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A DAY IN THE LIFE:

A bit of a rush this morning. Follow us on Twitter at @brumbymark and let’s move on to the news:

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A VAT CUT TO BOOST SALES OF HOSPITALITY SERVICES? The chances are arguably higher now than they have ever been. 7 July 2020: See Premium Email

FEEDBACK ON RE-OPENING: It’s hard not to micro-analyse. Here a bit more feedback. 7 July 2020: See Premium Email

WHITBREAD – AGM & Q1 TRADING UPDATE: Whitbread has this morning updated on trading in its Q1 to date and our comments thereon are set out below.

Overview & reopening:

• Whitbread will tell its AGM later today that ‘over 270 UK hotels and 24 restaurants now reopened with the majority of the rest of the estate due to reopen throughout July’. See Premium Email

PUB & RESTAURANT NEWS:

Covid-19 reopening – see Premium Email for further comment:

• CGA suggests that around 45% of those bars and restaurants that could have opened for business last Saturday actually did so. Numbers across the casual diners, coffee shops with indoor seating etc will be on top of that.

• The 45% ‘provides a baseline from which CGA will continue to track the recovery of the sector.’ It says ‘the fact that 45% of England’s pubs and bars opened over the first weekend post-lockdown, reflects the phased reopening that many businesses in the sector have been planning for. We know more will be opening their doors during the coming week, and the market as a whole will be learning from the successes and occasional teething problems of their colleagues over the last couple of days to ensure the public can safely enjoy the pub and bar experience in the weeks to come.’

• Analyst Peter Backman suggests that 20% of chain pubs and 70% of independents opened on day one. More will be opening this week and thereafter. It is possible that part of the boost received by units on Saturday and Sunday was due to the absence of competition.

• Foodservice analyst Peter Backman writes that trading over the past weekend has been ‘underwhelming’. He says ‘that is my take on the flow of business into the restaurant and food pub business on Discovery Day – 4 July.’

• Backman says anecdotal evidence suggests around a half of the UK’s on-trade units opened on Saturday. He says the half of units that were opened had occupancy levels of around 25% suggesting that hospitality income was about 13% of what it would have been on a typical Saturday.

• Backman concedes that the weather was not helpful and that foreign visitors are absent. But there remains a note of caution. He says ‘bookings on OpenTable  increased on Saturday but they certainly don’t reflect comments from some quarters about a surge in bookings during the week. Restaurants still have a mountain to climb.’

• Canary Wharf. As we tweeted yesterday, Canary Wharf has only around 7k of its 120k workers currently back in the office. This speaks to the expected level of revenue for the surrounding sandwich shops, coffee shops and the like.

• Bets as to the number of units closed for good are still coming in. Comments from Pret (see below), Carluccio, Restaurant Group, Casual Dining Group etc are beginning to allow us a clearer (though still very clouded) picture. CGA says that two thirds of employers in our corner of leisure will lay off staff. Peter Backman says 10% to 20% of units may not reopen.

Re-opening – the near-term future:

• Monday bookings should have been good. A large part of this may have been the more general swing to booking tables full stop. It would not be surprising to hear that walk-ins are down. This may be particularly acute in town centres and anywhere that usually benefits from commuter trade.

• There is a clear desire across the sector for a growth path over the coming weeks. It remains true, however, that you don’t always get what you wish for.

• M&B commented at its H1 numbers that its experience re Alex in Germany was that trade began at 50% of normal and built to around 70% over the first month. Observers have pointed out that Alex is a restaurant chain rather than a chain of pubs.

• There is similarly a desire that price rises stick. However, as more units open, price increases will also be tested.

Potential VAT changes:

• Chancellor Rishi Sunak speaks tomorrow. He may cut VAT on hospitality sales. This would clearly be beneficial as operators could either cut prices or pad margins or do both. More comment in Premium Email.

Footfall etc.

• Wireless Social reported, perhaps not surprisingly, that ‘the footfall over the weekend is highest it has been since lockdown commenced, with the UK Saturday footfall being 55% below average February levels and Sunday being 63% behind this base.’

• Various observers have again unsurprisingly reported that footfall after 5pm was more sharply increased than it was during normal shop opening hours. Wireless Social say ‘whilst there were talks of it being a ‘Super Saturday’, the numbers indicate that people are still wary of coming out too soon and the weekend was quieter than anticipated. There is a phased reopening of pubs and bars as well, which will be impacting people going out, the full story will unfold over the next few weeks.’

• We shouldn’t lose sight of the fact that a large number of units will not be reopening in the near future (or at all). This will benefit competitors’ ‘share of stomach.’ SSP, for example, has said that only 20% of its stores will be open by August and Casual Dining Group, Carluccio, Frankie & Benny’s, Chiquito’s and several other operators will be making substantial cuts to outlet numbers.

