Langton Capital – 2020-10-27 – Whitbread, Revolution, tier system tears, footfall & other:

October 27 2020

Whitbread, Revolution, tier system tears, footfall & other:

A DAY IN THE LIFE:

So yesterday, it was up to Falling Foss (etymology, old Norse, waterfall as in High Force, Hardraw Force etc) and May Beck (similar etymology, stream) to stomp around in the mud.

And very enjoyable it was too and we tried to spend, we really did but, other than seventy quid on diesel, we weren’t able to as the socially distanced queue at the Foss’s café was too intimidating and the car park was free.

Today, it’s over to Hull after the Whitbread numbers (via Hell and Halifax) and tomorrow we’ll walk from the Hole of Horcum to The Horseshoe at Levisham where we can fuel up then maybe check out the Steam railway before stumbling back to the car.

It might not be Antibes, Nice and then Monte Carlo for supper in the sunshine. It’s more mud, mess and misery followed by sandwiches in the sleet but at least it gets us out of the house. On to the news:

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WHITBREAD H1 NUMBERS: The co says it is outperforming. But Sept & Oct trading has been tougher after a hopeful August. 27 Oct 2020:

Whitbread has reported H1 numbers to 27 August and our comments thereon are set out below.

Headline numbers:

• Whitbread says that ‘H1 total sales were significantly down year-on-year reflecting the closure of the vast majority of our hotels and restaurants for a large part of the period.

• It has reported sales down 77% at £250.5m (2019: £1,078.0m) with an operating loss of £290.6m (2019: operating profit £298.7m). See Premium Email

PUBS & RESTAURANTS:

Revolution – partial CVA:

• Revolution Bars Group has announced that ‘following a review of its strategic options, one of its subsidiary entities, Revolution Bars Limited has launched a company voluntary arrangement in order to reduce the size of its estate and rental cost base and improve the profitability and return on capital of the Group over the long-term.’

• The company says ‘the Group’s Revolucion de Cuba branded bars and four Revolution branded bars operated by other entities in the Group are unaffected by the proposal. Furthermore, there is no impact on RBG with respect to its AIM listed status.’

• The company adds that, ‘since the UK Government’s enforced closure of bars in March 2020, the Group’s management has undertaken significant and meaningful initiatives to protect the Group’s ongoing viability.’ It says ‘given the latest Government restrictions under which the Group is operating, the Group’s trading outlook is uncertain and based on all the information and commentary available, the Board now anticipates that the important Christmas trading period will be severely compromised and any return to near normal levels will not be possible before next Spring at the very earliest.’

• It says ‘when trading conditions return to more normalised levels it will be crucial for the Group to be able to recover quickly, return to cash generation and be appropriately structured for the long-term. Accordingly, the Board believes that it is in the best interests of all stakeholder groups for it to now propose a restructuring of certain of the Group’s property interests through a CVA of one of its subsidiary entities RBL.’

• Revolution says ‘RBL operates 50 Revolution branded bars. The CVA proposes to reduce the size of RBL’s estate by 6 bars and reduce its rental cost base, thereby improving the profitability and return on capital of the Group over the long-term.’ The nominees for the CVA will be Clare Kennedy, Peter Saville and Catherine Williamson of AlixPartners LLP.

• Revolution says ‘the Group’s lender, NatWest, has agreed to waive the defaults that arise from the CVA which would otherwise mean that the Group is in breach of certain undertakings.

• CEO Rob Pitcher says ‘throughout this extended period of distress caused by COVID-19, the Group has sought to prioritise the health and well-being of its staff and customers, minimise its cash consumption, maintain good levels of liquidity to ensure its ongoing viability and to be in a position to take advantage of opportunities that may arise once restrictions are lifted. The CVA proposed by the Group’s Revolution Bars Limited subsidiary entity, if agreed by landlords, is another proactive step to lower outgoings to help safeguard the future of the Group and improve long-term performance.’

Tier III (soon why not just call it ‘England’?)

• The government has announced that Warrington has gone into Tier III with parts of Nottinghamshire to follow shortly. Talks are ongoing with Leeds and with Newcastle and the North East.

• Important in football. Go where the ball is going to be, not where it was yesterday. In Newcastle and Liverpool, infection rates are falling markedly, perhaps as the student bump in infections works its way through the system. York numbers are flattening but Leeds was still rising as of late last week.

• We’re all in this together? Some complaints that, when London was in trouble in March, the whole country locked down. However, now that the North has messed the bed, there will be selective remedies. This may be just the way the cookie crumbles as lockdown fatigue has become much more of a feature than it was earlier in the year.

Footfall:

• Steady week on week. London still lagging.

• Analysis from S4labour shows hospitality sales down year on year by 26.2% last week. The company says this is ‘similar to what they have been for all of October’. S4Labour says ‘week on week sales are constant, up just 1.4% overall, and up 5.6% outside London. The weekly figures show signs that there was a momentary lapse earlier in the month, followed by a stabilisation of confidence.’

