Langton Capital – 2021-09-02 – PREMIUM – WFH, trading, inflation, Jet2, Gym Group, Oakman, Domino’s etc.:
WFH, trading, inflation, Jet2, Gym Group, Oakman, Domino’s etc.:PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Our office plants died, what, a year ago? And, shame on me, I haven’t chucked them out yet because, though I like to tell myself, they represent some sort of retro, steam punk comment on the fragility of life or the impact of events over which we have no control, I just haven’t got around to it. Who knows why because it would take two minutes to chuck them out and another hour or so to pop out and buy some replacements – or much less if I abandoned my Yorkshire roots and paid £100 or so for some flashy office knickknack company to deliver them to our door. Anyway, I’ll leave that one with you. On to the news: ADVERTISE WITH US: Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details. CHANGED EMAIL FORMAT: The Premium Email is unchanged. The Free Email is now largely written the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email. PUBS & RESTAURANTS: Labour issues: • Business groups and unions have called the furlough scheme warning of a spike in redundancies as employers prepare to take back staff on the coronavirus job retention scheme. Up to 1.7 million workers were on furlough at the beginning of August and many of their jobs are expected to be in jeopardy when employers are forced to pay all their wages. Vaccine passports: • The government has confirmed it will move forward with plans to introduce vaccine passports for nightclubs from the end of September. The requirement will be based on use of the existing NHS app. A Downing Street spokesman for the PM says ‘we set out broadly our intention to require our vaccination for nightclubs and some other settings and we’ll be coming forward in the coming weeks with details for that.’ The PM mentioned nightclubs and venues ‘where large crowds gather’ earlier in the summer. • Per the MA, Sacha Lord, a night-time economy adviser for Greater Manchester and operator said that ‘there remain countless unanswered questions around the implementation and legality of [vaccine] passports and their discriminatory nature on those who are not eligible for medical reasons, or who choose not to have a vaccine.’ The NTIA echoes these vies. • Further comment: We accept that this could be a negative for the late-night operators but, as is often the case, it may depend on definitions and enforcement. Killing spontaneity is not a positive but, arguably, a decision to go to a club is less spontaneously made than the decision to pop down to the pub. • And there are a number of questions. How will nightclubs be differentiated from pubs, for example? If it’s that a fee is charged, then there is existing interaction at the door and flashing an app might not add much in terms of administration. If the ages of club-goers have to be checked at the door then likewise. • And why are clubs being singled out? The young are less commonly vaccinated but they’ve not been able to get the jabs until recently. Will passports be included for cruise ships, hotel visits, holiday flights and the rest? Arguably, they should be and, in the above-mentioned examples, spontaneity isn’t much at risk because it was probably not there in the first place. If it was applied to pubs, chip shops and newsagents, that would be a different matter. Trading: • S4 Labour has reported that hospitality Like-for-Likes saw a slight increase in August. It reports that they ‘increased by a small 1.6% when compared to August 2019’ and it adds that food like-for-likes were up 16%. It says this is ‘something we have been used to seeing throughout August in our weekly like-for-like analysis. However, the decline in drink like-for-likes of 12.5% clearly contributed to the small overall increase. Food sales outperforming drink sales occurred within both dry-led and wet-led sites for August.’ • Further comment: Interesting to see food outperforming wet sales. The football was away in August and wet sales are impacted by weather comps. Re regional performances, S4 Labour says ‘non-London experienced significantly more growth than London for month-on-months (August 2021 compared to July 2021). Even though month-on-month hospitality sales rose by 9.5%, London sites saw a decrease of 24.5% whilst non-London’s sales increased by 16.5%.’ • S4 says ‘although the increase in like-for-likes is small, given the recent months hospitality has experienced it is reassuring to see August 2021 has bettered August 2019 in regards to overall hospitality sales. The easing of restrictions has certainly helped consumer confidence. These figures offer some sense of reassurance for the hospitality industry, and hopefully this revival continues as we approach the autumn months; especially the London commute making a comeback.’ • This is true as far as it goes – but any one month will be influenced by a number of factors. The weather, sport, whether the virus is on the up or is declining, whether there are concerns re another lockdown or if we are just coming out of one, etc. But some things are becoming rather nailed on. First, London isn’t doing too well and second, food sales – albeit flattered by the fact that less of the money that goes in the till is taken by VAT – is doing better than wet sales. Also, it would appear that, whatever the problems caused by staff and product shortages, the industry is still able to show growth to some degree. • No shows. Hospitality companies such as Zonal, CGA, UKHospitality, Bums On Seats and Wireless Social have joined forces to educate customers on the impact of not turning up for bookings, as well as to provide insight, tools and tips to operators to help mitigate the impact. • The report identifies a strong correlation between no-shows and age, with 28% of 18-34-year-olds having not honoured their bookings, compared to just 1% of those aged 55 or over. However, younger adults are more frequent bookers in comparison to other age demographics. • Further comment. No shows are impolite and unnecessary. That said, they could have been exacerbated by the pingdemic (which is hopefully abating). The report says that no-shows could be costing the hospitality sector £17.6bn a year. This will be assuming no walk-ins fill empty seats. And hospitality operators can take deposits – although virtually nobody does and the admin would be onerous. UKH says that no-shows are “deeply damaging to venues” and this must be true. Staff will have been taken on in anticipation of demand, which is then not forthcoming. Working from home: • The Telegraph reports that the ‘muddle’ over home working risks sparking a crisis in customer service.’ Conservative peer Dame Helena Morrissey has said ‘employers would like it if it was clear from a government point of view what the policy is… There is a muddle.’ She adds that it ‘would be helpful to have a less ambiguous message. But in the absence of that, I think companies are, particularly in the City, doing what they think is right for them.’ • The Prime Minister has repeatedly said that he wants the “bustle” to return to town and city centres. This wasn’t a good idea when Covid was spreading rapidly but it is hopefully less of an issue now. There is a danger that we end up with a two tier workforce (per James Dyson) and it is possible that younger employees will miss out on opportunities to network (often whilst spending money in city centre bars or restaurants or simply popping out for a coffee or a sandwich during the day). • There does not appear to be a clear lead. Neither in the US where companies are doing what they see fit. Google owner Alphabet has extended its voluntary return-to-office policy through January next year, reports Reuters. CEO Sundar Pichai says ‘beyond January 10, we will enable countries and locations to make determinations on when to end voluntary work-from-home based on local conditions.’ Google is not a traditional employer, by any means, but it may offer a lead that some other employers may feel obliged to follow. Google had earlier delayed its return-to-the-office policy from September to October. • Further comment. Where customers are physically determines where they will spend their money. It also impacts the price a sensible company would pay for a lease, what they would spend on fitout and how many units could be supported in a given area. It is therefore important to have a view (or at least know why you can’t yet have a view) on when or if commuters will return to the office. • The ONS says that over 20% of workers are still at home all week. Many others are coming into town less frequently than they previously did. The Institute of Customer Service, which has around 400 member companies including many in the hospitality arena, makes the very good point that his members do not know how to plan for revenues when demand is so uncertain. • The ICS says ‘there is going to need to be a readjustment of expectation, at least over the next 12 months.’ If it is referring to revenue expectations, then this may be unlikely to be upward. Alluding to the fact that operators may have to trim their cloth according to their purse, it says it thinks ‘we may have peaked in terms of our ability to service people super quickly in exactly the way they want.’ Customers, if they attend units in lesser numbers, may find the level of service has to be reduced accordingly. Inflation: • See also comments from Markit on inflation below and from The Nationwide on house prices. The BRC has said that UK shop prices rose last month. Data from the research body &% Nielsen shows a 0.4% rise in August over July. Deflation had been the norm but that is changing. The BRC says ‘there are some modest indications that rising costs are starting to filter through into product prices.’ It says ‘food retailers are fighting to keep their prices down as far as possible. But mounting pressures – from rising commodity and shipping costs as well as Brexit-related red tape, mean this will not be sustainable for much longer, and food price rises are likely in the coming months.’ • The BRC adds that ‘disruption has been limited so far, but in the run-up to Christmas the situation could get worse, and customers may see reduced choice and increased prices for their favourite products and presents.’ It calls upon the government to sort out the HGV driver shortage and says ‘without government action, it will be the British consumers who will pay the price.’ Stock (and labour) shortages: • Per Sky, Wetherspoons warns some beers will not be available due to supply shortages. A spokesman said the pub chain’s supply problems with Carling and Coors were the knock-on effect from industrial action by delivery drivers working for another brewer. • Further comment: The Press is all over this and mentions Nando’s, McDonald’s, Coca Cola and others who have registered stock shortages. A JDW spokesman says ‘we are experiencing some supply problems with both Carling and Coors, which means that some pubs do not have the products available.’ He says ‘we apologise to our customers for any inconvenience caused. We know that the brewers are trying to resolve the issue.’ Business Secretary Kwasi Kwarteng has ruled out calls to loosen immigration rules, saying it would only be a “short-term temporary solution.” • The MA quotes the ONS as saying that some 20.4% of accommodation and food service operators have had issues with getting goods or services. Some 11.4% had to change suppliers or find alternative solutions and a further 9% stated they had been unable to get the materials, goods or services they required over the past fortnight. • Further comment: If this is a Coke but not Pepsi or Sprite but not Fanta issue, that’s one thing. If a pub can’t get beer, it’s quite another. As regards labour shortages, the furlough is due to end this month and, in the meantime, the ONS reports that only 9.7% of hospitality workers are now on furlough – either full time or flexible. If labour shortages persist after the end of the month, with the pingdemic and furlough by then in the rear view mirror, it might be more of a medium and longer term issue rather than a ‘short term perturbation’ as a government peer has suggested. • Tough travel restrictions and the spread of the Delta variant in Vietnam are causing concerns over the global coffee supply. The Vietnam Coffee-Cocoa Association has urged the government to ease restrictions after traders were reportedly struggling to transport beans to ports due to restrictions. • A McDonald’s store in Oregon, US, is reported to be employing 14 and 15 year olds in order to cope with the shortage of fast food workers. The BBC quotes a store as saying ‘we offered people a $300 bonus to work for us’ – and still they were short of staff. Company & other news: • Domino’s Pizza Group has updated on its agreement to sells its entire shareholding in Domino’s Pizza GmbH (“Domino’s Switzerland”), saying that ‘the Company can advise that the transaction to sell Domino’s Switzerland completed on 31 August 2021.’ It says ‘the disposal of Domino’s Switzerland is the final part of DPG’s planned exit from all directly operated international markets and allows management to focus on its core UK and Ireland operations, as announced by the Company in October 2019.’ • Pernod Ricard reports FY21 sales of €8,824m with organic growth of 9.7%, with sales growing in all regions with the Americas up 14%. Pernod Ricard chairman and CEO Alexandre Ricard said ‘The business rebounded very strongly during FY21 to exceed FY19 levels. We expect this good sales momentum to continue in FY22’. • Oakman Inns has said that it is looking to convert to a PLC. It says it is raising money. • Further comment: The group corrected an earlier email to potential investors in which it had appeared to suggest that an investment would lead to an immediate positive return. The company says its ‘final sentence should have stated ‘if you wish to earn an instant return on your investment via unlocking shareholder discounts, then please invest now’. Please rest assured that whilst we hope that the value of the shares will increase over time – I am in no way guaranteeing a return on your investment.’ Oakman says its ‘last two [funding] rounds have been a great success with over 500 new investors having been welcomed to the Oakman Family and applications for £6m of equity having been received, the current offer is limited to applicants that meet the eligibility criteria on the investor portal.’ • Hogs Back Brewery is predicting its best ever crop from the 8.5-acre hop garden adjoining the brewery. The brewery, in Tongham, Surrey, said ‘we’re keeping our carbon footprint at virtually zero, which is part of our drive to become a more sustainable brewer.’ • WineBusiness.com reports that California is on track to harvest approximately 3.6 million tons of grapes this year, down from a four million average. • A new Covid mutation named Mu is reported to have been detected in the UK, with 55 cases identified. • Guinness has brought back its 0% stout after an earlier launch was pulled. • Simon Wilkinson is to step down as CEO of Famously Proper, the owner of the Byron Burger outlets. He will be replaced by Gavin Cox. • Thai restaurant chain Busaba is to open its first site in Wales. HOTELS & LEISURE TRAVEL NEWS: • Jet2 comments on shorter booking windows, Winter 21/22 and Summer 22. • Further comment. Jet2 has updated on trading ahead of it’s AGM, which will be held later today. The company’s chairman, Philip Meeson, says the group has flown around 55% of its 2019 capacity since being allowed to do so from 19 July. Mr Meeson says ‘unsurprisingly, given the continuing short-term uncertainty resulting from the UK Government’s three weekly review of its traffic light system, customers are booking significantly closer to departure for Summer 21. Despite the limited booking visibility, pleasingly, we have generated positive financial contribution from the flying to date, supported by our quick to market, flexible operating model.’ • Jet2 says ‘the slower momentum for Winter 21/22 bookings which we reported in our Preliminary Results in early July has remained.’ It implies that pricing is weak and says ‘the overall Winter 21/22 capacity remains under continuous review.’ For Summer 22, Jet2 says ‘we plan to fly to all our popular leisure destinations. Bookings to date are encouraging, with average load factors at the same point ahead of Summer 19 and package holiday customer numbers as a proportion of total departing customers showing a material increase. Therefore, we remain optimistic that Summer 22 will be a considerable improvement on both Summer 20 and Summer 21.’ • The company says ‘we believe opportunities for financially strong, resilient and trusted operators will only increase as travel restrictions are lifted.’ The company has ‘own cash’ balances of £1.52bn as at 30 August. Mr Meeson says ‘we are confident that once normality returns, our Customers will be determined to enjoy the wonderful experience of a well-deserved Jet2 holiday.’ • Portugal will now no longer require travellers from the UK, who cannot show that they have had two vaccinations, to self-isolate for 14dys. The Tourist Board says ‘Visit Portugal can confirm that British visitors to mainland Portugal now only need to show a negative PCR or antigen/lateral flow test on entry, and don’t need to be fully-vaccinated.’ • Dalata reports revenue of €39.6m and a pre-tax loss of €37.8m in H1. The company reported increased demand for staycations as hotels reopened in the UK in May and Ireland in June. Dalata said ‘It is expected the improved trading environment will deliver an increase in earnings with adjusted ebitda for July and August projected to be approximately €24 million’. • The WTTC has said that the government has just until the end of the furlough scheme to ‘save travel businesses which are struggling to survive’. There have been calls to extend the furlough scheme in some industries that are still feeling almost the full force of the pandemic. • In a landmark achievement, STR reports that estimated U.S. hotel gross operating profit for July 2021 was 111% of the 2019 comparable. There are some near term concerns that leisure demand could be abating as the Delta Variant moves across the country. OTHER LEISURE: • Gym Group has reported H1 numbers saying that it has seen a ‘strong recovery since re-opening and [it has identified] opportunities for accelerated growth.’ • Further comment: The company says revenue was down 21% at £29.3m with adjusted EBITDA (with normalised rents) of negative £8.1m against an EBITDA loss of £8.2m last year and adjusted net loss of £20.9m against a loss last year of £22.1m. The loss per share is 12.6p against a loss per share of 14.9p last year. CEO Richard Darwin says ‘since the re-opening of gyms in April, The Gym Group has performed strongly with excellent member feedback, a higher rate of visits per member and a rapid recovery in overall membership levels.’ • Darwin says ‘we have identified some exciting growth opportunities to expand our estate further and raised additional funds from shareholders to capitalise upon them. With restrictions now lifted, we are planning to open 40 new sites by the end of 2022, of which three have opened so far in July and August, as we continue to make fitness accessible for all and deliver further social value to communities around the country.’ He concludes ‘we look forward to the second half of the year and beyond with confidence.’ • Figures from Deloitte show that England’s top-flight football clubs spent £1.1bn during the transfer window, down 11% from 2020. FINANCE & MARKETS: • The August Markit PMI for UK manufacturing has shown that the sector (small these days at around 10% of the economy) is still in growth at 60.3. Any number above 50.0 implies growth. The number is a five-month low (July was 60.4). Markit says ‘the outlook for the UK manufacturing sector also remained bright in August. Almost 66% of companies indicated that they expect output to rise over the coming year, compared to only 4% forecasting a decline.’ • Further comment: Markit says ‘severe disruptions to supply chains and raw material shortages eroded the growth momentum of UK manufacturing in August.’ It adds that ‘although solid gains in output and new orders were achieved, companies reported that production, delivery and distribution schedules were experiencing substantial delays.’ • Re inflation. Markit says ‘the impact of supply issues is also feeding through to rapid price inflation. Rates of increase in both input costs and selling prices remained close to record highs in August, as rising demand chased constrained supply and companies moved to pass on price increases to clients and consumers alike.’ It says ‘this is affecting most markets, but especially autos, metals, food stuffs and electronics.’ • House prices rose unexpectedly in August given that the end of stamp duty relief was meant to have put a bit of a brake on the market. The Nationwide says house prices rose 11 per cent annually in August, up from July’s 10.5 per cent increase. Values are now 13% higher than before the pandemic. The Nationwide says ‘August’s price rise is a surprise – and may be down to homeowners trying to take advantage of the smaller tax saving still on offer. A lack of supply is another factor.’ • Sterling mixed at $1.3771 and €1.1636. Oil price lower at $71.32. UK 10 year gilt yield up 8bps at 0.70%. Markets mixed yesterday & London set to open down by around 6pts as at 7am. RETAIL WITH NICK BUBB:
Today’s News: If you thought that the new panel assembled by the wretched CMA to reconsider its negative view of the acquisition by JD Sports of its rival Footasylum in early 2020, after a successful appeal by JD, would take a more relaxed view of the situation, then think again…because, unaccountably, despite assembling more data on the market, the CMA still thinks the deal will lessen competition and has again provisionally ruled that JD should sell Footasylum. JD has issued an angry response, to flag that it “…nevertheless remains committed to its transaction goal of improving Footasylum’s resources, access to product and differentiated customer proposition”, arguing that the CMA has failed to consider “the impact that COVID-19 has had on Nike’s and Adidas’ DTC strategies”. JD boss Peter Cowgill urges the CMA to re-consider, fuming that “clearance would enable JD to invest in FTSE Index Watch: Yesterday evening the latest FTSE index quarterly review was announced and Morrisons, as expected, made it back into the FTSE 100 index, given its much-improved £7bn market cap, at the expense of the Dutch-domiciled Just Eat. The changes take effect from the start of trading on Monday, 20 September. On a less happy note, Wickes was demoted from the FTSE 350 index, reflecting its disappointing share price performance since the demerger from Travis Perkins at the end of April, with the current market cap of £630m nothing to write home about… This Week’s News Flow: At lunchtime today the US jeweller Signet (which owns the UK chains of H Samuel and Ernest Jones) announces its Q2 results. |
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