Langton Capital – 2022-04-25 – PREMIUM – Insolvency stats, trading, footfall, executive pay, holiday spend etc.:
Insolvency stats, trading, footfall, executive pay, holiday spend etc.:
A DAY IN THE LIFE:
So, we now have a five-business-day week to get through after two short ones.
And then another short one. Indeed, of the eight weeks starting with the Good Friday week, only four are full length and, at the beginning of June, we get one of three days.
That’s good for some and less good for others. Employers will have to stump up and it was mentioned in connection with the GDP forecast downgrade recently that the UK had fewer working days this year than last.
Anyway, enough of that. We’ve got quite a few results coming up this week. We’ll hear from Loungers, City Pub Group & Whitbread amongst others and the US Q1 season has some distance to run.
Hull City won 3-0 at the weekend and, though safe, we’ve left it a bit late to make our run for promotion. On to the news:
PUBS & RESTAURANTS:
The Sunday Times reports that ‘restaurants and hotels in tourist resorts are paying thousands of pounds in golden handshakes to attract chefs from India and South Africa amid extreme staff shortages.’ It says some are offering £85,000 salaries, £5,000 sign-on bonuses, family holidays’ and more to attract workers from outside Europe. The ONS has said that up to around 8% of roles in hospitality may be unfilled.
The latest Market Recovery Monitor from CGA and Alix Partners (see also Friday’s email) comments on the churn of units saying that this is at its highest rate for months. See also our comments on UK insolvency stats. Churn can help successful operators but in may mean the end of the road for their less successful peers.
The Guardian comments on the casual dining market. it says things have changed since both Nando’s and Wagamama opened in the UK 30yrs ago in 1992. It also suggests that ‘busy restaurants belie a tale of tightening belts in cost-of-living crisis.’
• We would suggest that restaurants are not as busy in terms of covers as a) they were or b) they would like to be.
• The Guardian may have spotted a few busy restaurants – and there are certainly those suffering from labour shortages – but we would point out that a) small sample sizes can give misleading results and b) it’s hard to tell with the naked eye if a restaurant is as busy as it used to be.
• There is also a material – and ultimately damaging – gap opening up between spend and volume. Higher prices have, to some extent, protected revenue – but volumes are down. This means that customers have either been driven away by higher prices or they have not returned (because of either the same reason, an ongoing fear of Covid or a shortage of money).
CGA’s Drinks Recovery Tracker reports that drinks’ sales in the week to 16 April, fell ‘just short of pre-COVID-19 levels for fourth week in a row.’ This is, once again, a monetary rather than a volume measure. Sales were 2% lower. Inflation, it’s worth remembering, is around 7% and heading higher.
• CGA says beer sales were down 4%, cider sales were 16% lower, soft drinks were off by 1% and wine sales were down 13%. Spirits sales, as has been the case for some weeks, were the exception as they were up by 10%.
• CGA says ‘the first half of the week swung between highs of +18% on 2019 on Sunday (10 April) and -11% on Wednesday (13 April). The start of the Easter weekend saw decent trading but suffered by comparison to a warmer holiday in 2019, and sales ended 5% down on Good Friday (15 April) and 2% up on Easter Saturday (16 April).’ Short periods of time are heavily impacted by the weather.
• CGA says ‘it’s very frustrating to see drinks sales still floating just below pre-pandemic patterns.’ It adds ‘with costs rising so fast, growth remains well short of where it needs to be, and the increasing squeeze on consumers’ disposable incomes will make it doubly hard to get sales back into the black. While the worst of COVID-19’s impacts to the hospitality market are hopefully now over, the road to recovery still has a long way to run.’
Springboard comments on footfall over Easter, saying that ‘two factors heavily influenced footfall activity in UK retail destinations over Easter this year. The first factor was the warm and sunny weather which drew people to outdoor destinations rather than internal shopping environments. The second factor was that this was the first Easter bank holiday weekend since 2019 with no Covid restrictions.’
• It says ‘this appears to have brought activity forward as consumers made trips to retail destinations in advance of Easter, rather than reserving shopping trips for the weekend itself.’ Springboard says that ‘footfall across UK retail destinations over the Easter weekend as a whole was marginally lower than over the same three days in the previous week (-0.1%) and -13% lower than in 2019.’
