Langton Capital – 2020-08-10 – PREMIUM – Stimulus & support, state of play, EO2HO, rents & redundancies etc.
Stimulus & support, state of play, EO2HO, rents & redundancies etc.PREMIUM EMAIL – PLEASE DO NOT FORWARD: A DAY IN THE LIFE: Is it just me or does coming back from a holiday leave you needing a holiday? Perhaps that’s not the case in large organisations. You may have someone to fill in while you’re away but, if you come back to dust on the door-handle, a couple of thousand emails and an office teapot that hasn’t been emptied since you grabbed your raincoat and umbrella and legged it for a staycation, things are rather different. Meaning that the day back is often the day before the day you really get back. It’s a day for catching up and, with that in mind, it’s something of a summary email below where, as always, it’s tough to decide how much space to devote to things that, given our absence, may be new to us but represent old news to other people. Anyway, later in the week we’ll be able to comment on the delights of staycations, the fundamental changes taking place, the dog’s attempts at the flea and tick infestation combo and how Skegness, apologies to residents, remains something of an acquired taste. On to the news and follow us on Twitter at @brumbymark. ADVERTISE WITH US: Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details. REQUEST TO READERS: • We’d appreciate feedback on our comments under 1) stimulus and support and 2) the Eat Out to Help Out schemes below. Summary of responses tomorrow or Wednesday to the Premium List and to respondents / contributors. STIMULUS & SUPPORT. Good as far as it goes. The furlough, Eat Out to Help Out, VAT cuts, business rates’ relief & eviction moratoria are a) great but b) finite. What will the autumn bring? 10 Aug 2020: Introduction: • Buzzkill alert. This is an upbeat industry and it doesn’t pay to be too negative. That said, optimistic talk is not enough. • The problem with drugs, we’re told (apart from being able to afford them), is not the going on them but the coming off that hurts. • Taking a (non-recreational) drug for pain should be a temporary. It buys time but doesn’t solve the underlying problem or problems. • The furlough scheme is tapering now & ends in October. EO2HO ends this month. The VAT cut on food and non-alcoholic drinks lasts until 12 January next year. • There may be extensions to the business rates’ suspension and to eviction moratoria, but these cannot be taken for granted and, as the weather fades away and a resurgence of Covid-19 remains a possibility, there remain grounds for caution. Trade – income: • Two thirds of pubs and restaurants may be open (more pubs than restaurants) and they are doing two thirds of normal trade. • That’s a half-V shaped recovery as 1) it’s an improvement over 100% of units being down 100% but 2) it only amounts to c45% of the total trade value and fits in with the UK Hospitality Tracker, below, which suggests that £30bn of revenue has been lost. • Eat Out to Help Out (and the VAT cut) are currently boosting trade. More on the scale later in the week. Trade – costs: • The government, aka the taxpayer, has stepped up with the furlough cutting wage bills and business rates being removed for the time being • This is incredibly helpful. Some other costs, a quarter’s VAT, beer duty and some rents are being accrued but not paid. This is also useful but these are loans rather than gifts to industry Temporary versus semi-permanent features: • The measures to boost revenue cost money. They are likely (though not certain) to be temporary. • Similarly, cost-cutting measures are largely at the expense of the taxpayer. These are also likely to be temporary. • Changes in behaviour may (but may not) also be temporary. The government will wish to match the temporary fix to the temporary problem. This will be a tricky task. The Autumn. • There are a lot of uncertainties but, we can be pretty sure, in the Autumn, the Furlough Scheme will be gone, and the weather will be worse • Companies planning redundancies are likely to have kicked off the various processes and, as there is a 45dy consultation needed for major programmes, this could start sooner rather than later • Hopefully, the pandemic scenario will be better (or less bad). But this cannot be taken for granted. Between 90% and 95% of the population is stull vulnerable to the disease and, to any order of magnitude, this is the same as it was before the pandemic struck • We don’t want to be ‘second wave doomsters’ but keeping the R rate below one can only be achieved by actions rather than words and, if the actions (lockdown etc) are not palatable, the R rate will rise The Winter: • Winter, as they say, is coming. • Hopefully, there will be a vaccine. But that is a known unknown. So too is Christmas. It could be good but, if we’ve still got a downer on ‘intentionally crowded’ venues, it could be capped at modest levels • More certain is that January is always the worst month of the year. In Jan 2021, VAT on food and soft drinks is due to rise from 5% to 20%. • That means that, in a month with little revenue and a lot of post-Xmas gloom, prices to the customer should rise by 14.3%. A somewhat brighter note: • Capacity is reducing. Franco Manca’s David Page suggests restaurant capacity could drop by 30%. • This is suboptimal for the victims but helpful for the survivors. • Given that the human desire to eat and drink in company is as old as history itself, the last man standing should be in a pretty good position. • We could see capacity and rents lower. We would, in that position, have shifted to the left along the demand curve. That implies higher prices and margins. Too much to hope for? LATER IN THE WEEK: a) feedback on the Eat Out to Help Out scheme and b) over-renting, yes, it’s a thing. PUB & RESTAURANT NEWS: Covid-19 – Eat Out to Help Out • Please drop us a line & let us know of your experience re EO2HO. It’s clearly boosted trade but by how much? Did it cannibalise from later-week trade? Did it light a fire under the grey market & get them out of their houses etc.? • Summary of the above tomorrow or Wednesday (depending on postbag) to contributors & to the Premium Email list. • UKH estimates that 93% of eligible sector businesses in the country are involved in EO2HO, a total of some 73,000 units. • UKH says ‘the Chancellor recognised that our sector has been hit the hardest of all and the Eat Out to Help Out scheme provides a much-needed boost for many vulnerable hospitality businesses.’ • The BBC quotes a number of sector operators as saying that the scheme could ‘get people used to going out again.’ Springboard reports ‘an average rise in visits to retail destinations [of all descriptions] of 2.3% on Tuesday 4 August and Wednesday 5 August, compared with the previous week.’ This could be impacted by better weather. • Opentable says the number of reservations rose 10% on 3 August, compared to the same day in 2019. • Barclaycard reports spend in UK restaurants between Monday and Wednesday was up 9.3% on the same period the week before – but it is still 11.2% below the same time last year. • Manchester brewers JW Lees today reports sales up 18% on last year and 27% up on the previous week in the first week of the government’s ‘Eat out to help out’ scheme. It says ‘sales were up 44%, 42% and 60% on Monday, Tuesday and Wednesday, with the company offering a fillet steak and chips for £20 so reduced to just £10 under the scheme.’ • JW Lees says ‘Thursday and Sunday were both down on the previous year but the company’s managed pubs saw strong growth on both Friday and Saturday.’ MD William Lees-Jones says ‘the Chancellor’s positive stance on pubs has given people the confidence to go back to pubs and the 50% deal is a great incentive to go out in the early part of the week. Already this week’s booking are ahead of last week and we look forward to welcoming more returning guests back to our pubs. We now have 85% of JW Lees employees working again and off furlough and we look forward to opening our remaining pubs and hotels over the next month’. Covid – the new (ab)normal: • The British Property Federation, British Retail Consortium, UK Hospitality and other trade bodies have told the government that it may have to support rental payments in the future. The joint statement says that, without action on rents, many otherwise viable businesses may fail. • The economy is on the upward leg of its ‘V’ shaped-recovery (or its inverted tick shaped recovery for the less optimistic). But there are still worrying (and sometimes conflicting or confusing) signals coming from government. • Plans to reopen bowling alleys in England have been postponed and face masks are to be mandatory in cinemas. Lockdowns (or other restrictions) are in place in Manchester, Preston, Aberdeen and chunks of West Yorkshire. That’s a bit of a buzzkill. • Scientists are sticking to the line that you can’t have your cake and eat it. They maintain the R rate is at or above one, leading politicians to suggest that pubs may have to close in order for schools to be allowed to reopen. • That suggestion not surprisingly sparked howls of protest from the hospitality industry. Later suggestions have it that shops may have to close. They (shops) may be able to make good via online sales to a greater extent than could a restaurant or a pub. • The BBPA has ‘refuted claims that a trade-off is needed between pubs and schools, to enable schools to re-open in September.’ It says ‘the Government has made it clear it does not need to nationally close pubs to re-open schools, but that it may limit social contact in some parts of the country to enable schools to reopen.’ • Writing in the Sunday Times, former chairman of Patisserie Valerie Luke Johnson says the government may sign the death warrant for the UK’s nightclub and live-music industries if it does not allow them to reopen until next year. He says the young are being robbed. Covid-19 catchup news in brief: • CGA says 62% of Britain’s licensed premises were trading again by the end of July following the lifting of COVID-19 lockdown restrictions. It says ‘this new data makes it clear that hospitality’s road to recovery will be long.’ • The latest Coffer Peach Business Tracker figures for the week beginning July 20 show that collective like-for-like sales in those sites trading were still 28.5% down on the same week last year. Non-trading sites were still down 100% (ex a bit of delivery). • CGA says ‘trading at just over 70% of pre-COVID norms is an improvement on the week before for those businesses operating, but it’s more steady than sensational.’ • The BBPA has said 37% of pubs ‘cannot break even one month after reopening.’ • The BII says 89% of its members ‘are now open in some form or another’. It says that 60% are not in profit. • The BBPA has called on the government to extend the VAT cut to beer. Whilst this would be very welcome were it to happen, it arguably remains something of a long-shot. • The latest UK Hospitality Tracker reports Q2 sales were down 87% for hospitality companies with some £30bn in revenues lost. • The Telegraph reports Young & Co CEO Patrick Dardis as saying that ‘central London and the City is still a ghost town’. Dardis says ‘we’re trading really well overall, but central London and the City are dragging everything down. It’s a real struggle but we’re going to stay open.’ Catchup Company news: • JD Wetherspoon CEO John Hutson says the ‘has written to all 417 people employed at head office (including those regionally based) to inform them that a possible 110 to 130 positions are at risk of redundancy.’ • Loungers reported last week that all 165 neighbourhood café / bar / restaurants are now open (ex-one unit). Trading for the period from 4 July to 2 August was only down by 1.7%. • Yo! Sushi has reportedly engaged Deloitte to explore a CVA. • Fulham Shore last week raised £2.25m via a share placing at 6.25p. Chairman David Page comments ‘this raise, along with our new bank facilities, places us on a sound financial footing.’ • Page tells the Daily Mail that EO2HO has provided a material boost to revenues but he says that there are still too many restaurants in the UK. He suggests that 30% of the UK’s restaurants will not reopen after the crisis. He says no chain should have more than 170 sites if it is to remain relevant. • McDonald’s Corp reported a 68% drop in net income for Q2 • The CMA has cleared Amazon’s 16% investment in Deliveroo after finding that it will not substantially lessen competition. • DP Poland’s shares are suspended as the group seeks to acquire Dominium S.A. a Polish pizza restaurant group. The group says ‘if completed, the Acquisition is expected to constitute a reverse takeover of the Company under AIM Rule 14.’ • Epiris has bought the Las Iguanas, Bella Italia and Café Rouge restaurant businesses • Byron has been been sold in a pre-pack that will see more than half of the group’s 51-strong estate closed permanently. • Administrators to Red’s Smoque, formerly trading as Red’s True BBQ, have said their proposals will see secured creditor Santander paid £412k of the £3.1m owed to it with nothing more to come. Preferred and unsecured creditors will receive nothing. • CDM Trading (Coco di Mama) has appointed KPMG as administrators to the company. • Elsewhere Pizza Hut, Itsu, Pizza Express and Yo! Sushi have proposed CVAs or announced that they are considering one. • Pod Food Ltd has appointed a voluntary liquidator. • Pret A Manger has asked thousands of staff to work fewer hours as part of a restructuring. The consumer: • The Chartered Institute of Personnel and Development says that 38% of employers in the private sector (and 16% in the public sector to give 33% of employers overall) are planning on making staff redundant. This is around double the percentage of three months ago. The CIPD says ‘this is the weakest set of data we’ve seen for several years.’ It adds ‘until now, redundancies have been low – no doubt due to the Job Retention Scheme – but we expect to see more redundancies come through this autumn, especially in the private sector once the scheme closes.’ • Forex firm Travelex has collapsed into administration with the immediate loss of more than 1,300 jobs. PwC is acting as administrator. A pre-pack deal should save a further 1,800 UK jobs. • Multiple job losses including announcements from Waterstones, Selfridges, WH Smith and others. Some 1,000 jobs are under threat at Edwardian Hotels HOLIDAYS & LEISURE TRAVEL: • Staycations on the up. Pull out in the Sunday Times, Boris Johnson to holiday in Scotland etc. • Debt for equity. Carnival Corporation has announced it has retired $836m of 5.75% Convertible Senior Notes due 2023 after having offered a number of holders the chance to swap their notes into equity at a price of $14.02 per share. Carnival expects to issue a further 5.5 million shares as part of this deal today and says it ‘intends to use the proceeds…to repurchase an additional $49.3 million principal amount of its Convertible Notes in a privately negotiated transaction.’ • STR reports that the US hotel industry saw occupancy down by 48% in the week to 1 August with room rates down by 29%. The resultant REVPAR was some 64% lower. • Hilton in the US has said that growth is likely to slow. The company says ‘our best guess is that signings may be down 20% and our starts are down about 10%, but … we’re still signing lots of deals that will eventually open.’ The group says that 96% of its hotels are now open. • Booking.com reports year-on-year growth in US room bookings in July. • TUI is to close 166 high street travel agencies in the UK and Ireland. It will retain c350 outlets. • Virgin Atlantic is in court as a part of its ongoing ‘recapitalisation process’. The Co says this is ‘a standard procedural step to protect the airline’s assets while Virgin Atlantic’s recapitalisation is completed in the UK.’ OTHER LEISURE: • Everyman Media Group updated on trading for the 26 weeks ended 2 July 2020 saying it was to undertake a ‘phased reopening’. It says it has ‘also worked with landlords on delaying certain new sites and, in a few cases, exiting existing Agreements for Lease resulting in a pipeline for 2021/22 of 8 new venues compared with the 11 previously expected.’ • Wm Hill is to permanently close 119 betting shops due a drop in retail footfall • Twitter is reported to have approached TikTok’s Chinese owner ByteDance to express an interest in buying its US operations. FINANCE & ECONOMICS: • The UK is likely to officially enter recession this week when Q2 GDP numbers are released. • The US unemployment rate fell to 10.2% in July with 1.8m jobs added back in the month. • Sterling $1.3074 and €1.1082. Oil $44.84. UK 10yr gilt yield 0.14%. World markets mixed on Friday with London set to open up around 50pts as at 6.30am. START THE DAY WITH A SONG: The song has been furloughed. See you on the other side. RETAIL WITH NICK BUBB: • Saturday’s Press and News (1): The headlines on the front pages of the Saturday papers were pretty mixed: the Times went with the situation in the Channel and “”Push back” on migrants”, whilst the Telegraph ran with the threat to holidays in France with “UK tourists “left in dark” by holiday quarantine”, whilst the Guardian focused on the upcoming A-level results with “40% of teacher predictions for A-levels to be lowered” and the FT concentrated on the further deterioration in US-China relations.
