Langton Capital – 2020-03-20 – PREMIUM – JD Wetherspoon, Intercon Hotels, Carnival & other:
JD Wetherspoon, Intercon Hotels, Carnival & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Caught up with company announcements again this morning. On to the news:
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JD WETHERSPOON – H1 NUMBERS:
JD Wetherspoon has this morning reported H1 numbers for the 26wks to 26 January and our comments thereon are set out below:
• JDW reports revenue of £933.0m vs £889.6m last year.
• The group says that LfL sales in H1 were up by 5.0%
• Profit before tax is £57.9m (2018/19: £50.3m) and EPS is 43.3p versus 37.4p last year.
• The interim dividend has been cancelled. Last year it was 4.0p.
• After exceptional costs and post the implementation of IFRS16, the group’s PBT was £35.7m and EPS was 25.0p
More on trading:
• The group outlines the impact of IFRS 16 and says ‘PBT is lower because IFRS 16 assumes that the ‘right to occupy’ leasehold property for the term of the lease is an ‘asset’, which is approximately equivalent in value to future rental payments due – in this case estimated at £579m. It also assumed a liability in respect of future rental payments (‘lease liabilities’) of £584m.’
• This has increased the depreciation charge and a notional interest charge has had to be applied on the liability re future rental payments.
• Chairman Tim Martin says ‘as recently reported, in the six weeks to 8 March 2020, like-for-like sales increased by 3.2% and total sales by 2.9%.’
• The says ‘in the following week, to 15 March, sales declined by 4.5%. In the early part of the current week, following the Prime Minister’s advice to avoid pubs, sales have declined at a significantly higher rate.’
• The chairman says ‘it is obviously very difficult to predict, in these circumstances, how events will unfold in future weeks and months, but we now anticipate profits being below market expectations, so long as the current health scare continues. As a result of this uncertainty, it is impossible to provide realistic guidance on our performance in the remainder of the financial year.’
• Mr Martin says ‘the company has decided to delay most capital projects and to reduce expenditure, where possible, including the cancellation of the interim dividend. As a result of these actions, combined with the Government’s proposals on business rates relief and credit guarantee facilities, the company believes it has sufficient liquidity to maintain operations at a substantially lower level of sales.’
• The chairman concludes ‘the current health crisis places the hospitality industry, in particular, under great pressure.’
• He says ‘Wetherspoon, like our peers, will be working closely with all parties, including employees, banks, landlords and suppliers, in order to emerge from the situation in the best shape.’
Balance sheet, debt etc.:
• Wetherspoon says ‘during the half year, 419,741 shares (0.40% of the share capital) were repurchased by the company for cancellation, at a cost of £6.5m, an average cost per share of 1,523p (2019: £Nil).’
• It says ‘as at 26 January 2020, the company’s net debt, including bank borrowings and finance leases, but excluding derivatives, was £804.5m, an increase of £67.5m, compared with that of the previous year end (2019: £737.0m).’
• The group adds ‘the net-debt-to-EBITDA ratio was 3.54 times at the period end (28 July 2019: 3.36 times).’
• Re security of funding, JDW says ‘on 20 August 2019, the company entered into a new seven-year private placement agreement, which extends its total facilities, excluding finance leases, from £895m to £993m.’
• JDW says ‘as previously stated, it is intended that the company’s net-debt-to-EBITDA ratio will be around 3.5 times for the foreseeable future. The ratio might rise for a temporary period, if there were, for example, a sudden deterioration in trading, in which instance the company would seek to reduce the level in a timely manner.’
• The group says ‘during the period, we opened one new pub and disposed of six, bringing the number open at the period end to 874. The company is also redeveloping a number of successful pubs, usually adding extra interior customer space, a garden, staff rooms and, in some cases, hotel rooms.’
• The group says it has sold the majority of the c130 pubs that it has put on the market in recent years
• The group’s freehold mix is now c64% freehold, up from around 41% 10yrs ago
Conclusion, current trading etc.:
• Current trading, as the group says, is materially down. The group’s pubs remain open for the time being. It will be greatly impacted, one way or the other, by what the Chancellor proposes later today re wage support for workers
• PM Boris Johnson has told companies to stand by their workers and he has promised that the government will stand behind employers. This afternoon, we should get some further detail
• The group has further comment on corporate governance etc.
