BOWL, JDW, energy, confidence, closures, coffee, wage costs & other:

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A DAY IN THE LIFE:

Everything is relative and, as the late Hans Rosling said, you should never look at a number (or a bald statement of fact) without putting it into context.

For example, when a billionaire says they’re having a bad week, they’re still likely four, five or maybe six zeroes ahead of the rest of us.

And when Hull City is having a ‘good month’ it might mean they’ve won one and lost one in October. 

Which is good in the context of an early-starting relegation battle but, when the magpies on our lawn are caught raking through the dog poo and say they are ‘looking for the nice bits’, it’s hard to frame the subject such that any relative outcome to that particular endeavour could be termed ‘nice’ in any absolute sense.

But anyway, live and let live. They think we’re idiots for not getting involved but here’s to a relatively ‘good’ week and on to the news:

JD WETHERSPOON – ANALYSTS’ MEETING:

JD Wetherspoon on Friday held an analysts’ meeting for its full year numbers and our comments thereon are set out below:

Headline numbers:

• In the first 9 weeks of the current year, sales are up 10.1% vs last year, up 1.5% vs August/September 2019 (FY20), and up 7.7% against August/September 2018 (FY19).

• This shows the trend of improvement is continuing, from being -0.6% vs FY19 for Q4.

• Sales mix for the year was 36% Food and 60% Bar, with mix continuing to grow towards Food in trading in the new year.

Outlook & comments:

• Utilities have been hedged to September 2023. If JDW had to pay the current market rate it would result in having to take 10-15p of price per product.

• During the year, JWD put through a price rise of c4% in March/April.

• Going forwards, the company said it planned to take price at a bit less than the inflation rate, shielding customers slightly, and making up the difference through volumes.

• However, the company said it wanted to recover volumes to pre-pandemic levels and doesn’t want to drive footfall away with price increases.

• LfL performance is set to improve YoY as the company begins to annualise last year’s disrupted Omicron period.

• JDW said it will probably give a bit more margin guidance going forwards in response to shareholder concern over falling margins.

• The liquidity threshold for debt covenants has been relaxed form £75m to £100m.

• The company has £100m of debt coming due in August 2023, and said its intention was to repay this, rather than refinance it.

• JDW said it plans to open 10-12 new pubs a year, to take advantage of any opportunities. Management said it would need to review how many would be opening net, as future disposals are on the table. However, it did say that it expects overall pub numbers to gradually increase.

• JDW are still reflecting the demographics of the area they are in. Daytime segment that was traditionally favoured by the older pubgoers has been the most difficult. Younger customers have somewhat made up for this decline by visiting more frequently and ordering cocktails.

• JDW pubs now have a bigger geographic radius which has meant that the rationale for having multiple pubs in smaller towns changed. This will lead to disposals going forwards, following on from the 32 that are currently on the market.

• There was concern that not defending margins might create the opportunity cost of not being able to take full advantage of the current market to open sites in more profitable areas. The company said it was a constant discussion happening at the Board level.

• In the firms’ going concern ‘downside scenario’ (where LfLs are forecasted at -5%) the company would have to move to essential spend only, cutting new opening capex which is roughly half of total capex.

• JDW pointed to VAT and business rates as the main factors against the business in the current environment.

Langton comment:

• The group’s shares started this calendar year badly and things, at least from a share price point of view, have got worse.

• However, the shares are up 10% with investors taking the results positively.

• JDW’s historically low margins, its reliance on volume (often laudable) versus price and its older – and perhaps more price-sensitive and less affluent – customer base leave it with some short and medium term hurdles to overcome as austerity once again threatens to make a comeback.

• Both JDW and the sector as a whole have weathered storms in the past and the opportunity to add freeholds is a real one.

• Indeed the move to buy in pubs that the group currently leases has reduced risk.