• It says ‘of the three destination types retail parks were the winners, with a rise in footfall of +3.9% from the week before and a gap of just -4.3% from the 2019 footfall level. Footfall in high streets also rose (by +1.1%) but in shopping centres it declined by -6.1%. In both high streets and shopping centres, footfall was around -16% lower than in 2019.’
• Springboard adds ‘the favourable weather drove footfall up by +17.5% in coastal towns over the Easter weekend from the week before and by +5.9% in historic towns, with other types of town faring less well. However, the results varied from day to day over the weekend. On Good Friday all types of town recorded a rise in footfall, with the clear winner being coastal towns where footfall was +33.6% up on the previous week. On Saturday footfall continued to rise (albeit more modestly) in all types of town other than Central London, which was likely to have been hampered by the closure of Euston station. By Monday, however, footfall was lower than on the Monday before, with significant drops in market towns, Central London and other large cities around the UK.’
Data from the Department for Environment, Food & Rural Affairs (DEFRA) shows that seasonal fruit and veg prices have increased by 37% versus the same period in 2020. Out of the five most costly fruit and veg items, strawberries saw the biggest percentage rise of 80%, from £4.69 per kg in 2020 to £8.42 in 2022.
• The pub sector has expressed concern about rising prices. Bath Pub Company managing director Joe Cussens said ‘all of our suppliers are building up their prices, we’ve got this massive increase in costs, with no help or support at all, or even words of encouragement from the Treasury.’
Regarding supply chain issues; Boris Johnson has hinted that physical Brexit border checks on food imports from the EU due to be introduced in July will be delayed for the fourth time. Although Brexit has led to greater friction in trade, Johnson said ‘I’m generally in favour of minimal friction at all junctures between the UK and the EU.’
Property tenure. Landsec has launched a new product offering for hospitality and retail brands made up of four packages; Platform, Platform+, Home and Spotlight. With the introduction of Platform and Platform+, Landsec now hopes to forge partnerships with more independent retailers.
Delivery. In the US, New York has passed into law six bills extending the rights of delivery workers. The bills include a requirement that restaurants allow access to toilets.
Several supermarket chains across the UK are rationing purchases of cooking oils. Ukraine is a major sunflower oil exporter.
The BBC reports that Morrisons is to ‘cut the prices of hundreds of products to help customers with the rising cost of living.’
• This may be a mix of real cuts and the reversal of some price rises as the group may have been testing ‘price elasticity’ in an upward direction since its takeover by private equity. The BBC says Morrison’s ‘would offer an average 13% price cut on more than 500 goods including eggs, beef and rice.’ CEO David Potts says ‘we know that our customers are under real financial pressure at the moment and we want to play our part in helping them when it comes to the cost of grocery shopping.’ Two weeks ago, Tesco said it was ‘laser focused’ on keeping prices down for customers.
Brakspear has said that this is a ‘worrying time’ for the hospitality industry.
• CEO Tom Davies told The Henley Standard that despite surviving months of closures during the coronavirus lockdowns followed by staff shortages, restaurateurs say they are worried about the future as they face “extortionate” bills that have at least doubled in the past year. He points out ‘there is no energy cap like there is for domestic use and that means we are fully exposed. Energy prices as well as food inflation and staff shortages make this a very worrying and concerning time for the industry.’
Lavazza reports an 11% rise in annual revenues to €2.3bn, with net profits rising 44% to €104m. Lavazza said its main growth drivers were its out-of-home business, which recovered to 80% of its 2019 value in 2021, and a ‘steadily rising’ home channel. However, market turbulence caused by inflationary pressures and the war in Ukraine pose significant challenges for the year ahead, the company has warned.
• The company says it has ridden the pandemic and recent cost increases well. It maintains ‘the excellent 2021 results are not only a significant milestone for our Group but also the springboard to tackle an extremely complex and challenging year, due to the rise in the price of all the raw materials we use – first and foremost green coffee, but also packaging, energy, logistics – and the risks deriving from the dramatic current geopolitical situation.’
Nestlé reports that its coffee business has experienced a slow-down in the Q1 2022 amid rising raw materials costs and disruption from the Russian invasion of Ukraine.
