Langton Capital – 2022-05-03 – PREMIUM – Mobility, WFH, London sales, vacancy rates, Fever-Tree, holidays etc.:
PREMIUM – Mobility, WFH, London sales, vacancy rates, Fever-Tree, holidays etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Welcome to shorter-than-usual business week after a weekend during which we managed to cut the grass and see that Hull City lost 0-5 at home in an ultimately successful bid to lull Bristol City into a feeling of superiority.
Indeed, you know when the season is over and there’s very little to play for when you win 3-0 in one match and then collapse the next weekend when you’re lucky to get nil but we’ll surely be in Europe for the 2024/25 season, so there’s at least that to look forward to.
Anyway, although it’s a Tuesday that feels like a Monday, there’s still stuff going on out there so, without further ado, let’s ask first, who said ‘I don’t like people who are indifferent to the truth’ and then second, move on to the news:
PUBS & RESTAURANTS:
Working from home:
Airbnb is allowing its employees to work from anywhere for as long as they like, without their pay being affected. The move is in contrast to the likes of Google in the US, where staff who work from home may see their pay cut.
• CEO Brian Chesky sent an email to employees last week saying that in 10 years, flexible working would be the norm for many employees. He says ‘if we limited our talent pool to a commuting radius around our offices, we would be at a significant disadvantage.’ He adds ‘the best people live everywhere, not concentrated in one area.’ This may be true, but it doesn’t do much for the cash registers of the pubs, bars, restaurants, cafes & coffee shops in the immediate vicinity of many now-less-full office blocks.
The BBC reports that ‘a London law firm has offered staff the option to work from home permanently, but the convenience comes at a price.’ It says ‘Stephenson Harwood, said it would allow staff to work remotely but pay them 20% less than their current salary.’
Whilst this is a hotel story, it is relevant for London’s pubs, restaurants, clubs & visitor attractions etc. The New York Times reports that London is springing back to life, with Heathrow passenger travel from North America in particular increasing by more than 60% January 2022.
• Jen Moyse, vice president of product for TripIt, said ‘London has remained the second-most popular international travel destination for Americans — only behind Cancun — for recent holiday travel periods’. TripIt says that the volume of flight bookings to London were up by 300 percent when comparing the organiser’s reservation data over the four-month period from April to July to December to March.
• Elsewhere, the Standard reports that World Hotel Index figures show London hotel bookings passing pre-Covid levels for the first time since the start of the pandemic. Reservations in the first week of this month were 102.4% of the equivalent period in 2019. It says ‘this will come as a huge relief to London’s hotel sector and raise hopes of a bumper summer season boosted by the Queen’s platinum jubilee celebrations.’ It says ‘since early April levels of reservations have stayed solidly around the 100 per cent mark apart from a dip to the low 90s during Easter week.’
• SiteMinder data, says The Standard, ‘suggests London’s hotel sector is recovering more quickly than in other major European cities. In the same week bookings in Paris were 96.7 per cent of pre-Covid levels, with Berlin on 99.4 per cent, Amsterdam 82.2 per cent and Rome just 63.8 per cent.’ Young & Co reports full year numbers on 19 May and Fuller’s follows suit on 9 June.
The Local Data Company reported last week that, in Q1, ‘the overall GB vacancy rate decreased to 14.1%, which was a 0.3 percentage point down from Q4 2021. This was only the second quarter of falling vacancy rates since Q1 2018.’ It says that even shopping centre vacancies fell, albeit form a very-high 19.1% to a slightly lower 19.0%.
• The BRC commented on the numbers saying ‘the first quarter of this year saw a large quarterly improvement in shop vacancy rates. The economy had fully reopened, with more city workers back in the office, and more tourists out on the streets.’ It cautions, however, that ‘despite this improvement, the overall proportion of empty storefronts remains well above its pre-pandemic levels, especially in the north of England. While many northern regions saw the biggest quarterly improvement, they still have the highest vacancy rates in the country as they were hit harder by the pandemic and have a lower average level of disposable income.’
• The LDC says its ‘latest figures show a continued— and welcome— reduction in empty units across nearly all regions in England as well as across both Scotland and Wales, as market recovery continues post-Covid. This decline in vacant space is being driven by further repurposing of retail space, growth in the independents sector and an increase in activity across the chains as well, as many brands are back on the acquisition trail after the pandemic stalled growth.’