• JD Wetherspoon’s good H1 performance has been overtaken by events.
• There are no numbers given for current trading. Tenzo, Wireless Social, other operators, CGA and others have suggested a rapid sequential worsening in footfall this week.
• Forecasts are clearly meaningless at this stage and, in passing its H1 dividend, the company recognizes as much.
• JDW has a loyal customer base but even they will have been influenced by the government’s repeated warnings that they should stay away from pubs.
• We remain, however, firmly of the view that JDW does what it does extremely well. It’s just that, in the short term, it may have to shut its pubs and it won’t be doing very much of anything at all.
• Uncertainty remains the only certainty for the very short term and would-be shareholders may be put off by that.
• however, once the fog clears, JDW is likely to remain a good and relatively (relatively) well-financed operator that does what it does extremely well. Its shares, unsurprisingly, are now trading at levels not seen for seven or eight years.
SALES & FOOTFALL TRACKERS – WEEK TO 15 MARCH. Sales were already falling rapidly in the week before the PM advised Britons not to visit pubs. 19 March 2020:
The Coffer Peach Tracker is to be released weekly:
• LfL sales across the pubs & restaurants covered by the Tracker fell by 15% in the week to 15 March.
• Pubs outperformed restaurants. The former were down by 12%, bars were down by 14% and restaurant chains were down by 21%.
• Subsequent to this reduction, the PM Boris Johnson recommended that customers should not visit pubs and restaurants.
• CGA says ‘public concern about the virus was already taking its toll on the out-of-home market even before Boris Johnson’s intervention on Monday. We can only expect the figures to worsen this week.’
• The Tracker suggests that ‘London has been hit much harder than other parts of the country, even before the spate of closures that have followed the official advice to stay at home and avoid pubs, bars and restaurants.’
• CGA says that its latest consumer survey found that 58% of adults between 18 and 65, and who usually went out to pubs, restaurants and bars, would heed the advice and stay away.
The importance of timely data / Wireless Social:
• Going forward, CGA says ‘the weekly results will be published on its website every Friday.’ CGA is also working with UK Hospitality ‘to support lobbying efforts with the Government for further support.’
• CGA says it is vital that UKH ‘is able to make the strongest case possible to the Government, and the country at large, for sector support.’
• Wireless Social meanwhile, which has access to live data across around 800 outlets, says that footfall was down by 69% yesterday in the units that it tracks
• This is getting sequentially worse very rapidly. Sales were down by 43% on Wednesday, down 37% on Tuesday and down 33% on Monday.
• Sales were down by 28% on Sunday and 25% on Saturday.
PUBS & RESTAURANTS:
Government comment, help and advice
• PM Boris Johnson tells the trade to stand by its staff and promises that ‘we (the government) will stand by you.’ Mr Johnson says that Rishi Sunak will be making a further announcement tomorrow.
• Mr Johnson says that we ‘can turn the tide in twelve weeks.’ Let’s hope so but this does sound somewhat optimistic.
• Yesterday’s coronavirus briefing confirmed that transport would not be shut down in the capital.
• The Chancellor is to speak on job protection this afternoon. The industry will be hoping that this includes some tangible promises re help with its wage bill. March salaries are due next week as is Q2’s rent.
• UKH says ‘hospitality businesses are collapsing because they have no income and it is a daily deteriorating situation. A tide of redundancies is sweeping through the sector and every days delay sees more.’
• Comptoir yesterday updated on the crisis saying that ‘trading in January and February was in line with the board’s expectations.’ However, it goes on to say that it has recently ‘been increasingly significantly impacted by COVID-19.’ It says ‘following continual guidance provided by the UK government and the Prime Minister’s announcement this week repeating the advice to avoid unnecessary gatherings, including restaurants, the board of Comptoir has taken the decision to close its restaurants with immediate effect until further notice.’
• Comptoir says ‘it is difficult to accurately assess the extent to which COVID-19 could impact our trading and financial performance at this time, however we expect a material reduction in our financial expectations for 2020. The Company is taking all appropriate actions to reduce the impact on the Group, including a reduction in employee costs across head office and at site level and reduction in other variable costs where possible.’
• The group adds ‘as of 18 March 2020, the Company had net cash at bank of £6.0 million. The directors have always adopted a prudent approach to cash management and believe this will stand the Company in a good position as it enters this period of uncertainty.’