• S4 says London ‘was down 15.8% compared to the previous week. Early indicative figures continue to show a clear correlation between London moving into Tier 2 and a sales decline. S4’s Richard Hartley says ‘government restrictions continue to hamper the progress the industry is trying to make’.

Government restrictions:

• One Tory MP writing to constituents enquiring about the efficacy of the 10pm curfew that, whilst it ‘will show a marginal impact’, it is perhaps the perception of curfews that matters as it suggests it is not ‘OK for youngsters to go to pubs, bars and nightclubs whilst grandparents aren’t able to see their extended family.’

• The MP says ‘I have a feeling that curfews are as much (if not more) about management of the overall populace and its attitudes to risk than about the strict scientific basis. This is somewhat speculation I’m sure you understand, generally based on what I’ve been researching myself.’ Brave words in this heated environment.

Closures:

• It’s not real until it’s real. We (and other industry observers) have been suggesting for some time that a quarter of hospitality units may not reopen. This was brought home to Langton when The Bell, it’s haunt on Middlesex St, emailed regulars to say ‘following weeks of agonising, we have made the heart-breaking decision to temporarily close our doors from 10 pm on Friday, 30th October for the foreseeable future. The trading situation right now is almost impossible, and it costs us money to open our doors. As you can imagine, this is unsustainable.’

• The Bell says, on a brighter (though short term) note ‘before we go though, we have some beer that we need to shift. So, we’ll be serving takeaway pints from 4 pm until 10 pm Tuesday, and Midday until 10pm Wednesday through until Friday from £2.50 a pop.’ The operator says ‘we hope that we can reopen early in 2021.’

• Analyst Peter Backman says ‘the scale of businesses and jobs at risk is still clearly very large and unimaginable at the start of the year.’

• The Morning Advertiser has commissioned research suggesting that ‘33% of hospitality businesses in the ‘very high’ tier three do not have sufficient support to remain viable and have closed already or plan to.’

• The MA says 26% of operators in Tier III ‘had seen bookings fall more than 100% while a further 26% said they had dropped by up to 50% and 11% said up to 20%.’ Not sure how bookings can go to less than zero but we get the gist.

Company news:

• Dunkin Brands, which owns Dunkin Donuts and Baskin Robbins has held discussions with Inspire Brands. The latter could make a bid for Dunkin though the latter says ‘there is no certainty that any agreement will be reached.’ Inspire owns Arby’s.

• Diageo is to acquire Chase Distillery. Diageo says ‘we are thrilled to be bringing such a quintessentially British portfolio of high quality, crafted brands into our family. We are excited about the growth opportunity within the premium plus segment and are very much looking forward to working with the Chase team to build on the portfolio’s considerable potential.’ Chase is the third gin label Diageo has invested in this year. The acquisition is expected to close in early 2021 subject to regulatory clearances.

• Becle, which owns Jose Cuervo Tequila, has turned in strong Q3 numbers showing global volumes grew by 26& over the period. Tequila comprises more than half of Becle’s global sales. Here, growth has been strong for a number of years.

• Stonegate is teaming up with former rugby professional James Haskell in order to host a major ‘rugby-exclusive quiz on Saturday 31 October at 7pm.’

• DoorDash has launched a programme aimed at ‘reviving’ closed restaurants by using them as ghost kitchens.

• Yumpingo has partnered with reputation management solution AreTheyHappy to now ‘offer hospitality businesses of any size the TotalView solution that helps them track, manage and impact all touch points on their guest journey.’

• Scottish craft beer brewer The Fierce Beer Co is to open a bar in Newcastle city shortly. The operator recently signed a 20 year lease on its first English venue, in Manchester.

• Mark Crowther has been appointed Chairman of Portobello Brewery.

Other news:

• New research from KAM Media & OrderPay has found that consumers may be suffering from ‘App overload’. The research has ‘found that 42% of hospitality customers want an app that can provide functionality across a number of different hospitality chains. Unsurprisingly this demand is driven by younger customers, with 51% of those aged under 34 looking for a simpler app-based solution.’

• The research found that demand for order ahead and pay-at-table apps ‘is clearly growing with the research finding that mobile phone ordering has become increasingly important to 41% of hospitality customers in the last six months. But even before Covid-19 hit, research from KAM Media found that 43% of 18-34-year-olds had used an app to pay a bill in a pub or restaurant, and 28% would have liked the ability to order and pay their bill even before arriving at the venue.’

• Property agent Colliers has hosted a meeting with Roger Bootle, chairman of Capital Economics. Bootle says the economic contraction we are seeing is similar to that over the Spanish Flu, 100yrs ago.

• Foodservice analyst Peter Backman has pointed out that the loss of the sense of taste & smell suffered by some Covid patients may impact demand going forward. Numbers may be relatively small but, if the best gin tastes like tap water, some consumers may not be willing to pay too much for it.

