Marston’s, Campari, Starbucks, footfall, trading & other:

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A DAY IN THE LIFE:

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

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

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

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

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MARSTON’S – Q3 TRADING UPDATE:

Marston’s has today updated on trading and our comments thereon are set out below:

Trading as restrictions eased in April & May:

• Marston’s has reported that it saw a significant improvement in trading when customers were allowed to eat & drink indoors on 17 May and trading has picked up once again since 19 July

• When trading was allowed outdoor only, Marston’s was achieving around 77% of sales seen pre-Covid. This split as to 89% wet and 59% for food. At this time, Marston’s opened around 70% of its units

• Trading was allowed indoors from 17 May. Marston’s at this time opened all of its pubs & reports that, from 17 May to 24 July, sales were 92% of pre-Covid levels (with wet sales at 93% and food at 90%). Numbers are for managed & franchised units

• Food has been the relative winner recently but, for the entire period that units have been open, sales are running at 88% of 2019 with drink at 92% and food at 82%

• The company points out that carvery sales, where customers typically queue up to be served, has been impacted more than other food sales, with revenues running at c73% of normal. The drop here has been worth around minus 2pps on LfL sales.

• The Euros were a modest positive. The were useful at the margin. The result would have been better if vertical drinking and bar service had been allowed at the time

Trading since ‘Freedom Day’:

• This is too short a period to draw conclusions, but Marston’s has seen a further slight improvement over the last week. The week, we believe, started slowly but picked up towards the weekend

• The company says ‘in the first week of trading since restrictions were lifted on 19 July, we have seen a modest uplift in sales. Whilst this is clearly encouraging, it is too early to extrapolate any meaningful trends at this stage.’

• Accommodation, a relatively small part of the business, is in strong, double-digit growth.

• Brains, were Welsh pubs are still restricted to a greater extent than those in England, is trading broadly in line with units in England

• The pingdemic is an irritant. Marston’s has had some units closed but, in line with other operators, the impact of self-isolating staff may be easing

Overall:

• The group is ‘encouraged’ by recent trading but remains cautious in its medium term outlook. Regulations could change, Covid passports may be introduced, the supply chain is under pressure, etc.

• This is a Q3 update. There is no conference call, discussion of balance sheet issues, margins, profit targets or the like

• The company says ‘over 90% of Marston’s pubs have outside trading areas and the additional investment we made in our ‘Inside Out’ plans to enhance our external trading areas in Autumn 2020 has positively impacted trade since reopening in April.’

• It says ‘looking ahead, these investments should also enable us to benefit from increased outdoor trading in early Spring and late Autumn.’

Company comment:

• CEO Ralph Findlay says ‘the last 16 months have been extremely difficult, but we are delighted to be fully open again albeit taking our responsibilities seriously whist striving to offer our guests a genuine but safe pub experience.’

• Mr Findlay says ‘there are challenges ahead as the sector starts out on the road to recovery with the immediate short term continuing to be uncertain and operationally disrupted. The tone of Government messaging will be an important influence on consumer confidence. At present, the message is one of caution.’

• The company says ‘we believe that a Government review of the business rates system is long overdue and that VAT reduction should be permanent since the hospitality industry remains one of the most heavily taxed sectors. This would assist an industry that has been hit hard and aid hospitality’s employment and development of young workers which will be a key part of the UK’s economic recovery.’

• Marston’s concludes ‘despite these challenges the role that the pub plays in the social fabric and culture of Britain as demonstrated by the pent-up demand and the rapid return of customers, is needed as never before, and therefore we are confident in our future.’

Langton Comment:

• Marston’s comments should reassure observers that trading has improved as restrictions have eased. Food is coming back and the pingdemic is manageable – although some people, we perceive, may not be going out for fear of being pinged ahead of holidays.

• The company is unable to give much guidance, which is understandable as trends are hard to discern and regulations could be changed at short notice.

• Nonetheless, with its predominantly freehold estate of pubs, Marston’s is trading profitably at these sorts of levels (and it would do so much below here), which is not something that can be said for all operators.

• The company says ‘we achieved break even from a cash flow and earnings perspective in April, and as a consequence of the easing of restrictions we generated positive earnings and cash flow in both May and June despite operating at around 70% capacity for those months.’

• As mentioned previously, forecasting is not yet possible but, looking longer term, pandemics are rare, hostelries have been popular for centuries, Marston’s debt is reduced, and it has a well-financed, largely-freehold estate.

• The company could make accretive acquisitions. It is in a good position to do so, the hospitality industry is likely to see supply reduce going forward and Marston’s is well-positioned to prosper.

