Langton Capital – 2021-05-11 – PREMIUM – Current trading, Gregg’s, City Pubs, Revolution, prices, WFH trends etc.:
Current trading, Gregg’s, City Pubs, Revolution, prices, WFH trends etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Thanks go to the couple of readers who pointed out that, in not mowing the untidy wasteland a.k.a. its lawn this May, Langton was in step with the National Trust’s No Mow in May campaign, which seems to be aimed at providing bees and other stinging insects and pests with something to eat.
Our compliance is accidental, of course, but this represents a happy collision between sloth and virtue and, as our mower’s busted in any case, with necessity.
So what’s not to like? We can wear our dandelions, sedge grass, thistles and other weeds like a badge of honour and, putting cynicism to one side, the National Trust is on the money when it says that there are interesting things growing in your lawn that don’t get much of a look in if you keep cutting off their heads.
Triffids, for example, but anyway, time’s short so, without further ado, let’s move on to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
CHANGED EMAIL FORMAT:
The Premium Email is unchanged. The Free Email is written and pre-sent the evening before. It may not include breaking stories nor Langton comment. See Twitter for in-day comment. Let us know if you would like an example of the Premium Email.
PRIVATE COMPANY ACCOUNTS:
Accounts to end-March 2020, the period covered in the accounts reported to Companies House recently by a number of operators, are interesting if the comments contained therein refer to the Covid-19 pandemic but, if they do not, they have been well and truly overtaken by events. Here we look (very briefly) at Rosa’s London (to 29 March 2020).
• Thai restaurant chain Rosa’s accounts were signed on 6 August 2020, meaning that the seriousness of the Covid pandemic was well known to directors when they prepared the company’s accounts.
• Rosa’s reports sales up from £16.0m to £19.6m. The company reports an operating profit down slightly at £704k from £829k in the prior year. The group reports PBT of £580k versus £606k in the prior year.
• The company increased its retained profits since incorporation from £2.0m to £2.1m. Shareholders’ funds rose from £4.1m to £4.2m.
• Rosa’s says ‘in line with the rest of the hospitality industry, the enforced closures by the government of restaurants has had a significant impact on trade, immediately before and since the year end.’
• A product that lends itself to delivery.
• It says, however, that ‘the company has operated more than half of its estate with delivery and take away during the lockdown, generating significant revenues and remaining cash generative. As a result of this, Rosa’s has not been forced to take on emergency debt in order to support operations, which in turn means that the ambition to significantly grow the estate remains intact.’
• Rosa’s says ‘the changes in trading patterns, and splits between ‘eat in and delivery, during this period and forward looking may however force the group to re-evaluate the viability of some sites and rent each site is able to carry.’
• Much is left here unsaid. It appears as though there is both a push and a pull. Delivery is a viable option and the rental market is soft, meaning that better deals on physical sites may be achievable.
• Rosa’s says ‘the coronavirus pandemic is creating significant uncertainty globally and the company is not immune to this.’ It adds ‘whilst the pandemic will have a financial impact on the company, the directors have taken relevant measures to ensure they are able to safeguard cashflow, jobs and customer pipeline to put them in the best possible position once business operations start to return to normal.’
• Rosa’s therefore says ‘as a result of the actions described above and the support enjoyed from the wider Trispan Rs Rt Group, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual financial statements with no material uncertainty.’
• The group’s auditors, Menzies LLP, have no additional comment to make on the issue.
PUBS & RESTAURANTS:
• Sales down (due to weather). S4 Labour reports that ‘hospitality sales continued their decline last week, sliding 23% compared to the previous week.’ It says ‘drink sales plunged 25.3% week on week, indicating that the public’s appetite for outside drinking was washed away by the inclement weather. S4’s Richard Hartley says ‘this level of decline shows just how difficult it is to run a hospitality business in these conditions. The weather was awful and goes a long way to explaining this data, but for another week, the 70% of operators who are significantly down on 2019 will have their eyes firmly on May the 17th, when they can protect their guest from our unpredictable weather, give their team more hours and increase their capacity to get profitable again.’