• The company has money to spend. The assets still in place have earned £105m to £110m in PBT in the recent past and they should be capable of doing so again. There are more shares in issue, however, and the timing of the return to ‘normality’ remains somewhat uncertain.

• There are signs of activism, with strategy being somewhat questioned during the analysts’ meeting. Finding a way to adapt to the current environment and being flexible will be of critical importance going forwards.

PUBS & RESTAURANTS:

Supply issues (energy).

The MA reports that potential winter blackouts would put pubs and breweries in a position they ‘will not be able to recover from’. National Grid’s Winter Outlook report warned of potential planned blackouts in three-hour intervals across rotational locations over the coming months.

General trading.

The ONS reports that there were more than 5,600 insolvencies in Q2, the highest level since 2009. The sharp rise in energy bills was cited as the biggest problem for businesses, while difficulties paying debt, rising costs of raw materials and supply chain disruptions also took their toll.

The latest Brookings-FT consumer & business confidence tracker finds that ‘a mood of mounting economic pessimism is taking hold across the world’s major economies, as soaring prices and geopolitical uncertainty damage the prospects of businesses and consumers…’

• The FT reports ‘in the past year consumer and business confidence has fallen by the most in a decade, with the exception of the initial months of the coronavirus pandemic.’ It adds that ‘hard economic data and leading financial indicators are also falling from strong levels after Covid-19, signalling that momentum in the world economy is stalling.’

• The Brookings Institute points to ‘a series of self-inflicted wounds’ by businesses and governments. It adds the ‘growth momentum, as well as financial market and confidence indicators, have deteriorated markedly around the world in recent months.’ This should reduce upward pressure on interest rates if recession fears begin to overtake fears of runaway inflation.

The ONS on Friday updated on insolvencies in England and Wales in Q2 saying that the number had reached its highest level since Q3 2009.

Accountant BDO comments on business output and confidence saying that it fell last month as recruitment slowed. BDO says its measure fell by 2.05 points to 94.30, its lowest since February last year…

• A number of 95 or above indicates growth. Separately, the Institute of Directors has surveyed members and found that confidence has slipped with order books undre pressure.

Analytics company Altus Group has suggested that some 50 pubs a month are currently closing across England and Wales. The research shows that, in Q3, some 150 pubs were either demolished or converted to alternative uses.

The New West End Company, which speaks for some 600 businesses in the West End of London, has said that consumer spending is likely to fall for some time. The FT reports the research as suggesting that spending will be further squeezed.

CGA’s Drinks Recovery Tracker for the week to 1 October shows that on-premise drinks consumption was up 3% in value terms on last year and up 2% on the pre-Covid week in 2019…

• The Tracker shows beers up 11%, cider up 12% and soft drinks and wine up 7% and 5% respectively. Spirits has continued to underperform ate minus 12% on last year. Commenting on the 2% figure, CGA points out ‘with inflation now in double-digits, trading remains well short of previous years in real terms.’

• Jonathan Jones at CGA says ‘amid all the economic turmoil, it’s encouraging to see two successive weeks of growth in On Premise drinks sales.’ He says ‘despite growing pressure on their disposable incomes, consumers remain very keen to drink out in pubs and bars, and it hopefully bodes well for the run-up to the crucial Christmas trading period. However, with energy, food and property bills continuing to rise and inflation-adjusted growth so difficult to achieve, it will be a tough fourth-quarter for some businesses.’

Other news:

World Coffee Portal’s Project Café USA 2023 report claims that the number of people choosing oatmilk as their preferred beverage accompaniment has increased by nearly 7% since 2020. However, almond milk remained the more preferred accompaniment, with 28% regularly ordering it as their favoured plant-based milk alternative.

Manchester night-time economy advisor Sacha Lord has tweeted ‘without urgent intervention, Hospitality will be decimated this winter. We need an urgent Vat Reduction.’ He calls on industry operators, workers and supporters to join a demonstration in Parliament Square on 7 November.