• The landlord of the London’s King’s Cross development is to waive rent for three months in an attempt to help tenants including a large number of bars and restaurants.
Other pub & restaurant news:
• Pizza Express is to take out a £70m loan with HPS Investment Partners. This will be used to repay its £20m revolving credit facility and £10m to Chinese private equity firm Hony Capital, both of which expire in August. Some £665m of the group’s £1.1bn of debts is owed to bondholders.
• Bill’s has said ‘it is with a heavy heart that we inform you that due to the fight against the COVID-19 pandemic and the advice from our government and the World Health Organisation, we are left with no option but to close Bill’s Restaurants as of 7pm on Thursday, 19 March until further notice.’
• The FT reports that food delivery in the UK is beginning to feel the strain.
• In the US, NRN reports ‘while dine-in traffic has certainly plummeted, thanks to social distancing recommendations and states and cities mandating restaurants to close or serve off-premise diners, it seems that quick-service restaurants offer a glimmer of hope in these dark times.’
• In-n-Out Burger in the US has closed its dining rooms. It is keeping its delivery and drive-thru businesses open.
• Hospitality Cymru welcomes measures introduced by the Welsh government to support hospitality businesses in the wake of the coronavirus outbreak.
• Wireless Social reports footfall down 69% yesterday, y-o-y, and 43% down over the last 7 days year on year.
• Dishoom has closed its eight sites – including the yet-to-open Dishoom Birmingham – will be closed. Dishoom says ‘we will doubtless have even more difficult decisions to make, but right now we’re keeping everyone close, in the hope that some government support will be offered in the next day or two, to help us to help the people in our teams.’ Dishoom says ‘we are still struggling to understand a world with no restaurants in it. The industry that we’ve proudly been a part of for the past decade will likely be permanently changed. Most of our friends and neighbours have already closed, and we hope and pray that they will make it to the other side of this severe storm.’
• Hot Dinners suggests, as a result of the coronavirus disruption, that ‘London’s food landscape will change.’ It says ‘more restaurants are shifting over to a delivery/collection model for the first time or creating brand new services.’ It says ‘barring a full lockdown, we will continue to see restaurant closures over the next few weeks. Some will be temporary for the duration of the crisis. Some won’t return. Many of the dishes you see in restaurants simply can’t be replicated for home delivery.’
• Amazon has announced it will temporarily stop selling non-essential items. It says it needs to manage a surge in orders of household staples, medical supplies and other products where demand has been boosted by the Covid-19 outbreak.
• Yesterday’s tweets: 1) You may think UK strategy stinks of Cummings, bottling out & U-turns but don’t worry, President Trump could be in charge, 2) Fifteen leisure updates in two days and more to come tomorrow. Many companies still, understandably, at a loss as to what to say, 3) Rhetoric & talk of helicopter money all well & good. But Q2 rent needs paying next week & March payroll. Where’s the cash? Cash needed, not promises, 4) Welcome to Extremis. Twinned with Needsmustville Arizona, place where the unthinkable is thinkable. Ignore employment law, default on rent, bin rates, tell the bank to get lost etc.? 5) Covid-19. Boon to Netflix, food delivery etc & less good for cinemas & restaurants – But how much, if any, of the changes will stick in any ‘new-normal’?
• Coronavirus briefing tweets. 1) PM says whole country is making a huge effort. Yes, true but the hospitality industry, told once again to hang in there, is paying a much higher price than most. 2) PM says ‘we do want to stand behind British firms. You will hear more tomorrow.’ Encouraging but the industry needs cash as well as words. Payroll needs paying next week
• Managing Director of Remarkable Pubs, Elton Mouna, states ‘I can confirm all our pubs are now temporarily closed to avoid contributing to the potential spread of COVID-19.’
• Carluccio’s will offer NHS staff a 50% discount on food and drink in its restaurants via takeaway. Mark Jones, CEO of Carluccio’s, said ‘We are all being hit hard by the current crisis, and our thoughts go out to the incredible NHS staff who are on the frontline’.
• In the US, online grocery orders are up 123% yoy between January-March. Pasta orders in particular were up 698%.
• The government has reassured people that there ‘isn’t a shortage of food’ because of the coronavirus pandemic.
• Naked Wines will not take anymore orders for the time being due to a spike in demand.