PUBS & RESTAURANTS:

Trading, Covid passports:

• S4labour reports that total sales in hospitality dropped by 4.9% last week, with food sales down 3.3% and drink sales lagging by 12.6%. In London, total sales were down by 18.6%, with drink sales down 23.4% and a drop in food sales by 10.2%. Non-London sales figures showed a decrease in drink sales by 9.6%, but an increase in food sales by 5.4%.

• Presence data from Wireless Social shows that footfall in the UK reached 80% of pre-covid levels last week, with bars experiencing the biggest uplift across the country. Julian Ross, CEO and Founder of Wireless Social, said ‘Now that we are seeing consumer confidence levels continue to rise and with the opening up for late night venues, we’re hoping to see footfall not just increase, but start to climb back up to pre-COVID levels.’ 

• Punch Taverns founder Hugh Osmond wrote to health secretary Sajid Javid, warning of legal action if the Government does go ahead with Covid-status certification in nightclubs and event venues. The letter was supported by Night-Time Industries Association (NTIA) chief executive Michael Kill, Rekom UK chief executive Peter Marks alongside Jamhouse CEO.

• Colliers data shows that rent collection levels amongst leisure operators rose from 20% on the June quarter day to 41% in the 21 days following.  Ross Kirton, head of UK Leisure Agency at Colliers, said ‘While many are still uncertain about how to tackle rental debt accumulated over the last year, the willingness to pay while still operating at a reduced capacity provides proof that the leisure sector as a whole is more resilient than many give it credit for.’ 

Distribution, labour & inflation:

• Tesco is reportedly offering lorry drivers a £1,000 joining bonus. Although sensible (and perhaps unavoidable) at the micro-level, this is ‘beggar-thy-neighbour’ in action and could see transport costs rise. Indeed, it is hard to see how this will not be the result of such actions.

• Further comment: The Road Haulage Association says that it is becoming “increasingly competitive” to recruit a “a diminishing number of HGV drivers”. It says that this has driven up wages. This may be temporary but the RHA’s Rod McKenzie says ‘we are not seeing any sign of it getting better in the short term.’ Haulage costs are hard to avoid and price rises here will feed through to much of the UK’s distribution chain. The Telegraph reports that logistics company Wincanton believes that ‘Christmas shopping risks being ruined by a shortage of lorry drivers caused by Covid restrictions and the migration of foreign staff.’

• Sky reports that stocks in shops are ‘at a record low and expected to fall further still’ due to pingdemic problems with distribution. The CBI says retail, wholesale and motor trades sectors all reported relative stocks as too low, reports Sky. It says things could get worse in August.

• Further comment: We hear that the pingdemic is abating somewhat. Transmission rates may have been reduced and, with kids not at school, there is less testing going on. Some employers are asking staff who have been pinged to take a test and come in if it is negative. Other staff members are turning off their Bluetooth or are deleting that app or disabling its tracking function. This is likely to become more prevalent if, as reported under Holidays below, some insurance companies refuse to pay out to holidaymakers forced to cancel holidays due to a member of the party having been pinged.

• Sky reports that PM Boris Johnson is to hold talks with some of Britain’s leading business figures this week to discuss the pingdemic and the confusing raft of exceptions to the basic quarantine advice that seem to be creeping in. The Build Back Better Council will meet tomorrow.

• Ian Keilty, COO at Wincanton, said that both Black Friday and Christmas shopping could be hampered by the shortfall of lorry drivers. Currently, there is a shortfall of around 60,000 HGV drivers as a result of both Brexit and the coronavirus pandemic.

Company & other news:

• Starbucks has reported record Q3 numbers saying that revenues rose by 78% on the same quarter in 2020 to $7.5bn. The co says that Q3 Comparable Store Sales were up by 73% Globally with the U.S. up 83%. This is up 10% on a two year basis. CEO Kevin Johnson says ‘Starbucks delivered record performance in the third quarter, demonstrating powerful momentum beyond recovery. Our ability to move with speed and agility and to be out in front of shifting customer behaviours has helped further differentiate Starbucks, positioning us well for this moment.’

• Further comment: The company CEO says ‘as the Great Human Reconnection continues to unfold, our partners are rising to the occasion, ready to meet our customers wherever they need us to be – with the right store, in the right place, at the right time. Given the strength of our diverse portfolio and the elevated Starbucks Experience, as evidenced in our Q3 record results, we are raising our full-year financial outlook and are confident in our ability to continue to execute our ‘Growth at Scale’ agenda to unlock the full potential of the Starbucks brand.’

• The company says that there was a 75% increase in comparable transactions, partially offset by a 1% decrease in average ticket. This is somewhat the reverse of the experience reported by a number of restaurants. The co says ‘Americas comparable store sales increased 84%, driven by an 82% increase in comparable transactions and a 1% increase in average ticket; U.S. comparable store sales increased 83%, driven by an 80% increase in comparable transactions and a 1% increase in average ticket.’