COMPANY NEWS:

Jeremy Clarkson has been ordered to shut his restaurant down, despite previously claiming to have found a ‘cunning little loophole’ to avoid having to get planning permission…

• Clarkson had repurposed an old barn used for sheep into a restaurant selling beef (reared on the farm) in July, despite failing to achieve planning permission. The local council says ‘council officers have worked with the owner and planning agents of the business, over many months, to investigate breaches in planning control, advising on how the business can be operated in a lawful way and trying to reach a solution…The business continues to operate outside the planning permissions granted and advice has been ignored. The activity has also had a significant impact on the local community.’

PizzaExpress reports a group loss after tax of £48.9m for the 52 weeks to 2 January 2022, down from a loss of £285m the year prior…

• Revenue was up to £322.9m from £237.9m last year, with £279.6m coming from its UK & Ireland operations. Adjusted operating profit was £49.7m, up from a loss of £17m. The company says ‘despite the further Covid-19 restrictions in 2021, we were able to focus on executing our customer focused strategy covering accelerated like-for-like growth, rapid digital transformation, market share growth, improved unit economics, capital efficient growth across licensed businesses and a performance focused culture.’

Brown-Forman has reached an agreement to purchase Diplomático Rum from Spanish company Destillers United Group S.L. for an undisclosed sum. The deal for the Venezuelan brand also involves the acquisition of a production facility in Panama.

JD Wetherspoon shares were strong on Friday as the company reported sales up. Tim Martin says sales were “encouraging but not shooting the lights out.” He says customers have been slow to return.

Jollibee reports an operating loss of £3.7m for the year ended 31 December 2021 from its 12-strong UK estate. Revenue increased to £11m from £3.9m in 2020, with the company saying it suffered ‘substantial interruption’ to its trading operations during the year as a result of Covid lockdowns.

HOLIDAYS & LEISURE TRAVEL:

USA becomes expensive as a destination market: USAirtours CEO Guy Novik has said ‘The exchange rate, combined with cost-of-living increases and increased interest rates, will reduce the size of the market. We anticipate the overall fall in the US market to be around 20% on 2019.’

Whitbread will invest £15m in raising the pay of over 30,000 staff amid the rising cost of living, with hourly-paid staff in its hotels, restaurants and guest support team seeing their minimum rate of pay increase by over 4%…

• A number of high-profile hospitality companies have raised wages this year amid a shortage of staff. Whitbread says ‘as a business, we have seen a strong recovery in the first half as people return to overnight leisure and business trips and we’re hot off the heels of another very busy summer where our hotel and restaurant teams have continued to deliver the outstanding guest service for which they are famous.’

• Other operators and the wider hospitality industry in general may see this as a further beggar-thy-neighbour (though entirely understandable) move to poach, secure or retain staff. Wages are unlikely to fall whilst the competition for staff remains so intense. Whitbread says ‘it remains key to ensure our pay rates remain competitive and that Whitbread remains the first port of call for new talent looking for year-round jobs in hospitality.’ That remains both the point and the problem.

The rail industry told passengers to avoid travelling by train unless absolutely necessary last Saturday due to expected widespread disruption from strikes. Only a fifth of trains are set to run on Saturday, with services starting late and finishing early.

EasyJet holidays has increased capacity for next summer by a reported 75%. Paul Bixby, Commercial Director at the company, says ‘with so many people getting back into the swing of travel this year, we know summer 2023 is going to be a huge one.’ This speaks to the desire to travel rather than the financial ability. Bixby says ‘so, we’ve made the most of our airline’s recently launched flying schedule, to offer thousands more holidays.’

OTHER LEISURE:

Hollywood Bowl updates this morning on trading for its full year to 30 September 2022 saying that it has turned in an ‘excellent operational and financial performance.’ The co says that it ‘has continued its excellent momentum following a record first half with another period of strong trading and further growth.’