• Greggs will close all seating areas, with customer toilets and water refill stations also set to be closed.
• In the US, Darden Restaurants reports a 60% decline in same-store sales.
• Costa Coffee will refuse cash payments at all 2500 sites in the UK. Other measures include the removal of all seating areas to support government guidance on social distancing.
HOLIDAYS & LEISURE TRAVEL:
• Carnival has reported Q1 numbers saying that it made a GAAP loss of $781m. The company says ‘as of March 15, 2020, cumulative advanced bookings for the first half of 2021, are slightly lower than the prior year.’ This has obviously been worsening as time has passed.
• CCL says ‘for the seven week period beginning January 26, 2020 and ending March 15, 2020, booking volumes for the remainder of the year were meaningfully behind the prior year on a comparable basis as a result of the effects of COVID-19. As of March 15, 2020, cumulative advanced bookings for the remainder of 2020, are meaningfully lower than the prior year at prices that are considerably lower than the prior year on a comparable basis, reflecting the impact of COVID-19.’
• CCL says ‘the Corporation believes the ongoing effects of COVID-19 on its operations and global bookings will have a material negative impact on its financial results and liquidity. The Corporation also believes the effects of COVID-19 on the shipyards where its ships are under construction, will result in a delay in ship deliveries. The Corporation is taking additional actions to improve its liquidity, including capital expenditure and expense reductions, and pursuing additional financing. Given the uncertainty of the situation, the Corporation is currently unable to provide an earnings forecast, however it expects a net loss on both a U.S. GAAP and adjusted basis for the fiscal year ending November 30, 2020.’
• Intercontinental Hotels updates on trading saying ‘demand for hotels is currently at the lowest levels we’ve ever seen. IHG has a robust business model and the measures we are announcing today to reduce costs and preserve cash give us the capacity to manage the business through this unique environment and to support our owners during this incredibly difficult time.’
• IHG says its ‘Global RevPAR decreased 6% across January and February, with a broadly flat performance in the US offset by declines in Greater China, which saw an almost 90% decline in February. During March, given the measures adopted by governments around the world to restrict travel and social contact, we are anticipating Global RevPAR declines of around 60%, with steeper declines in those markets most impacted by restrictions. Cancellation activity for April and May, and current booking trends, indicate continued challenging conditions. In Greater China we now have 60 hotels closed compared to 178 at the peak, and in recent days have begun to see improvements in occupancy, albeit at low levels.’
• The group is cutting costs and says it is ‘conservatively leveraged’. The company says it has ‘significant liquidity’. The group says ‘we are taking further steps to protect our cash flow, including reducing our gross capital expenditure by ~$100m from 2019 levels and managing working capital. In addition, the Board is withdrawing its recommendation of a final dividend of 85.9¢ (~$150m) announced on 18 February 2020 and will defer consideration of further dividends until visibility has improved.’
• STR reports European hotel occupancy down 1.8% yoy to 63.6% in February, with ADR up 1.2% to €101.68 and RevPAR down 0.6% to €64.68.
• STR reports US hotel occupancy up 0.2% yoy to 62.2% in February, with ADR up 1.4% to $130.78 and RevPAR up 1.7% to $81.33.
• STR reports US hotel occupancy down 24.4% yoy to 53.0% in the week ending 14 March, with ADR down 10.7% to $120.30 and RevPAR down 32.5% to $63.74.
• Three Atol licensed companies have failed in the last week; these being Chaka Travel, WestEast Travel and Can Be Done Ltd.
• Jet2holidays will issue rebooking vouchers for cancelled holidays, so clients can make new bookings and agents retain their original commission. The group clearly does not want to hand cash back to customers. The latter are now taking a credit risk on Jet2 remaining in business, which we sincerely hope it will.
• Warner Leisure Hotels has suspended breaks until mid-April, mirroring the decision made by Butlin’s.
• Ryanair expects to ground virtually all of its flights from late next Tuesday, only keeping a very small number of flights open to maintain essential connectivity.
• Gatwick will take ‘decisive action’ to safeguard its financial resilience as its largest airline partners continue to make cuts due to falling passenger demand. Operationally, Gatwick will close to flights between midnight and 0530 and is shutting two of its six piers.
• Best Western Great Britain offers 15,000 hotel bedrooms and more than 1,000 meeting rooms to help the NHS and local authorities. The rooms are available for NHS staff, care workers, families, lower risk patients and the over 70s.