• The Swiss food and beverage giant posted a 5.4% rise in revenues to $23.4bn in Q1. Coffee accounting for around 27% of the company’s sales in its 2021 full year results. It says sales in North America fell in Swiss Franc terms by 1.5%. In Europe, sales in value terms were up by 2.2% .
The Daily Mail takes Restaurant Group boss Andy Hornby to task over his salary and bonus package in light of the fact that the company ‘took £43m in furlough cash’ (in addition to the £123m it received in 2020.
• The Mail says ‘Hornby collected a £578,000 bonus, taking his total pay to £1.2million.’ it says ‘Hornby’s pay-out puts him on a collision course with shareholders who have said that companies which drew on public support during the pandemic should not pay large bonuses to executives.’
• The Mail quotes Legal & General Investment Management as saying that it ‘had a ‘very clear policy’ on opposing bonuses in these circumstances. The asset manager said: ‘If companies have faced liquidity issues due to Covid-19 to an extent they had to suspend dividends, accept Government support in the form of loans, suspension of rates or furlough and they reduced headcount, then company bonuses to executives should not have been paid.’
Anheuser Busch InBev is to take a $1.1 billion financial hit after finally bowing to pressure to withdraw from the Russian market after Moscow’s invasion of Ukraine, reports The Times.
The Daily Mail tips Tortilla Mexican Grill shares as a buy.
• Having used the headline ‘too spicy for some?’ when covering the demise of rival Mexican food operators, Langton can’t quibble too much with the Mail punning that the shares could ‘spice up your investment portfolio.’ It says ‘the decline [in the group’s share price] seems unjust. Tortilla is a fast-growing and popular chain that has proved its resilience over the past couple of years and is likely to double in size over the next five years.’
McColl’s Retail Group has updated on trading saying that it has ‘experienced mixed trading since the last update on 28 February 2022.’ It says ‘while a recovery in trading performance had continued during the first half of March, the business has since experienced softer trading through the Easter period, impacted by reduced consumer spending and continued supply chain disruption across the industry.’
• McColl’s says its ‘Morrisons Daily stores continue to perform strongly, delivering like-for-like sales growth that is at least 20% better than non-converted, comparable stores, and ahead of the total convenience market.’ it says this ‘conversion programme continues at pace with 69 stores opened in FY22 so far, and the Group continues to work on the previously communicated programme of Morrisons Daily store conversions.’
• Re the outlook, McColl’s says ‘the Board now expects adjusted EBITDA for the current financial year (FY22) to be no higher than the level achieved in FY21 (£20m on a pre IFRS 16 basis). The Group continues to review costs across all parts of the business in order to help mitigate the challenging trading conditions, as well as being even more targeted in its capital deployment.’
• The group says that the financial solutions to its current issues are ‘increasingly likely to result in little or no value being attributed to the Group’s ordinary shares.’
HOLIDAYS & LEISURE TRAVEL:
Nationwide reports that household spending on holidays and travel increased last month despite household bill concerns. Nationwide’s Spending Report found that consumer spending grew by 16%, with the amount spent on non-essentials reaching its highest level of the year so far, at nearly £2.8bn. Spending on holidays in March reached £286m – 19% higher than the amount spent in February.
• Nationwide says ‘holiday, airline travel and cruises spend continues to see growth as people plan for or take what may be their first trip abroad since the pandemic started.’ It adds that ‘March also saw a significant increase in spending on charities. It’s perhaps no surprise that this has coincided with the conflict in Ukraine as people have looked to donate money to support Ukraine and the humanitarian effort.’
Data revealed at the World Travel & Tourism Council’s global summit in Manila showed a booking bounceback in international flights is being forecast. Countries leading the ranking of top 20 best performing destinations for the summer are Costa Rica, Aruba, Dominican Republic and Jamaica.
• Further evidence of the resurgence in travel is shown in arrivals in Europe, with a 350% surge in international arrivals in the first three months of 2022 compared to the same period last year.
Data from the Business Travel Association shows that corporate travel in the first week of April slowed as business hours declined for the Easter break, with international and domestic business travel reducing to 46.10% of 2019 levels.