Reopening – Industry comments:

• London Union’s Jonathan Downey has commented ‘after the excitement and extraordinary effort to re-open on Saturday, we’ve woken up to the reality of an extremely disappointing weekend of sales (for almost everyone). Combine this with all the additional costs we’re required to incur, and the losses are significant.’

• Downey says ‘business levels will be like this for months. It’s a long road back and many won’t make it. The Chancellor’s stimulus this week will help but we should be doing much more to get people back out again.’

Covid-19 – other news:

• The BBPA has reiterated its calls for VAT, Business Rates and Beer Duty cuts ‘to secure 350,000 jobs and unleash British enterprise.’

• Chancellor Rishi Sunak speaks tomorrow. A cut in VAT is a distinct possibility. The BBPA is specifically calling for a cut to 5%. It says ‘a cut to 5% in the rate of VAT on food, drink and accommodation in hospitality would boost pubs and the brewers that supply them, and signal to consumers that the sector is open for business. The BBPA believes that the near-term demand stimulus of cutting VAT to 5% would bring an immediate boost to the sector helping to secure hundreds of thousands of at-risk jobs.’

• The BBPA says this would particularly help ‘the 43% of the 600,000 directly employed in pubs by the sector that are under 25 years old, ensuring their life chances are not permanently disadvantaged as a result of the COVID-19 lockdown.’

• Calls for a permanent overhaul of business rates may be ignored in the short term but the BBPA point out that ‘per pound of turnover, pubs pay more in rates than any other sector.’ This does look a little unfair when compared with, say, Amazon and is taken alongside the impact that the shutdown has had on the latter compared with he hospitality industry.

• The BBPA, which is asking for quite a lot, says in addition that a 25% reduction in beer duty, which is higher in the UK than in most other European countries, would ‘signify a vote of confidence in a major domestic industry.’ BBPA CEO Emma McClarkin says ‘the measures we have put forward are bold, but they are key to the future of communities across the UK and important British businesses. They are an investment for the future, not a cost.’

• Some larger moves in the sector yesterday. Against a generally very strong market, pub & restaurant operators JD Wetherspoon, M&B and Restaurant Group saw their shares slide by 4%, 7% and 14% respectively. Perhaps better to journey than arrive. Cineworld was down 4% with Gym Group, Hollywood Bowl and Saga up by 6%, 7% and 7% respectively.

Company news:

• Pret A Manger is to permanently close 30 shops and cut 1,000 jobs. Pret currently has 339 of its 410 UK shops open but footfall, particularly in office-heavy and commuter-sensitive environments, remains low.

• Langton has commented on a number of occasions that operators will be counting backwards from the date on which the furlough scheme is tapered and that they may cut jobs (which typically have a 45dy consultation period) accordingly.

• Pret’s sales are running 74% down and the chain is thought to be losing £20 per month per the BBC.

• JD Wetherspoon has commented on a Daily Mail article saying that the paper’s suggestion that it was to ‘get rid’ of 15 pubs was untrue. It says ‘the fifteen pubs in question were put on the market over a year ago, in April 2019.’ It adds ‘five of the pubs were sold and now belong to third parties. Eight of the pubs were withdrawn from the market and are no longer for sale.’

• Arc Inspirations is to open a BOX unit on Deansgate, Manchester next year. CEO Martin Wolstencroft comments ‘it’s been a challenging few months for the sector and for our business, but we’re now looking with excitement to the future. Manchester has always been a key location for us and when the time is right and consumer confidence fully returns, we will debut our BOX brand in the city.’

• Uber Technologies is to buy Postmates for c$2.65 billion in stock

• Campari is to move its legal offices to Amsterdam. It will change from an SpA to a NV.

• US hedge fund Elliot Advisors is reported to be interested in purchasing Casual Dining Group, reportedly in its entirety. CDG is currently in administration. A pre-pack is possible. The FT says that Elliott ‘is among a number of investors interested in the business but has yet to table a formal bid, according to a source with knowledge of the discussions’.

• A number of other casual dining groups are soliciting bids for their businesses. There are likely to be more administrations.

HOLIDAYS & LEISURE TRAVEL:

• Travel operators, though pleased to see a number of countries designated ‘safe’, have reiterated that there is an issue of consumer confidence, not just quarantine issues

• Greece will allow flights from the UK from 15 July

• Union the TSSA has called on Barrhead Travel to try to avoid redundancies

• EasyJet holidays will commence summer flights from 1 August

• Ferry operator DFDS is to commence crossings to and from France on 10 July

• Love Home Swap has suggested that Brits ‘have new travel priorities’. It suggesets that staycations will be in demand and that the period of time spent on holiday this year will reduce.

FINANCE & ECONOMICS:

• IHS Markit PMI UK Construction data for June shows a strong bounce back to a measure of 55.3 from 28.9 in May. Any number over 50.0 implies growth. Markit says ‘June’s survey data revealed a steep rebound in UK construction output as more sites began to reopen and the supply chain kicked into gear. House building led the way with the fastest rise in activity for nearly five years, while commercial and civil engineering also joined in the recovery from the low point seen in April.’