• The UK government will remain flexible over UK rail operators’ franchise agreements during the coronavirus outbreak. Transport secretary Grant Shapps said he will be meeting with rail bosses to determine how to ‘sustain’ services without the need for operating ‘ghost trains’.
• Staff moves in tour operating and travel. Non-retail staff at TUI are being asked to take a 50% wage cut. Kuoni parent Der Touristik UK is asking staff to take pay cuts, unpaid leave and voluntary redundancy. Hays Travel says its staff will work every other week.
• Train services in the UK are to be more than halved.
• The Telegraph reports that Cineworld has begun laying off staff after closing all of its cinemas.
• The FT reports gambling companies are stepping up their online businesses.
FINANCE & ECONOMICS:
• The Bank of England has said ‘the spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary.’
• It has cut interest rates from 0.25% to an all-time low of 0.10%.
START THE DAY WITH A SONG:
Yesterday’s song was Happy Hour by Housemartins. Today, who sang:
“Hanging on the wire, yeah
I’m waiting for the change
I’m dancing through the fire
Just to catch a flame
An’ feel real again”
RETAIL WITH NICK BUBB:
• Today’s Market: The FTSE 100 index is expected to rally further this morning (according to the Proactive private investor website), after Wall Street ended the day 1% higher after another monetary support barrage from the Fed. After the Bank of England trimmed interest rates to just 0.1% and launched another big QE package, the spread-betting firms expect the FTSE 100 to open c130 points up at around the 5285 mark, depending on the response to today’s gloomy corporate news, ahead of the expected Government income support package today…
• Today’s Retail News
• : As well as the delayed ScS results, there have been unscheduled updates from M&S, Frasers and Travis Perkins this morning on the impact of COVID-19 (aka the coronavirus or what the pub chain JD Wetherspoon merely calls “the current health scare”). Frasers has withdrawn its previous profit guidance for y/e April, given the significant disruption being experienced, but has provided no details or commented on its continuing share buyback. The M&S update is a lot more detailed and although there are no figures it has warned that its trading in Clothing and Home is very depressed and y/e PBT will come in at the bottom of the range, although Food trading has been resilient. Travis Perkins has said that recent trading has not been impacted, but it has warned that it expects to be disrupted and has suspended its final divided and halted the Wickes DIY demerger process.
• BDO High Street Sales Tracker: We highlighted on Wednesday that last week’s John Lewis sales figures will have been helped by strong Electricals sales, but the BDO High Street Sales Tracker for medium-sized Non-Food chains does not include any significant Electricals retailers and, with weak High Street footfall getting even weaker as a result of the coronavirus, today’s survey flags that Fashion sales slumped by 15% LFL last week (with in-Store Fashion sales down by 26%)…In w/e Sunday March 15th, Total BDO LFL sales (including a handful of Homewares and Lifestyle retailers, as well as Fashion retailers) were down by 11.3% (down 21.8% in Store sales, but up by 7.8% in Online sales).
• Trade Press: Retail Week magazine has not been published this week, after last’s week’s bumper edition dedicated to the annual “Retail Week” Awards (the front cover was a photo of Dave Lewis of Tesco, who won the “Outstanding Contribution to Retail” Award), but the website has lots of up-to-date stuff on the latest Retail events, including an interesting article on “How coronavirus will change how we shop, live and work”. Drapers magazine is out today, but things were moving so fast as it went to press on Tuesday that the focus on the Budget was already out of date, but the website has a Coronavirus tracker of stores that are closing and other action that retailers are taking: https://www.drapersonline.com/news/coronavirus-tracker-how-the-industry-is-reacting/7039837.article?blocktitle=Latest-News&contentID=15719
• News Flow Next Week: Next week’s annual Retail Week Conference on Wednesday/Thursday has, obviously, been postponed, but there is plenty of scheduled company news, beginning with the Kingfisher finals and the Nike Q3 results (in the US) on Tuesday. The Moss Bros finals expected on Wednesday may not happen because of the recent takeover bid, but Thursday brings the ONS Retail Sales for February, plus the Signet Q4 (in the US), whilst the motorway service station operator Applegreen has its finals on Friday. And we are sure that there will be plenty of “unscheduled” news from companies as well next week…