean and that Portugal, Spain & other destinations have been pinging around from one colour to another on the UK’s warning chart.

• So it is perhaps not surprising to see people conclude that this year will be strong for staycations (mentioned by Marston’s only a couple of days ago, by Whitbread and by many others) and that fewer than average Brits will be travelling overseas. The Telegraph quotes the Resolution Foundation as saying that ‘an expected boom in ‘staycation’ holidays will provide some much-needed relief for the UK’s hospitality industry this summer, with areas such as West Wales, Devon, Cornwall and the Lake District set to do especially well from a rise in UK tourists choosing to explore their own country, rather than jet off abroad.’ This is positive (though not new) news for the UK’s hospitality businesses but bad news for the overseas tour operators such as On the Beach, Jet2 and TUI.

• Inbound tourism numbers will be similarly depressed. The Telegraph points out that ‘more than 90pc of London’s overnight visitors in a normal year come from overseas, while foreign holidaymakers account for 71pc of the total in Manchester.’ These numbers seem a little high given all the plumbers, electricians, accountants and stockbrokers who regularly work away from home. The Resolution Foundation says ‘although the UK tourism sector will be benefiting from a switch towards domestic tourism – this is clearly being offset by the larger ‘stay at home’ effect with an overall reduction in tourism activity.’ It adds that it ‘may not feel like it to those struggling to fill bars and beds in the UK, conditions aren’t actually as bad as they might be thanks to the ‘staycation’ boost.’

• A study undertaken by Fly Research has suggested that Brits are very keen to take a holiday in order to get a ‘break from the stresses of life’. The number of out-of-office replies to our email are currently legion and Langton, which is going on hols later today, can identify with the above statement.

• US airline United is to increase its services to London next month to a total of six daily flights in light of the news that fully-vaccinated American travellers will not have to self-isolate on landing.

• Accor reports Q2 numbers saying that revenue per available room for the whole of H1 is still down 60.4% versus 2019 because. CEO Sébastien Bazin says ‘we are ready for the rebound. Germany is better than we expected, as is Brazil, with now a fast vaccination rollout. … Bad news, and we have to learn to be patient, in Southeast Asia, which relies on international travel, and there are some poor markets in South America, such as Argentina.’

• The Wall St Journal has reported that flight attendants and pilots are struggling to find hotel accommodations in their destination cities. In the same way that shortages of accommodation in seaside towns limits the availability of bar staff, this is not helpful over the medium term.

• STR reports that US hotel occupancy in the week to 24 July rose to 71.4%, down just 7.8% on two years ago. Rate is up 4% and REVPAR is only 4.2% lower. STR says ‘historically, the middle weeks of July are the country’s highest occupancy weeks each year, and 2021 has been no different even as demand slows week to week.’

• Ride sharing co Swvl is reported set to IPO.

OTHER LEISURE:

• Cineworld Group has updated this morning saying that it has secured further liquidity and covenant waivers. The company says ‘following the opening of all cinemas in June 2021, Cineworld is pleased to announce it secured $200m of incremental loans maturing in May 2024 from a group of its existing lenders. The New Debt Facility does not have a material impact on the Group’s weighted average cost of debt.’

• The company adds that it has ‘also agreed covenant amendments on certain of its existing debt facilities, including reducing the minimum liquidity requirement and relaxing limitations on the use of cash, among other modifications which will further support the Group as cinemas restart trading.’

• Further comment. Re demand, Cineworld says ‘since cinemas started reopening in April 2021, trading has continued to improve, and the Group is now well-positioned to benefit from pent-up customer demand and the exceptionally strong film slate through the second half of 2021.’ CEO Mooky Greidinger says ‘the additional liquidity announced today provides the Group with significant operating flexibility now that cinemas have opened across the world. We are monitoring the evolution of the virus and its potential impact on our business, but we are very excited about the potential of the unprecedented slate of films in the second half of 2021 (mainly in the fourth quarter). We remain confident in the prospects for our business and continue to look forward to welcoming our customers back to the best place to watch a movie.’

FINANCE & MARKETS:

• The US economy grew at an annualised rate of 6.5% in the second quarter. This was slightly lower than hoped.

• Sterling mixed at $1.3948 and €1.1742. Oil up at $75.52. UK 10yr gilt yield down 1bp at 0.57%. World markets mixed yesterday but Far East lower in Friday trade and London set to open down some 43pts.

RETAIL WITH NICK BUBB:

• Today’s News: The Amazon Q2 results were announced last night in the US and the shares were well down after hours (-7%), after both the 27% sales growth and the Q3 guidance fell short of expectations: the Times headline this morning is “Sales rocket but Amazon growth slows”. Back in the UK, following the strong trading updates and profit upgrades from three of the Motor retailers (Inchcape, Lookers and Vertu) yesterday, the Pendragon motor group (best known for its Evans Halshaw and Stratstone brands) has issued its own update, flagging “A strong close to June, combined with continued momentum in the used car market throughout July, with industry wide supply constraints leading to exceptional gross profits per unit together with good levels of demand driving further outperformance against the Board’s expectation”. The recently floated Made.com also has a June half-year end, but its
announcement today merely flags that the interims won’t be until Sept 14th (along with a half-year split of some KPI’s for last year).

• Retail Sales Watch: The Retail Sales month of July (the 4 weeks to July 31st) is nearly over (see the BDO Tracker below), but we haven’t seen the final word yet on how good June was…The Office of National Statistics (ie the ONS or what we mockingly call the “Planet ONS”) reported on Friday that non-seasonally adjusted total Retail Sales by value were up by 9.3% in June (ex-petrol), up 11.1% on a 2-year view, whilst the BRC-KPMG measure of gross sales for last month was 13.1% up on a 2-year comparison. 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 June (the 5 weeks to July 3rd) and their estimate is that gross Retail sales rose by 9.7% last month, year-on-year(up 11.5% on 2 years), which is close to the ONS
view of things (with the ONS Small Business figures much more in line than usual). RE estimate that Food sales were down by 0.2% in June, but they think that Non-Food sales were up 16.2% overall, led by c50% growth in Clothing/Footwear, with DIY/Gardening up 8.5%.

• BDO High Street Sales Tracker: Despite the concern about the impact of the “pingdemic” on the economy, today’s BDO High Street Sales Tracker for medium-sized Non-Food chains, for w/e July 25th, again looks reassuring. We would still caution, however, that the BDO index is just an unweighted average of the percentage changes in the sales of their reporting retailers (and it is skewed to Fashion), so it shouldn’t be taken too literally. But BDO Fashion LFL sales were just over 36% up on last year (with Online Fashion sales up c30% and Store Fashion sales up by c45%), whilst Total BDO LFL sales (including some Homewares and Lifestyle retailers, plus the Fashion retailers) were up by c29% (up by c38% in Store sales and up by c19% in Online sales).

• Next Week’s News: The highlight of next week was going to be the Next Q2 update on Wednesday, but that was brought forward to July 21st because trading was going so well…There is still a fair bit going on, however, kicking off on Tuesday with the Travis Perkins and Greggs interims and the Joules finals. Thursday then brings the Frasers finals, the Hammerson interims, the ScS year-end update and the Naked Wines AGM.