• Internationally, the co says ‘comparable store sales increased 41%, driven by a 55% increase in comparable transactions, partially offset by a 9% decline in average ticket; China comparable store sales increased 19%, driven by a 30% increase in transactions, partially offset by a 9% decline in average ticket; International and China comparable store sales include adverse impacts of approximately 5% and 6%, respectively, from lapping prior-year value-added tax exemptions in China.’ For the full year, the company now expects to report comp sales growth of ‘20% to 21% (previously 18% to 23%).’

• LVMH Moët Hennessy reports 44% growth YoY in its wine and spirits division to €2,705m. Volume growth across its Champagne brands rose by 10% YoY, driven by momentum in Europe and the US. The company saw a strong rebound in China while demand in the United States remained stable. Total revenue rose 56% over the first half of 2021 to €28.66bn.

• Campari has beaten H1 expectations with a 37% rise in sales taking the total to 1 billion euros, up 22% from the pre-pandemic H1 in 2019. The company says ‘whilst uncertainty linked to the spread of COVID variants and the possible re-introduction of new restrictive measures persists, we remain confident about the continued strong brand momentum, fuelled by sustained marketing investments, accelerating in aperitifs peak season.’ The group’s shares rose by around 5% on the news.

• Stockport based brewer and pub co Robinsons  revealed it paid more in tax to the Government in 2020 than it received in pandemic support. The group received a total of £5.1m of support in the year and paid a total of £7.6m through taxation. Robinsons said it said had faced a challenging year with the global pandemic and national restrictions including pub closures but was now trading profitably.   

• Virgate partners with 4PointZero to give Virgate customers real-time financial and operational reports, in an easy to digest format, all accessible in one place. 

• In the US, 76% of consumers identify themselves as omnivores but 28% of consumers ate more protein from plant sources in 2020 than they did in 2019, according to statistics from the International Food Information Council.  

• UK Food and Drink Minister Victoria Prentis says red tape is to be cut on wine importation. Regarding imports, she says ‘the British wine industry has increasingly delivered fantastic wines at great value from all around the world.’

• Commenting on the new National Disability Strategy from Government, Kate Nicholls says ‘I am honoured to have been appointed as the hospitality sector’s first Disability Ambassador.’ She says ‘our sector has always striven to welcome team members and customers from all backgrounds and levels of physical or mental ability.’

HOTELS & LEISURE TRAVEL NEWS:

Traffic lights:

• The government is to review the UK’s traffic light system this week. City AM reports an official as saying ‘we’ve spoken about traveling to the US and EU and that will be a part of our review into international travel.’ The FT separately quotes one “senior airport executive” as being confident that ministers would broaden quarantine exemptions “imminently”.

Tepid demand.

• Tepid demand for overseas holidays. YouGov reports that only 9% of UK adults have booked a summer holiday abroad. This at the end of July. It says some 81% of respondents were not confident a “normal summer holiday” would be possible.

• The WTTC says that outbound travel from the UK is picking up but that the shortage of inbound visitors is slowing the country’s economic recovery. The WTTC’s 2021 Economic Impact Report suggests that international visitor to the UK spent some £35.6bn in 2019, comprising 4.9% of total exports. In 2020, this fell to £10.1 billion, or only 1.7% of total exports. The Press reports that the UK (England, at least) could open its borders next week to fully-vaccinated visitors from the EU and the US. The Times says ‘Ministers are expected to approve the plans today after Boris Johnson is said to have become concerned.’

• Patchy insurance cover for holidays cancelled because of a ping. The BBC reports ‘a host of travel insurance policies will not cover cancellation costs if holidaymakers are told to self-isolate owing to a close Covid contact.’ It quotes analysts at Defaqto as saying that nine in 10 travel insurance policies cover the cost of cancelled holidays if the policyholder tests positive for Covid – but, in the case of self-isolation, cover falls to fewer than six in 10 policies.

• The European Commission has called on EU member states to harmonise the way they handle EU digital Covid certificates (DCCs). Currently, there are 15 different ways of organising the verification process for DCCs. The Commission believes that without more standardisation, the bloc’s airports risk bottlenecks and crowding that could increase the risk of Covid infections.

Company & other news:

• TUI has extended its €4.7 billion credit facility by two years, until summer 2024. CEO Fritz Joussen says ‘we are now financed in the medium term until summer 2024. This creates stability and flexibility as long as Corona restrictions still affect the business and markets.’ He adds the company ‘is returning to the growth path. We are well positioned with our tour operators, hotel and cruise brands and we will be more efficient and digital after the Corona crisis. The banks support our strategy, our path of transformation and see Tui’s strengths after the Corona crisis.’