• The change in the type of tenant may not be a positive for F&B as, often, the latter depends upon the draw of retailers in order to provide customers for its coffee shops, restaurants, bars etc. In addition to their attracting a different clientele, the linger time at a tattoo parlour may be of a different type to that in a department store.
• The LDC says ‘anecdotally, we are aware of rising competition for prime space in both city centres and shopping centres, from both chain retail and leisure operators. This may lead to further polarisation in key locations as activity is concentrated in prime pitches, leaving more tertiary space behind. That being said, this continued decline in vacancy rates is further evidence of more sustained recovery. Whilst there are a number of well-publicised economic headwinds on the horizon, we might still remain optimistic that a proactive, concerted focus on the future of consumer-facing real estate will yield further recovery.’ We hope this is correct.
We believe that big ticket spending (cars, furniture, carpets etc and, in leisure, holidays) could be more at risk than are ‘affordable treats’. Interestingly, AO.com on Friday said that ‘customer demand progressively weakened across the sector’. It says ‘we remain cautious about our revenue and profit outlook in the near term.’
• Interestingly, AO.com said it was concerned about a potentially material hit from increased product warranty cancellations. Such payments are sticky but, as and when consumers focus on them, they may be deemed unnecessary. We have recently had comments coming from a different angle on subscription cancellations from Netflix.
Meanwhile, the ONS has reported that 39% of adults said they cut back their grocery shops, rising from 34% a fortnight ago and 18% at the start of the year. It says about 40% of people said they “found it very or somewhat difficult to afford” energy bills, while around 20% said they were “unable to buy fuel”. The latter number was 8% earlier this month.
CGA’s latest Drinks Recovery Tracker has reported that drink sales in the on-trade overall in the week to 23 April were up 1% on 2019 levels. This is significantly behind inflation. CGA says beer sales were up 1%, soft drinks were up 2% and spirits’ sales were up 8%. Less good news for cider (down 8%) and wine (down 6%).
• CGA says the performance ‘follows four successive weeks of sales hovering two or three percentage points off comparatives.’ It says the Tracker ‘shows drinks sales struggled over the Easter period, dropping behind 2019 levels by 9% on Easter Sunday and 6% on Easter Monday—due in part to much cooler weather than three years ago. But trading picked up as the week went on, finishing 9% up on both Tuesday and Wednesday, and 17% up on Thursday. Saturday ran 12% ahead.’
• It adds that ‘soaring costs mean the recovery from COVID-19 remains under severe pressure, but this modest growth raises hopes of turning a corner.’ It says it’s ‘particularly pleasing to see such strong midweek trading, and it suggests after-work drinking occasions may be returning as people head back to offices. May is always a crucial month for the On Premise, so we will wait to see if the upward trajectory can continue.’
ASDA chairman Lord Rose says that food prices could keep on rising, and stay higher “for quite some time.” He says that the higher cost of raw materials could lead to a further cycle of cost increases.
Nottingham City Council is to consider scrapping its Late Night Levy in the face of the ‘significant financial pressures faced by businesses’ in question. The levy was introduced in 2014. Most venues are currently charged £768.
• The council says ‘the pandemic business restrictions’ regulations highlighted the financial pressures on businesses and that the revocation of the levy could be considered as an approach to reduce that burden. The invest in Nottingham business growth strategy promotes and supports investment in the city and the LNL costs may be considered a barrier to incoming or expanding businesses.’
Fever-Tree has announced that chairman Bill Ronald has informed the Board of his intention to retire from his role and to step down from the Board at the time of the AGM in May 2023. The Nomination Committee will commence the search for his successor.
Domino’s Pizza shares fell 5% in the US after it missed Q1 sales estimates and warned staffing shortages and inflation would pressure its business further into the year. CEO Richard Allison said ‘2022 is shaping up to be a challenging year’. U.S. same-store sales in Q1 decreased 3.6%, while analysts polled by Refinitiv on average had expected a 0.6% decline.
Keurig Dr Pepper reports Q1 earnings in line with estimates, at $585 million, or $0.41 per share. This compares with $325 million, or $0.23 per share, in last year’s first quarter. The company’s revenue for the quarter rose 6.2% to $3.08 billion from $2.90 billion last year.