• This is understandable as business and leisure travel can often be inversely correlated. As regards the medium term recovery, the BTA says ‘we understand that growing to full capacity will take time and we are working with TMCs to ensure a smooth recovery process.’
Sky News reports that Brookfield Property Partners is close to appointing Barclays to advise on the future of Center Parcs UK – an investment it has held since 2015. Center Parcs UK recently recorded the most profitable half-year in its history in spite of pandemic-related operating constraints.
Venice is set to introduce an entry fee of up to €10 a day from June in a bid to tackle overtourism. Tourists will enter through an electronic turnstile, and pay a charge of between €3 and €10, which will vary depending on how busy the city is that day. If the scheme is successful, it will be made permanent from 2023.
With Bourne Leisure looking as though it may change hands, The Times runs a piece saying that staycations have recently boomed. It reports ‘Britons are continuing to choose staycations for this summer, with bookings up by 20 per cent on pre-pandemic levels, according to the owner of Butlin’s.’
PureGym is to use a recent £300 million investment by KKR to double in size to more than 1,000 clubs over the medium term, reports The Times.
The board of Twitter has reportedly met Elon Musk over the weekend to discuss his $43bn takeover offer for the company.
FINANCE & MARKETS:
Flash PMIs produced by Markit for April suggest that the UK composite PMI was 57.6, down from 60.9 in March to hit a three-month low. The manufacturing index rose to 53.8 (from 51.8) whilst the services PMI was 58.3, down sharply from March’s 62.6 but still comfortably in growth.
• Markit says ‘the survey data signal a marked cooling in the pace of UK economic growth during April, caused by an abrupt slowing in demand.’ It says the ‘growth of demand for services has slumped to among the weakest since the lockdowns of early 2021.’
• Markit says ‘high prices and the associated rising cost of living were often cited as a principal cause of lower demand, with covid also continuing to affect many businesses. Brexit and transport delays were seen as having further impeded export sales, while the Ukraine war and Russian sanctions also led to lost overseas trade.’
• Markit adds that ‘concerns over the worsening inflation picture are meanwhile flamed by another near-record leap in firms’ costs.’ It says this is leading companies to take ‘a more cautious approach to hiring and spending as demands cools and the outlook becomes gloomier, to suggest that the slowdown in the economy has further to run.’
The British Chambers of Commerce Director General Shevaun Haviland is urging the UK government to ensure that the UK and US Governments are ‘laser focused on supporting business.’
Rightmove has reported that the average asking price of a house in Britain has hit a new record in the last three months. It says ‘with three new monthly price records in a row, 2022 has started with price rise momentum even greater than during the stamp duty holiday-fuelled market of last year.’
• There is some concern as to how long this could last. Interest rates are rising and the wealth effect could go into reverse if prices fall. There have been reports recently that the FCA ‘is looking into’ equity release schemes. There could, at this stage in the cycle, be some concerns that consumers might use house price rises, which are unrealised, to borrow and maintain spending levels.
Sterling down sharply against other major currencies at $1.2798 and €1.1877. Oil price lower at $103.93. UK 10yr gilt yield down 2bps at 1.96%. World markets down on Friday & Far East down in Monday trading. London set to open down around 126pts as at 7am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): Several of Saturday’s papers led their front pages with the suggestion by Boris Johnson that the UK could send tanks to Poland to replace those that Warsaw is supplying to Ukraine. The Daily Mail trumpeted “Boris: I’ll send in our tanks” and the tank swap plan also made the front page of the Times and the FT. The Telegraph, however, led with the news that “France and Germany sold arms to Russia”, whilst the Times flagged that the Health Secretary Sajid Javid is preparing to launch an urgent inquiry into gender treatment for children and the Guardian suggested that Boris Johnson is facing “deepening peril” over the Partygate scandal after claims that the police have issued at least one more fine for an event attended by the Prime Minister. And the FT led with the weakness in sterling: “Pound sinks to lowest level since 2020 as high street sales