• BOWL says that it has seen ‘total revenue growth of 42.3 per cent compared to FY19 with total Group revenue of £184.9m for FY22.’ It says that it ‘expects to report EBITDA4 growth (pre IFRS-16) in excess of 40 per cent compared to FY19 (£38.2m), ahead of market expectations.’ Bowl says that it has undertaken 10 refurbishments and rebrands in the year and adds that three new centres opened and are ‘trading well’. The co had net cash at year end of £56m alongside an undrawn £25m revolving credit facility.

• CEO Stephen Burns says ‘although our customers are undoubtedly facing a number of challenges, I firmly believe that our great value for money offer will remain very attractive to families looking for high quality, affordable leisure experiences to enjoy together. We continue to invest in our customer experience and delivering the excellent value for money for which we are known.’

• Mr Burns concludes ‘looking ahead, we see a significant opportunity to grow our business to more than 110 centres across our three experiential leisure brands: Hollywood Bowl and Puttstars in the UK and Splitsville in Canada. Our strong balance sheet and cash generative business model, combined with our resilience to inflationary pressures will allow us to capitalise on this organic and international growth potential and continue to create value for all our stakeholders.’

The Rugby Union has reportedly confirmed that Worcester has been relegated from the Gallagher Premiership and suspended from the Premiership Rugby Cup for the rest of the 2022-23 season following its collapse into partial liquidation.

FINANCE & MARKETS:

The Halifax on Friday reported that the UK housing market was showing signs of slowing down. It said higher interest rates would exert “significant downward pressure” on prices in the near future…

• The Halifax says ‘while stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead.’

• This matters because the wealth effect can work in reverse. If consumer believe that they are losing money on their houses, they could cut back on day-to-day spending. This may not make perfect sense as the one move could be in the tens of thousands and the other in the tens of pounds. However, declining house prices may still retain the power to kill any party mood.

Oxford Economics opines that UK house prices are overvalued by about 30 per cent. The Times quotes it as suggesting that ‘affordability has fallen over the past few weeks as underlying funding costs for lenders have risen’. See comments above.

The Economist comments on Kwasi Kwarteng and PM Liz Truss’s mini-Budget saying it is a masterclass in how not to run a country. It’s a view.

Ratings agency Moody’s has said that the UK could lose its reputation for financial stability. It says the latest mini-Budget was “ideologically” driven…

• Moody’s says ‘given the financial turmoil and testing of the UK’s credibility, it is not a great look if you revise the fiscal rules to meet your own targets.’ It adds ‘credibility is very easy to lose and it can be hard to win it back. The government can introduce credible targets without moving the goalposts.’

The Guardian suggests that ‘Kwasi Kwarteng has been handed independent forecasts on the state of the UK finances that are expected to show a hole of more than £60bn left by his sweeping tax cuts and a sharply slowing growth outlook.’

• Just why the PM and chancellor would structure a budget around such numbers remains a mystery. The fact that they did certainly spooked the worlds multi-trillion dollar currency and bond markets. The Bank of England (read ‘the tax payer’) reportedly spent around £65bn trying to stop market moves against Sterling and moves in the bond markets that would see interest rates move higher. This worked for a while but both UK bond and Sterling markets have recently slipped once again into reverse.

• The Guardian quotes a former member of the OBR as saying the shortfall will be ‘in the order of £60bn to £70bn relative to its previous forecasts.’ He says the only way(s) to remedy this would be further U-turns, huge budget cuts or the do-nothing default of letting government debt levels (and therefore interest rates and mortgage rates) rise further.

US jobs growth in September slowed to 263,000, the lowest number since April 2021.

Sterling weaker again at $1.1069 and €1.137. Oil price higher at $97.08. UK 10yr gilt yield up another 6bps since Friday to 4.26%. World markets weaker on Friday & London set to open down around 34pts as at 6.30am.

RETAIL WITH NICK BUBB:

• Nick is taking a well-earned break. Back on 19 Oct.