• Further comment. Joussen adds ‘the 2021 summer season has started well, demand for holidays and travel remains high in all of Tui’s European markets. Vaccinations continue to be the key to more freedom for all and also for travel.’ The travel press has reported that an unnamed British bank (a lender of €80 million cash and a €25 million guarantee line) will not be able to participate in the extension because of Brexit red tape.

• TUI also reports that it will resume services to Croatian resorts from 1 August and Crete from 27 July.

• Spain and Greece are being rumoured to be placed on the government’s ‘amber plus’ list with the review set to be released this week. However, it was reported that France may be taken off the ‘amber plus’ list.

• A Morgan Stanley survey predicts that on average 27% of business travel volume in 2022 will be replaced by virtual meetings. Most respondents expect virtual meetings to continue to cannibalise a significant portion of their travel volume in 2023.

• The RMT union has confirmed for four days of strikes on the Tube in August in protest over plans to abolish the Night Tube train drivers’ grade. RMT has asked all drivers not to book into work after midday for 24 hours on 3, 5, 24 and 26 August.

OTHER LEISURE:

• Newly-listed Music Magpie has reported H1 numbers to 31 May saying that sales rose by 2.3% to £72.8m with adjusted EBITDA up by 14.8% at £6.2m. CEO Steve Oliver says ‘we are seeing strong and growing demand for our unique circular economy model, as consumers continue to realise the benefits of buying and renting refurbished consumer technology products.’ He says ‘we are now seeing more people than ever before looking to recycle their old gadgets whilst freeing up cash and decluttering their lives in the process. These trends, combined with the launch of our exciting new mobile phone rental subscription service, mean that we continue to have a high degree of confidence in the future prospects of musicMagpie.’

FINANCE & MARKETS:

• Bank of England MPC member Jan Vlieghe has said that the Bank should be cautious about raising interest rates in order to combat inflation. Vlieghe says ‘we are not out of the woods yet in terms of the virus and the impact on the economy. Yes, the economy has been growing rapidly, but on the most recent data it remains an average recession away from full employment.’ He adds ‘I think it will remain appropriate to keep the current monetary stimulus in place for several quarters at least, and probably longer. And when tightening does become appropriate, I suspect not much of it will be needed, given the low level of the neutral rate.’

• Further comment: One has to take these comments at face value but, as a major and growing debtor, the Bank would benefit over the medium term from a bout of inflation. Yes, the yield on index linked bonds would rise but the real value of most gilts would not. Hence, the real value of government debt would fall. It would be convenient – from that angle at least – if the Bank kept its foot on the stimulus accelerator a shade longer than was strictly necessary. A word of caution here. inflation may be like the Press. You might seek to use it to your advantage only to quickly learn that you cannot control it.

• Despite the above, the International Monetary Fund believes Britain’s economy will grow at the joint-strongest rate in the G7 this year to hit pre-pandemic levels of activity around the end of the year. The IMF forecasts that the UK economy would grow by 7% this year.

• Further comment: Talking about the global economy, the IMF says ‘we estimate the pandemic has reduced per capita incomes in advanced economies by 2.8%, relative to pre-pandemic trends over 2020-2022, compared with an annual per capita loss of 6.3% a year for emerging market and developing economies (excluding China).’ Talking about the Delta variant of Covid, it says ‘in countries with high vaccination coverage, such as the United Kingdom and Canada, the impact would be mild; meanwhile countries lagging in vaccination, such as India and Indonesia, would suffer the most among G20 economies.’

• Zoopla has said that an acute shortage of properties coming to the market is likely to restrict sales this year. It says there was a 25pc fall in homes for sale in the first six months of this year, compared to the same period in 2020.

• Sterling stronger at $1.3867 and €1.1731. Oil up a shade at $74.79. UK 10yr gilt yield down 2bps at 0.56%. World markets lower yesterday and London set to open down around 3pts as at 7am.

RETAIL WITH NICK BUBB:

• Today’s News: Last night Apple blew away Q3 sales expectations with 36% growth, but the shares were c2% down in the US after-hours on worries about chip shortages. Today has brought the Music Magpie interims, for the six months to end May, and although the mere c4% revenue growth is not exactly stellar…gross margins were strong and management say that the business is on track to meet full-year EBITDA expectations. Today also brings the Ted Baker and Card Factory AGM’s, but there has been no news ahead of those events.

• This Week’s News: Tomorrow brings the Pets at Home Q1 update, the Dr Martens Q1 update/AGM and the B&M AGM, plus the Amazon Q2 in the US.