• Research has suggested that global eCommerce is dominated by six companies that take 58% of the global markets between them. Two Alibaba companies, Toaboa and Tmall account for 29% of the global market between them. Amazon is no3 at 13%.

HOTELS & LEISURE TRAVEL:

• New aircraft orders collapse. Not surprising, perhaps. There were zero orders for new aircraft in September with only 13 planes ordered in the whole of Q3, a number down 91.4% on the 150 or so ordered in Q3 last year.

• The lead time is material. There were 173 new aircraft delivered during Q3. Very few of these will have much to do.

• STR reports ‘September and the most recent weekly data for the United Kingdom hotel industry show a country grappling with a second wave of the COVID-19 virus and local lockdowns in response.’ It says ‘unsurprisingly the data is looking pretty bleak.’

• STR says demand is softening week on week. It says this ‘has been a consistent pattern since the peak of the August bank holiday.’ It says ‘the last three weeks have steadily become weaker as cases and local lockdowns have increased.’

OTHER LEISURE:

• William Hill has agreed to a takeover bid from Caesars. Potential rival bidder, private equity house Apollo, has been told that it must make a firm indication either way by 5pm on 12 November.

FINANCE & MARKETS:

• The Guardian reports King’s Business School as saying that 6m small businesses, responsible for 16.6m jobs in the UK, ‘are in a financially precarious position as a result of the pandemic.’

• Brinkmanship re Brexit deal. Deal still likely.

• Reuters reports ‘deal or no deal, British companies will have to confront a wall of bureaucracy that threatens chaos at the border if they want to sell into the world’s biggest trading bloc when life after Brexit begins on January 1.’

• Aerospace body ADS says that the future of the UK’s £34bn aerospace sector will be at risk if an EU trade deal is not agreed.

• The Telegraph quotes US ‘former top official’ Barbara Weisel as saying that the UK is unlikely to secure a US trade deal unless it first strikes an agreement with the European Union should Joe Biden win the presidential election next week.

• Sterling $1.3042 and €1.1018. Oil $40.88. UK 10yr gilt yield 0.28%. Markets lower yesterday. London set to open up a dozen points or so.

RETAIL WITH NICK BUBB:

• Today’s News: After the excitement yesterday from the recently floated Online giant, The Hut Group, which saw its share price surge to as much as 780p early on, on the back of the strong Q3 update (before falling back with the market to close only 4% up), today has brought humbler fare in the form of the delayed finals from the struggling fashion chain QUIZ (which is now capitalised at just £9m). There is no sign of the Shoe Zone pre-close update, but mighty Boohoo has announced that its Employee Benefit Trust hoovered up 5m shares at c274p.

• News Flow This Week: Over in the US the supermarket chain Kroger (Ocado’s key partner) is issuing an investor update later today. Tomorrow brings the much-awaited Next Q3 update. The rest of the week then looks quiet in the UK, but, in the US, the tech giants Amazon and Apple both announce their latest quarterly results after the close on Thursday evening.

• Superdry Watch: We flagged on Friday that the Superdry boss, Julian Dunkerton, had continued to buy more shares ahead of Thursday’s AGM, but we were wrong to say that the company was in close season, as the first half doesn’t end until this week, ahead of the scheduled Superdry pre-close on Nov 5th. He now owns nearly 20% of the equity and as the shares surged up by over 11% on Friday (to capitalise the group at just over £140m), we are reminded of an immortal line from the Sunday Times magazine profile of him a month ago: “I’m good at making money”.

TRADING STATEMENTS & EVENTS:

Upcoming results are set out below:

• 27 Oct 20 Whitbread H1 numbers

• 28 Oct 20 Texas Roadhouse Q3 numbers

• 29 Oct 20 YUM Q3 earnings update

• 29 Oct 20 Starbucks Q4 results

• 29 Oct 20 Royal Caribbean Q3 numbers

• 29 Oct 20 Amazon Q3

• 29 Oct 20 Facebook Q3

• 29 Oct 20 Twitter Q3

• 29 Oct 20 AB InBev Q3

• By 31 Oct 20 DP Poland H1 numbers

• 3 Nov 20 DART Group AGM

• 4 Nov 20 Shepherd Neame FY numbers

• 6 Nov 20 Marriott Q3 numbers

• 10 Nov 20 Premier Foods H1 numbers

• 11 Nov 20 JD Wetherspoon Q1 update

• 12 Nov 20 Young & Co H1 numbers

• 17 Nov 20 Gear 4 Music H1 numbers

• 19 Nov 20 Dart Group H1 numbers

• 24 Nov 20 Compass Group FY numbers

• 26 Nov 20 Britvic FY numbers

• 2 Dec 20 Shepherd Neame AGM

• 2 Dec 20 Stock Spirits FY numbers

• 8 Dec 20 Vianet H1 numbers

• 10 Dec 20 Marston’s FY results

• 17 Dec 20 Revolution FY numbers

• 22 Dec 20 Revolution AGM

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