• Saturday’s Press and News (2): In terms of Retailing/Business stories, the 1.6% rise in average house prices in July according to the Halifax index got the attention of the Guardian and the Times, with the Times also highlighting the “vibrant demand” reported by the housing market portal Rightmove on Friday, whilst the 9% surge in the Rightmove share price was the lead story in the stockmarket report in Daily Mail (“Rightmove shares leap on housing mini boom”). The news that ASOS has asked all the fashion brands selling on its website to disclose their detailed supply chains (given the recent controversy about Boohoo and its sourcing from Leicester) was given plenty of coverage in the Times, the Telegraph and the Daily Mail. Sadly, the Telegraph flagged that the Evening Standard is laying off nearly half its journalists, as it switches focus to its Digital platform. The Guardian had a • Sunday’s Press and News (1): The headlines on the front pages of the Sunday papers were pretty similar to those on Saturday: the Sunday Times went with “PM: children suffer more by staying at home”, the Sunday Telegraph ran with “French ask for £30m to police Channel” and the Observer flagged “Compensate travellers stuck in quarantine, Johnson urged”…
• Sunday’s Press and News (2): In terms of Retail/Property stories, the most striking story was the Mail on Sunday splash about the collapse of footfall on Oxford Street (“Oxford Street “will be boarded up in a year if nothing is done”), but the Mail on Sunday also flagged that New Look is about to shock landlords with another CVA, to force them to accept turnover rents, and that #MadMike is eyeing up a deal to seize control of 30 Debenhams stores. Talking of #MadMike…the Observer had a detailed preview of the upcoming Frasers Group final results: “Ashley’s results will be gripping, but not in a good way”. Continuing with the landlord pressure, the Sunday Times flagged that even WH Smith is now demanding rent cuts for its stores and the Sunday Telegraph seized the fashion model photo opportunity provided by the news that H&M is being sued by a landlord in Swindon over breaking its
• Sunday’s Press and News (3): In terms of all the Economics columns in the Sunday papers, we would as usual highlight the thoughtful column by the Sunday Times Economics correspondent David Smith (“V, W or Aarrgh? It all depends on the virus – and jobs”), in which he noted that if the Bank of England is right, unemployment will not trigger a spending slump. We would also flag the column by the veteran City commentator Jeremy Warner in the Sunday Telegraph (“Furlough cannot be ended as long as forced social distancing remains”), in which he said that he “didn’t on the whole buy the idea that a reluctant or lazy workforce needs to be frog-marched back into the workplace”, and the column by the veteran Observer Economics correspondent William Keegan (“In today’s Whitehall farce, the PM doesn’t wear the trousers”), in which he lamented the way in which Government policy is being dictated by Today’s News: Monday is not normally a day for much company news, but the struggling Superdry has come out with a Q1 trading update (for the 13 weeks to 25 July), flagging that it has been “better than our initial expectations”, but overall sales were still down 24%, despite a 93% jump in Online sales. The finals for y/e April have been delayed until mid-Sept, but Superdry has also announced a new banking facility, together with strong cash management and the CEO Julian Dunkerton puts a brave face on things, as usual: “I’m confident we can reset the brand and deliver on our transformation plans”. News Flow This Week: As we move further on into the “dog days” of August, the pace of Retail news picks up a bit this week. The BRC-KPMG Retail Sales figures for July are out first thing tomorrow. The interims from the Covent Garden landlord CapCo are out on Wednesday, along with the interims from Just Eat. Then Thursday brings the final results from the hapless Frasers Group (aka Sports Direct) and the finals/Q1 update from Watches of Switzerland |
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