Something & Nothing, a Hackney-based premium drinks brand, has secured £1.5m investment led by Tom Singh’s Rianta Capital, along with Siggi Hilmarsson and Dutch entrepreneur Bart Jan Manten.
McDonald’s has said that shutting its operations in Ukraine and Russia has cost $127 million.
Chopstix has announced plans to open four new sites by the end of July, as it ‘continues a steady programme of growth in 2022.’
Stonegate Group has won two awards at the British Institute of Innkeeping’s National Innovation in Training Awards 2022.
Heineken-owned Star Pubs & Bars is to invest £42m in upgrading its estate of pubs this year.
The Times reports Greene King boss Nick Mackenzie as saying that the hospitality sector is “not out of the woods.” He says ‘the government have clearly pulled away from giving support to the sector. We were glad of the support at the beginning of this year, but that support dropped away in the second half of the year and we started to stand on our own two feet again.’
• He says ‘the challenges are still very real. Whilst sales have broadly returned to 2019 levels, the underlying challenges of significant cost inflation, labour shortages and regulations will continue to impact the pace of recovery of the sector and we therefore look to the government for support through business rates and alcohol duty reforms.’
HOLIDAYS & LEISURE TRAVEL:
Travel Weekly reports that agents are seeing strong late bookings despite increasingly tight availability for the peak summer months. Advantage Travel Partnership reported 42% of bookings through its managed service agents last week were for travel in the next 12 weeks.
The Passport Office insists that it has ‘prepared extensively’ for the post-pandemic surge in demand for its services, saying that the ‘vast majority’ of applications were being dealt with well within a 10-week window. It said delays could be caused by applications being submitted with missing or incomplete information.
• The Passport Office says ‘there is no backlog in passport processing as a result of the coronavirus pandemic. However, we are now seeing unprecedented demand.’ it adds ‘Her Majesty’s Passport Office anticipates 9.5 million British passport applications will be made this year and in March 2022 alone, HMPO processed more than one million new passport applications, the highest output on record.’
• This could come as a relief to a number of would-be holidaymakers and the holiday companies that (think they) have sold holidays to them. Cancellations will multiply rapidly as we approach departure dates if passports have not yet arrived. The HMPO seems confident that it can cope but many individuals may actually want to see a valid passport in their hand before they commit to taking a holiday.
HotStats figures show European Q1 hotel performance ending strongly, with March profit surging across most global regions. European GOPPAR hit €35.97, the highest the number has reached since it peaked in October 2021. Though occupancies crept up, it was the average daily rate that boosted hotelier fortunes.
HVS reports that the number of hotel transactions in Europe is back up to 2020 levels. It says it is seeing a ‘strong recovery for European hotel transactions with deals worth €16.4bn.’ HVS says that London topped the European league table for hotel transaction last year with Barcelona, Stockholm, Berlin and Madrid coming next.
• HVS says ‘last year was one of strong recovery for European hotel transactions with €16.4bn-worth of deals, twice that of 2020.’ It says that ‘322 European hotel transactions took place during 2021 involving 494 properties and 79,000 rooms. While total volume in 2021 doubled that of 2020, it fell nearly 40% short of 2019 levels on account of significantly fewer portfolio transactions. Sale prices per hotel room were generally higher, however, due to rising demand from potential buyers of single assets.’
• HVS says ‘transaction activity has rebounded much quicker than expected, due to cash-flush investors realising that a ‘wait-and-see’ strategy may no longer be viable if they want to capitalise on the fast-recovering European hotel market.’ It adds that the number of single-asset transactions should ‘remain strong this year as investors hunt for opportunities now that pandemic restrictions have largely subsided.’ It adds that ‘a timely end to the war in the Ukraine, reductions in loan delinquency and changing lender sentiment should mean increased portfolio activity as we move into 2023/24.’
• HVS’s Matthias Hecht says ‘investors that have stayed out of the buying process looking for quick deals or discounts will be disappointed as distressed sales become scarcer. In addition, prices are likely to be driven upwards as top-line hotel revenues improve aided by the business and conference markets returning in full force.’
Visitor attraction company Merlin Entertainments last week reported that CEO Nick Varney is to retire from the company. It says ‘Nick has a 12-month notice period during which the Board will identify his successor and ensure an orderly handover.’
