Langton Capital – 2022-06-06 – PREMIUM – Trading, food prices, general inflation, flight disruption, Goals & other:
Trading, food prices, general inflation, flight disruption, Goals & other:
A DAY IN THE LIFE:
I bought a new Stanley Knife the other day and was interested to see that the blades weren’t set up and had to be accessed from the handle and fitted manually.
This was to guard against idiots injuring themselves, presumably but, after I unscrewed the handle and watched everything ping out and roll around the floor a bit, I realised that I was perhaps the idiot they had in mind and, to anyone watching me try to set the thing up thereafter, I quite likely looked like a walrus trying to play the violin.
While wearing boxing gloves and without a violin, in fact but, after twenty minutes or so I had got the thing set up and, after taking a bit of time to bandage up my various cuts, the knife, I am pleased to report, worked fine.
Anyway, with the wistful and diminishing thought that it would be easy to get used to these four day weekends, let’s move on to the news:
QUESTION OF THE WEEK?
Question of this week:
We’ll run this one on because it was such a short week, last week: What will happen to the delivery market now that restaurants are open again, times are getting hard and there may be some discounting?
PUBS & RESTAURANTS:
Whilst this will clearly have been overtaken by events, UK Hospitality, the British Institute of Innkeeping (BII), the British Beer and Pub Association (BBPA) and Hospitality Ulster say the extra £2bn of trade from the Platinum Jubilee weekend is almost £400m more than pubs, bars, restaurants and other hospitality venues could expect to earn during a normal Thursday to Sunday in May.
• The industry bodies remain cautious on the outlook. They say ‘there are still lots of hurdles that businesses have to clear on the way back to profitability – huge cost increases, a staffing crisis, rising Covid rent repayments and too much red tape – but these four days will do [and hopefully did do] wonders for income and for employee morale.’
• They continue ‘it’s also a wonderful, celebratory moment for millions of people who’ve been denied the opportunity to socialise with friends and family for far too long, and we sense there’s a real pent up desire among the population to get out and enjoy itself.’
• This is correct but, as mentioned below, would-be consumers need to have both the desire and the ability to spend and, at some point, the spirit may be willing but the wallet is weak.
CGA’s latest Drinks Recovery Tracker shows average sales by value in Britain’s managed venues in the seven days to Saturday (28 May) were 13% behind the same week in 2019. It says ‘the figure is skewed by the absence of a Bank Holiday Monday this year. However, positively average value sales were +5% ahead of the previous week’s results, and the…double Bank Holiday ahead of the weekend should help to recover at least some of the sales that were missed last week.’
• CGA says that beer sales were down 10% on 2019, spirits sales were similarly down 10% whilst cider and wine sales were both down 19%. Soft drinks’ sales, presumably hurt by the lack of a child-friendly Bank Holiday in the week under review, were down by 20%. Last week’s numbers should be sharply better.
• Commenting on the Jubilee double Bank Holiday, CGA says ‘a lot will depend on the weather, which could make all the difference between consumers staying at home or heading out to pubs and bars.’ The weather, certainly until Sunday, was relatively good in parts and at least not bad in others.
S4Labour reports that the month of May saw hospitality sales up by 10% on 2021 levels. Given that the UK was coming out of its third lockdown around a year ago, that is perhaps not surprising. S4Labour says ’wet-led sales were up 16.5%, while dry-led sales were still up but by a smaller 4.5%.’
• S4Labour says ‘sites in London experienced high growth as sales improved by 30%; non-London based sites also saw a rise of 7% on May 2021 levels. London’s increase may be a result of restrictions in 2021 causing dampened sales, given there was limited outside space in London for hospitality sites.’ It says ‘this last month has seen the struggles of staff shortages, inflation and energy costs continue to bring challenges for the sector. Although the increase for London is positive, the figures show just how much Covid-19 affected the Capital from a sales perspective.’
UKH CEO Kate Nicholls has told The Mail on Sunday that more than 10,000 pubs and restaurants are at risk of closure due to ‘perfect storm’ of inflation and surging energy costs. She says that the hospitality sector is facing ‘as big a crisis, if not bigger’ than during pandemic. Ms Nicholls estimates that some 20,000 hospitality businesses are still operating below break-even.
• Ms Nicholls continues ‘we’re already seeing a lot of independent operators handing in the keys and walking away’ and adds ‘I’ve never seen such a toxic cocktail of costs. It is a perfect storm.’ UKH believes that inflation in the restaurant trade is running at 13 to 17 per cent because of supply-chain disruption due to Covid and the war in Ukraine, and higher wages due to staff shortages.
Tube strikes today (Monday) will do little to boost trade. Many TfL stations are likely to be closed, especially those in central and south London.