• The above is good news (amidst a flood of less good data) as the construction industry is good at providing jobs quickly.

• The TMMT says the number of new cars registered this June was down 35% on the same month last year. This is an improvement on recent months.

• The Social Market Foundation has said that the impact of Covid-19, though most acute in the short term in London and the South East, could impact the UK’s more traditionally depressed regions over the longer term.

• Household spending in Japan fell by 16.2% in May compared to the same month a year ago.

• Sterling up vs dollar at $1.2504 but down vs Euro at €1.1052. Oil lower at $42.91. UK 10yr gilt yield up 1bp at 0.20%. World markets up yesterday but Far East lower in Tuesday trade & London set to open down perhaps 20pts (as at 6.45am).

START THE DAY WITH A SONG:

The song has been furloughed. See you on the other side.

RETAIL WITH NICK BUBB:

JD Sports: After the bad recent PR over the Go Outdoors pre-pack and the withholding of rents due to landlords, JD Sports has got back to basics today by announcing its delayed finals for y/e Jan, having said very little about the impact of the pandemic since it took hold back in March, apart from the need to focus on conserving cash. But although the final results are strong, with EBITDA up 28% to £624m on the back of a 30% jump in revenue to £6.1bn, driven by the highly successful US acquisition, investors will be disappointed by the absence of any detailed current trading news. All the company says is that “we were encouraged by the continued positive trading in the early weeks of the year prior to the emergence of COVID-19 and we firmly believe that we are well placed to regain our previous momentum”, whilst highlighting that footfall is a problem in major malls and town centres and
flagging that “recognising that rents effectively buy footfall, we will continue to push for greater correlation between levels of footfall and rents payable across our physical retail estate”.

Halfords: Unlike JD Sports, Halfords had given an update on current trading ahead of today’s delayed finals (for y/e March), as it said back on May 6th that LFL sales in the 4 weeks to May 1st were only down by 23%, thanks to the boom in Cycling sales, so the main focus today is on the updated picture. And investors will be pleased to hear that LFL sales in the 13 weeks to 3 July were only down 6.5% (“significantly better than anticipated in late-March”). They will be less pleased to hear that “cycling is a lower margin, more capital-intensive segment than motoring” and that even a broad continuation of the overall Q1 sales trends would see the business make very little profit in the full year: Halfords has come up with 3 possible profit scenarios, based on LFL sales of -10.5%, -7.5% and -4.5% in the rest of the year. Why couldn’t JD Sports provide a similar analysis?

TRADING STATEMENTS & EVENTS:

Upcoming results are set out below:

• 2 Jul 20 Mitchells & Butlers H1 numbers

• 3 Jul 20 GfK consumer confidence numbers

• 7 Jul 20 Whitbread AGM

• 10 Jul 20 Carnival business update

• 13 Jul 20 Pepsi Q2 numbers

• 21 Jul 20 DP Eurasia H1 trading update

• 23 Jul 20 C&C AGM

• 28 Jul 20 Gregg’s H1 numbers

• 28 Jul 20 AG Barr trading update

• 6 Aug 20 Naked Wines AGM

• 7 Aug 20 Diageo FY numbers

• 11 Aug 20 Domino’s Pizza Group H1 numbers

• 19 Aug 20 Rank FY numbers

• 9 Oct 20 JD Wetherspoon FY numbers

Many results are likely to be delayed. For information purposes, the results below were delivered at these dates last year.

2019 COMPARATIVE RESULTS:

• 11 Jul 19 Dart Group FY numbers, 16 Jul 19 Fulham Shore FY numbers, 17 Jul 19 Nichols H1 numbers, 24 Jul 19 Marston’s Q3 trading update, 25 Jul 19 Fuller’s FY numbers, 25 Jul 19 Compass Group Q3 update, 25 Jul 19 Diageo FY numbers, 30 Jul 19 Gregg’s H1 numbers, 31 Jul 19 M&B Q3 update

YESTERDAY’S TWEETS:

• Has Canary Wharf really only welcomed back 7k of its 120k workforce? Wow. And that’s said to be double that of the week before. Pity the sandwich shops, coffee shops, bars etc. Hospitality still needs a lot of help. 

• Pubs & bars’ trading. OK. Could have been better. Suburban quite good, town centres less so. Food a bit less buoyant. Trepidation re the future. Brave comments but worried faces etc.

• Carluccio gone, ditto Chiquito, Restaurant Group cutting sharply, Tasty making 1/3 of employees redundant, Pret a Manger to shut 30 shops & cut 1,000 people. Busaba, Prezzo, ASK, Zizzi, Pizza Express, Byron, GBK, Wasabi all expected to comment shortly. Trend emerging here?

• Early observations. Truisms, yes. Volumes down, prices up as operators move along the demand curve to the left, test demand elasticity etc. Many will be hoping price rises stick as NLW with jolt upwards again next year. Choice down, mix change beneficial but other costs up

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