• Merlin Entertainments was formed in 1999 following the £47m Management Buyout of Vardon Entertainments led by Nick, who subsequently became CEO of the rebranded group. The company reports ‘since then, Nick has grown the business from 19 attractions to a global leader in location based, family entertainment, operating 140 attractions, 23 hotels and 6 holiday villages in 24 countries and across 4 continents. During this period, it grew EBITDA from £7m to £569m pre-pandemic.’
A number of seaports are reported to be considering legal action against the government to recover the costs of building border control posts. The imposition of additional red tape and border checks has now been delayed for a fourth time.
Dalata Hotel Group updated on trading last Thursday, with Chairman John Hennessy saying ‘we have moved firmly into recovery with strong trading post re-opening across all markets…We announced in March that RevPAR1 for the Group was approaching pre-pandemic levels and I am delighted to report that it is expected to be 109% of 2019 levels for the March/April period.’
American Express Global Business Travel expects the travel recovery to continue to ‘build strong momentum’ during 2022 as transactions have risen to just over 60% of pre-Covid levels.
• Amex says that there had been an “encouraging trend” in recent weeks. It says ‘the travel recovery is building strong momentum’ and adds that ‘transactions have increased by 200 per cent since mid-January.’ It opines that ‘the main barrier to business travel is closed borders or restrictions that are too stringent.’ Cost, at some point, could also be an issue.
FINANCE & MARKETS:
The Daily Mail reports ‘Gerard Lyons, a former adviser to the Prime Minister’ as suggesting that botched decision-making by the Bank of England means ‘a sharp slowdown is now inevitable’ and recession ‘possible’. The Bank of England could put UK base rates up again this coming Thursday.
The Telegraph quotes Lord Rose, ASDA chairman & former CEO of Marks & Spencer, as saying that the Bank of England and ministers were too slow to react to the impending wave of inflation that has triggered a cost of living crisis. he says ‘I think the Government and the Bank of England have been slow to recognise inflation coming’ adding ‘we saw the signs last year that inflation was coming. I think the actions that have been taken to curb it have been a bit slow.’
Eurostat reports that the annual rate of inflation across the Eurozone is now 7.5%, up from 7.4% last month.
The Nationwide on Friday reported that house price growth had slowed in April but says that it ‘remains in double digits.’ It says ‘annual UK house price growth slowed modestly to 12.1% in April, down from 14.3% in March.’
• The Nationwide says that ‘housing market activity has remained solid with mortgage approvals continuing to run above pre-Covid levels. Demand is being supported by robust labour market conditions, where employment growth has remained strong and the unemployment rate has fallen back to pre-pandemic lows. With the stock of homes on the market still low, this has translated into continued upward pressure on house prices.’
• It says, tellingly, that it is ‘surprising that conditions have remained so buoyant, given mounting pressure on household budgets which has severely dented consumer confidence. Indeed, consumers’ expectations of their own personal finances over the next twelve months has dropped to levels last seen during the depths of the global financial crisis more than a decade ago. Moreover, housing affordability has deteriorated because house price growth has been outstripping income growth by a wide margin over the past two years, while more recently borrowing costs have increased (though they remain low by historic standards).’
Official data shows that French GDP was unchanged in Q1 this year.
Sterling up at $1.2524 and €1.191. Oil price down at $107.39. UK 10yr gilt yield up 2bps over the weekend at 1.90%. World markets heading better with London set to open up around 48pts as at 6.45am.
RETAIL WITH NICK BUBB:
• Saturday’s Press and News (1): Most of the headlines/photos on the front pages of Saturday’s papers were taken up by the disgraced tennis star Boris Becker and the disgraced Tory MP Neil Parish, but the FT led with the pressure on HSBC to break itself up: “HSBC pressed to free Asia business”.
• Saturday’s Press and News (2): In terms of Retail stories, the Times flagged the latest profit warning on Friday from AO.com, the third in six months: “Setbacks take heavy toll on AO World”. The AO share price only fell by 13%, however, at the end of the day, as noted by the Daily Mail stockmarket report. The FT picked up on the $8bn of supply chain disruption forecast by Apple and the Telegraph had a feature on the problems of Amazon (“Amazon growth stalls as Bezos loosens his grip”).