The Evening Standard quotes the BRC as it maintains that food price inflation is “likely to get worse before it gets better” over the coming months ‘as the cost of living crisis shows no sign of abating with the steepest rises in goods for a decade.’
• The FT joins in the fun, saying that a pint may set you back £8 in some London pubs. it says ‘the price of a pint in the UK has increased more than 70 per cent since the 2008 financial crash’ but it does concede that the average price of a pint in the UK is still only £3.95.
• It quotes Clive Watson, chair of City Pub Group, which operates 41 pubs in London and the south, as saying that ‘ingredient costs were up 10 per cent, “wage inflation is probably 7 per cent and electricity inflation is 100 per cent, so that blended cost price probably puts the price of a pint of beer up 12 to 13 per cent.’
The Daily Mail has reported on ‘fury as Costa Coffee increases drinks prices for second time in six months with average of rise of 14p.’ It says ‘drinks such as a flat white have increased in price from £2.95 to £3.30’ and adds ‘the price increases were introduced on June 1, worsening the cost of living crisis.’
• Costa says it is seeing ‘’unprecedented inflationary pressures resulting in increased costs’. Costa adds ‘like all retailers, Costa Coffee is facing unprecedented inflationary pressures resulting in increased costs. We know this is a challenging time for our customers as well, which is why we are absorbing costs wherever we can. Despite this we’ve had to make the difficult decision to increase the prices of our drinks.’
BrewDog CEO James Watt has commented on LinkedIn: ‘We’ve started 2022 well. Our bars are delivering record sales so far this year, and though like all our peers we are facing rising costs, we are well placed to weather this challenge in particular as our new anaerobic digester plant in Ellon comes on stream and we become fully self-sufficient in our gas requirements by using our waste to generate green gas to power our brewery’.
RedCat Pub Company has acquired two major hospitality venues on the North Norfolk Coast; The Pheasant Hotel and Blakeney Manor Hotel, bringing The Coaching Inn division to 28 pub hotels.
Chopstix has partnered with Haven Holiday Parks, bringing their Pan-Asian offering to holiday park guests with plans to roll out across the Haven estate later this year.
The Sunday Times reports that the founder of Grubhub had earlier teamed up with US private equity company General Atlantic in an attempt to buy back the company he sold to Just Eat Takeaway for $7.3 billion last year.
The BBC reports that Camden Market has been put up for sale by its owner, Teddy Sagi.
Parsley Box Group last week reported that ‘for the 5 months ending 31 May, the adjusted EBITDA loss is circa 10% better than management expectations, with losses reduced by circa 44% from the prior year.’ It said that ‘sales for the 5 months ending 31 May 2022 are circa 11% below management expectations.’
HOLIDAYS & LEISURE TRAVEL:
Ongoing flight problems:
Transport Secretary Grant Shapps has claimed that airlines and operators have ‘seriously oversold flights and holidays’ relative to their capacity to deliver. It would seem from the headlines that problems persisted throughout the half-term holiday week. Mr Shapps says he would meet with airports, airlines and ground handlers to ‘find out what’s gone wrong and how they are planning to end the current run of cancellations and delays’.
• Again, overtaken by events, but Travel Weekly reported that leading aviation sources say that UK operations are going ‘pretty well on the airport side’ ahead of the Jubilee bank holiday despite problems at some airlines. The source said that the ‘ground-handling companies are still the weakest point, and there is still an issue of passengers turning up at check-in too early.’
Finger pointing. Aviation industry leaders say the government must take its share of responsibility for the challenges facing the sector after failing to support the industry fully during the pandemic. Jet2 chief executive Steve Heapy said ‘I think government ministers need to realise that, because of the pandemic and the actions that were taken, they’ve made the travel industry not a very attractive one to work in. It was the first industry to go into lockdown and the last industry to come out.’
As the half term holiday period drew to a close, airlines including Easyjet and Wizz Air were cancelling more flights. Easyjet cut 80 flights on Sunday. It said ‘we are very sorry and fully understand the disruption this will have caused for our customers. We are doing all possible to fly them as soon as possible to their destination.’
An Ipsos survey has revealed that 63% of Brits said they had no plans to travel outside of Europe in 2022, while nearly half (47%) said the same for travelling within the continent. Almost half (49%) of Brits cited financial concerns as the main reason for not wanting to travel, while around one in seven said airport and port delays were putting them off.
• The survey found that since the turn of 2022, under one in five (17%) people surveyed have been on holiday to Europe, while 39% have gone somewhere in the UK where they stayed at least one night while a quarter have been on a ‘staycation’ (26%).
HotStats reports on global hotel performance saying that it remained widely steady, if not getting better, in April, with increases in both the top and bottom line despite the inflationary macro environment. In the US, April gross operating performance per available room (GOPPAR) hit $96.08, which was 92% back to where it was pre-pandemic. Europe is seeing a continual performance rise in its metrics, with GOPPAR up to €40 in the month, around €11 off its pre-pandemic number.