• Saturday’s Press and News (2): In terms of Retail stories, the supposedly weak ONS Retail Sales figures for March got plenty of uncritical coverage in Saturday’s papers, usually linked to the fall in sterling (as per the FT front page story). Moving on…the surprise news that the 52 year old Simon Arora intends to retire as CEO of B&M was a big talking point in all the papers, as per the FT story headlined “End of an era for B&M when boss Arora retires next year”, with the man himself telling the Times that “I want some time off to smell the roses, do a bit of travel, after 35 years of slog” and highlighting to the Guardian that his brother Bobby Arora has also been key to the success of the discount chain (“There’s a Punjabi saying from our childhood that we both believe in: “One plus one equals 11””). All the papers also picked up the news on Friday afternoon from Frasers
• Sunday’s Press and News (1): On Sunday, in terms of the front pages, the main revelation was the Sunday Times investigation claiming that Ukraine repeatedly asked to buy weapons from Britain for several years but was turned down by three successive Prime Ministers, for fear of upsetting President Putin (“Ukraine pleas for weapons were rejected for years”). In terms of Partygate, the Observer led with the news that Boris Johnson should go “sooner rather than later”, according to senior Tory MPs, but, ludicrously, the Sunday Express flagged that Boris Johnson is defending his premiership (“Boris – I am the leader Britain needs”). Even more ludicrously, the Sunday Telegraph headline was “BBC guilty of “xenophobia” over Rwanda refugee deal”), whilst words fail us for the silly Mail on Sunday headline about the hapless Jacob Rees-Mogg’s views on civil servants: “Go back to office – or face
• Sunday’s Press and News (2): On Sunday, in terms of Retail stories, the Sunday Times continued its campaign against THG with a front-page story on its Business section front page that the advertising giant WPP is to take on THG’s tech division with a new third-party ecommerce business launch called Everymile. The Business Editor, Oliver Shah, noted in his column, however, that some onlookers are convinced that THG boss Matthew Moulding is trying to flush out genuine bidders for his business. And the Mail on Sunday flagged that the private company of the THG boss Matthew Moulding has been loaned £18m by the local council, secured against unspecified properties. In other news, the Sky News scoop that the US group that owns Reebok, Authentic Brands, has entered the bidding for Ted Baker, was picked up by the Sunday Telegraph and the Mail on Sunday. The Mail on Sunday also noted that JD
• Sunday’s Press and News (3): In terms of Economics comments, we give our usual shout-out to the column by the Sunday Times Economics correspondent David Smith, headlined “A groggy global economy is reeling from so many blows”. And the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph was headlined “Sunak may be politically wounded, but he is the economy’s best hope”.
• Today’s News: The big news today is that the troubled convenience store group McColl’s has issued yet another trading warning…The lowly share price had actually been looking a tad brighter of late, but that will now change, as the group has warned that after “a weaker than expected Easter performance”, the cost of keeping its banks happy will be that “even if a successful financing outcome is achieved it is increasingly likely to result in little or no value being attributed to the group’s ordinary shares”. On a happier note, Frasers has announced that it will continue buying it shares back after the end of the financial year and back on Friday, at 3.50pm, the company announced that completed its assessment of the unsettled value created by “MM Prop Consultancy Limited” to the group, “with the assistance of independent third party experts” and agreed to pay Michael Murray just
• BDO High Street Sales Tracker: Although we have to make our normal caveat (ie that we think that the weekly BDO High Street Sales Tracker for medium-sized Non-Food chains is statistically flawed and is skewed to the recovery sector of Fashion), we should point out that it is no longer flattered by the very weak lockdown comps of a year ago, as April 12th marked the end of the closure of non-essential shops in England in 2021. Nevertheless, for what it’s worth, the latest survey still shows good momentum, despite the slump in consumer confidence. In the w/e April 17th Total BDO LFL sales (including some Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by c18% on the year before (with Store sales up 21% and Online sales up by c16%), whilst Fashion sales alone were up by c25% LFL,
• This Week’s News: As April draws, inexorably, to a close, the pace of company news picks up this week, kicking off with the ABF (Primark) interims tomorrow. Wednesday brings the WH Smith interims and on Thursday we get the Sainsbury finals. We also hear from “white van man”, via the Howden trading update on Thursday and the Travis Perkins Q1 on Friday. Over in the US, the Q1 reporting season continues for the big tech groups, with Alphabet (Google) announcing tomorrow, Meta Platforms (Facebook) on Wednesday and both Amazon and Apple on Thursday.