• Sunday’s Press and News (1): On Sunday, in terms of the front pages, the resignation of the disgraced Tory MP Neil Parish and the revelations about the House of Commons culture got lots of coverage, whilst the Mail on Sunday led on what it called a “secret election pact to stitch up Boris” (between Labour and the Liberal Democrats). “Cheap chicken may have had its chips” was one of the headlines on the front page of the Sunday Times (it reported that the cost of poultry feed is being pushed up because it’s often made of wheat and soya – two of Ukraine’s major exports).
• Sunday’s Press and News (2): On Sunday, in terms of Retail news, the main Business story in the Sunday Telegraph was that the Issa brothers (the owners of Asda) are weighing up a bid of nearly £13bn from the Canadian convenience store chain Couche-Tard for their EG Garages forecourt business, as originally reported by the Wall Street Journal. The Mail on Sunday also flagged the EG bid story, but it led its Business pages with a big article about the shareholder revolt looming at the Ocado AGM over CEO Tim Steiner’s pay package (“Ocado faces storm over boss’s £100m pay package”). The Mail on Sunday also had a big article about the embattled THG and its plans for a huge, automated distribution warehouse in Manchester (“Inside The Hut’s giant robot warehouse at centre of boss’s £14bn expansion blueprint”), noting the view of one City critic that it would need “a Black Friday every day” to
• 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 “£450bn and counting – the cost in debt of the pandemic”. We also liked the columns by the veteran City commentator Jeremy Warner in the Sunday Telegraph (headlined “Britain’s sluggish economy falls victim to night of the living dead”, he noted that “If interest rates were to ever to return to pre-financial crisis levels half of corporate Britain would be in trouble”) and by the veteran Economics commentator William Keegan in the Observer (“France has rejected the far right. So can Brexit Britain”).
• Bank Holiday Monday Press and News (1): Many of the front pages featured stories about getting treatment on the NHS: the Times reported that the number of people being referred for cancer checks hit a record 2.7m in the last year, whilst the Guardian led with a story that up to 4m people are being left with little to no access to NHS dental care as practices around England shut down or go private. The Daily Telegraph said the PM has asked officials to put together proposals to allow housing association tenants to buy their home at a discount, whilst the FT flagged that Chinese ministers have asked banks to consider how the country could protect foreign-held assets in the event of sanctions being implemented by the US.
• Bank Holiday Monday Press and News (2): The Telegraph reported that up to 8 companies (including ASOS, JD and Frasers) are in talks to buy the embattled Online fashion retailer Missguided. The Telegraph also picked up on the Ocado shareholder revolt at the AGM and on comments by the Retail veteran Stuart Rose, now the Chairman of Asda, that the regulators have been too slow to react to the surge in price inflation. The Times highlighted that a sale of EG Garages could free up funds for the Issa brothers to bid for Boots (“Petrol deal primes pumps for Boots bid”). And the Guardian had a profile of Michael Murray, to mark his elevation to be CEO of Frasers (“”A mini Mike”: Ashley legacy looms large as new boss takes charge at Frasers”).
• Today’s News: The main news today is the Card Factory finals and although the recent news of a successful refinancing (without the need to raise new equity) has been the key revelation, it’s still good to hear that the business bounced back in y/e Jan: revenue was up 28% to £364m and PBT of £11.1m was ahead of management’s expectations. Despite the inflationary headwinds, the Board’s expectations for revenue and profit for FY23 remain unchanged and CEO Darcy Willson-Rymer remains excited by “our transition from a store-led card retailer into a market leading, omnichannel retailer of cards and gifts”. On a less happy note, Frasers continued with its run of late afternoon announcements on Friday, flagging at 4pm that the complete full-year results for y/e April would be delayed from July to September, because of audit complexities over the Studio Retail acquisition in February…
• BDO High Street Sales Tracker: Although we should make our normal caveat (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), 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. For what it’s worth, however, the latest survey still shows good momentum, despite the slump in consumer confidence. In the w/e April 24th Total BDO LFL sales (including some Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by c14% on the year before, whilst Fashion sales alone were up by c22% LFL (with Store Fashion sales up by c30%).
• This Week’s News: After the Bank Holiday yesterday, as we move on into May, tomorrow brings the much-awaited Boohoo finals, as well as the latest Nielsen monthly grocery market share figures and the Ocado AGM, whilst the Next Q1 update is on Thursday (along with the Zalando Q1 in Germany and the MPC interest rate decision).