Carnival Corporation president Arnold Donald told Travel Weekly that next year could surpass 2019 in terms of booking volumes and pricing, leading to a potentially record-breaking year for the cruise industry. Donald said ‘We’ve now seen record booking days for Carnival and Cunard in the UK’.
The Marriott hotel chain has announced it will cease operations in Russia after 25 years of activity in the country.
Sky reports that Goals Soccer Centres, one of Britain’s biggest operators of 5-a-side football pitches, is to be sold to its management team. It says that Inflexion Private Equity, which bought the business in 2019, has struck a deal to offload the company that could be announced within days.
Tesla shares were weak on Friday after CEO Elon Musk said that he had a ‘super-bad feeling’ about global growth prospects. He has said that he will need to cut 10 per cent of jobs at the electric car-maker.
Gfinity has announced that it has extended its relationship with Formula 1 for a further yea. CEO John Clarke says ‘the F1 Esports Series presented by Aramco is one of the most exciting esports tournaments in the world. We are delighted to continue to work with Formula 1 to deliver an expanded 2022 programme.’
COO Sheryl Sandberg has announced, on Facebook, of course, that she is to leave the company after 14 years.
FINANCE & MARKETS:
The S&P Markit PMI for UK Manufacturing in May has reported that growth eased in the month from 55.8 (in April) to 54.6. The result is the same as the Flash Estimate last month. The sector remains in growth but this is the lowest figure since last October.
• New orders were weaker. Inflation remained substantial – but was below April’s figure. S&P says ‘the rate of expansion in UK manufacturing output eased to a seven-month low in May as companies face a barrage of headwinds. Factories are reporting a slowdown in domestic demand, falling exports, shortages of inputs and staff, rising cost pressures and heightened concern about the outlook given geopolitical uncertainties.’
• S&P says ‘the consumer goods sector was especially hard hit, as household demand slumped in response to the ongoing cost of living crisis. With both input costs and selling prices rising at rates close to April’s peaks, the surveys suggest that there is no sign of the inflationary surge abating any time soon.’
• S&P adds ‘forward-looking indicators from the survey suggest that a further slowdown may be in the offing. Business optimism dipped to a 17-month low and weaker demand growth led to surplus production, meaning warehouse stock levels are rising. Any reversal of this stock-building trend could reinforce the drag of other headwinds and add to downside risks to the outlook.’
The Institute of Directors has reported that directors’ economic confidence has been ‘hit by inflation and Brexit’. It says ‘business leaders are growing more anxious about the economic outlook, as they grapple with rising costs and the UK’s new trading relationship with the EU.’ The measure fell to minus 45 in May from minus 36 in April. This is the lowest reading since October 2020.
• The IoD members quote inflation (at 41%) followed by Brexit-related trade problems (at 20%) as major concerns. It says ‘disappointment in the performance of the UK macroeconomy, in particular around inflation but also in the everyday impact of Brexit, is affecting the very real investment decisions of business leaders.’
• The IoD says ‘we can now see a clear connection between the slide in the confidence that directors have in the UK macroeconomy and a trend of increasing caution around investment.’ It adds that ‘inflation expectations are worsening, with only 28% now expecting inflation to be near the Bank of England’s 2% target before the end of 2023 (down from 33% in April).’
The Nationwide house price index for May showed that house price inflation slipped from 14.3% in March and 12.1% in April to 11.2% in May.
• This is still above the CPI but further falls are likely. The Nationwide says ‘household finances are likely to remain under pressure with inflation set to reach double digits in the coming quarters if global energy prices remain high.’ It adds ‘we continue to expect the housing market to slow as the year progresses,.’
The Telegraph quotes some property agents as saying that price reductions across the housing market are becoming more common. It headlines ‘property sellers slash asking prices by a fifth as market slows.’
The US Labour Department announced on Friday that US employers added more new jobs than expected in May. No changes to forecasts but analysts believe that this makes further interest rate rises all but certain.
Sterling weaker since last reported (on Wednesday 1 June) at $1.2495 and €1.1648. Oil higher at $120.42. UK10yr gilt yield up 3bps at 2.15%. World markets lower on Friday but London set to open around 53pts higher as at 6.30am.
Back to work for a full week but, with companies not apparently keen to report so soon after the double-Bank-Holiday, there’s not a great deal going on. City Pub Group is holding its AGM on Wednesday and Fuller’s full year numbers will be reported on Thursday.
RETAIL WITH NICK BUBB:
• Bank Holiday Press: The front pages of the papers on Thursday and Friday were full of Platinum Jubilee/Royal Family stuff, but on Thursday the well-received Dr Martens finals got plenty of coverage on the Business pages, given the c20% jump in the share price: the Business editorial in the Times noted that the 36% Permira shareholding overhang is a negative for Dr Martens, but said that the results were “a big step in the right direction” and the Tempus investment column in the Times said that the shares are undervalued and a “Buy”. The news that Frasers has picked up the bankrupt Missguided Online fashion business for £20m cash from the administrator also got plenty of coverage on Thursday, with the Times flagging that rival Boohoo apparently balked at the price and the Guardian highlighting that some Missguided customers have been denied refunds on unfulfilled orders. The Business
• Saturday’s Press and News: The front-page headlines on Saturday were again devoted to Platinum Jubilee/Royal Family stuff, although the Guardian noted that the PM and his wife were booed by the crowd when they arrived at St Paul’s Cathedral for the service on Friday. The FT had an interesting front page story on a different tack: “Capital’s drinkers face sobering reality as cost of a London pint climbs to £8”. In terms of Retail stories, there was little to report, but the Times flagged that Amazon’s Global Retail boss, Dave Clark, has announced his resignation, “to start a new journey”.
• Sunday’s Press and News (1): On Sunday, the front pages were dominated by the star-studded tribute concert for the Platinum Jubilee and most of the papers had photos of the surprise appearance of the Queen having tea with Paddington Bear in a special clip to open the concert. The Observer opted not to focus on the concert, instead reflecting on the “celebrations and poignant symbols” of the Jubilee long weekend’s “carnival of memory” as a whole. The Observer also flagged on its front page that “We’re the true party of patriotism, says Labour”, whilst the Sunday Times: also highlighted the results of an opinion poll in Wakefield: “Tories face crushing by-election defeat as voters spurn Johnson over “lies””.
• Sunday’s Press and News (2): On Sunday, in terms of Retail news, the Sunday Times flagged that “two of Britain’s biggest fashion retailers are poised to appoint new CEO’s “, with ASOS said to be lining up their CCO Ramos Calamonte to take over from Nick Beighton and New Look boss Nigel Oddy preparing to step down. The Sunday Times also noted that short sellers have piled into JD Sports after the sacking of Peter Cowgill. The Mail on Sunday highlighted that THG shareholders are being advised to vote against the re-election of non-exec Iain McDonald at Friday’s THG AGM, given the conflict of interest caused by the fact that he is also the head of the potential bidder Belerion Capital. The Prufrock gossip column in the Sunday Times also picked up on the Iain McDonald controversy at THG and it also flagged that Frasers have (at last) appointed a “grown up” PR adviser, in the form of
• 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 “Northern lights have dimmed as the South powers ahead”, in which he concluded that the omens are not good for reversing decades of rising regional inequality. We also liked the columns by the acting Business Editor of the Sunday Times, Jim Armitage (“Sterling is in crisis and there’s no sugar-coating the reason why”) and by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“No, sterling is not yet the basket case Bank of America imagines”).
• Today’s Press: According to the invaluable Guardian morning mail briefing, the front page of today’s Guardian leads with the headline “Johnson allies accept vote of no confidence in PM is close”, alongside a picture of the Queen as the Jubilee weekend came to a close. The i also rated politics above the pageantry with its splash reading “Vote on Johnson future turning toxic for Tories”. The Times’ lead story is “Queen’s balcony message: this is the future of our monarchy” and the Sun has “Thank you, ma’am” as its main headline. The Daily Mirror’s front page is “My heart is with you all”, while the Daily Mail and Daily Express have the same headline leading their coverage of the Jubilee: “My heart has been with you all”. The FT’s lead is “IPO values plummet 90% in Europe and US as inflation and war take toll”.
• Today’s News: After the long Jubilee weekend, there is no company news of any great note, although Boohoo has said that it will issue a trading update on Thursday next week and the embattled Online bedding business Eve Sleep has put itself up for sale, after warning that “the Board does not now expect to meet its previous revenue expectations for the current year, with additional promotional activity also having an impact on gross margins”.
• BDO High Street Sales Tracker: Although we should make our usual caveats (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), the latest survey, for what it’s worth, continues to show surprisingly good momentum, despite the much-publicised slump in consumer confidence. In the w/e May 29th Total BDO LFL sales (including some Homewares and Lifestyle retailers, as well as the Fashion retailers) were up by 14.3% on the year before (with Store sales up by c20% and Online sales up by c2%), whilst Fashion sales alone were up by c19% LFL.
• This Week’s News: We get the BRC-KPMG Retail Sales survey for May first thing tomorrow morning and we would expect a slightly better overall outcome than in April, given the pick-up in Food sales. We then get the Marks Electricals finals on Wednesday, the Signet Q1 results on Thursday (in the US) and the THG AGM on Friday.