• PM Boris Johnson yesterday confirmed that pubs & restaurants would be able to serve customers indoors from next Monday. Trade bodies had jumped the gun somewhat, with the BBPA saying ‘this is another important step on the road to freedom and the recovery of our sector. We know Brits cannot wait to get back inside a warm pub. However, inside opening with restrictions is still not enough to secure the survival of pubs. We need them to be fully reopened without any restrictions at all from June 21st to survive and trade viably.’ SIBA CEO James Calder said, ahead of the announcement, ‘publicans and brewers across England will today be able to let out a sigh of relief when the Prime Minister confirms pubs will be allowed to open indoors from 17th May.’
• Langton comment: Calder adds ‘the majority of pubs simply do not have the outdoor space to make opening outdoors commercially viable, meaning most have remained closed. Now as pubs are able to invite customers back inside the industry is finally able to begin on its road to recovery.’ More than a half of the nations pubs and a greater still proportion of its restaurants have remained closed this past six weeks. Social distancing will mean that indoor capacity will be reduced – but we would expect to see a much larger proportion of units reopening. We will get the stats in due course but a number over 90% may be expected. There will be a grey area inhabited by a mixture of units that are either slow to reopen or who may never reopen. Time will bring greater clarity as to which units are which.
• Mr Johnson said ‘this unlocking amounts to a very considerable step on the road back to normality and I am confident that we will be able to go further.’ In response, UKH CEO Kate Nicholls said the announcement was a “much welcome” and added ‘there is a huge sense of relief within the sector, in particular for the six in 10 venues that were not able to reopen over recent weeks due to a lack of outdoor space.’ Ms Nicholls cautioned ‘however, with significant restrictions still in place, this is a psychological opening rather than an economic one, with the profitability of the sector still a huge issue. This is why sticking to the roadmap and the removal of all restrictions by 21 June is absolutely crucial.’
• Ms Nicholls says ‘hospitality, as it emerges from restrictions, is still in a fragile state and continued government support will be critical to ensuring the sector is rejuvenated and plays a full role in the wider economic recovery.’ CAMRA says that pubs ‘aren’t out of the woods yet’ and adds ‘distancing and table service-only restrictions will still mean many pubs can’t operate at full capacity with many continuing to struggle to make ends meet as a result.’
Lack of clarity in Wales:
• The Welsh Beer & Pub Association has written to newly re-elected First Minister of Wales, Mark Drakeford, asking for more financial support and a clearer roadmap out of lockdown. The letter thanks the Welsh Government for its financial support but points out that there are not restart grants in the principality in the same way that there are in England and Scotland. CEO of the WBPA Emma McClarkin says ‘over the last year, Welsh pubs and brewers have faced the biggest threat to their existence in our history. Billions in trade has been lost and worse, countless livelihoods and community hubs have fallen by the wayside.’ She adds ‘as we face what we hope is the final hurdle of this crisis, we urge the First Minister to take the action required in the early days of his new administration to set our pubs and brewers on the right track for recovery.’
Selling prices on the up:
• Despite the reduction in VAT on food and soft drinks, the MA reports on comments from Lumina Intelligence that 48% of hospitality leaders responding to a recent survey said that they had put their selling prices up. Lumina reports that 63% of operators had had problems with their supply chain and 44% of operators believe that they can operate at a profit when indoor trade (in England at least) is allowed from next Monday.
• Langton comment: No word here on staffing issues, which we think will be one of the problems going forward. No mention either about what operators intend to do when VAT and business rates return to more normal levels. This is perhaps understandable as, in order for there to be a long term, operators need to string a few short terms together first.
• Super-normal profits would be a) great and probably achievable in the short term (due to lower VAT, the pent up demand to spend, lower rent and occupancy costs, no business rates and less capacity leading to market share gains) but b) may get competed away as more sites reopen and capacity comes back into the market. It would be useful if supply, overall, didn’t quite return to pre-Covid levels.
Other covid-related issues:
• Working from home. The debate here continues. VSA’s Andrew Monk told BBC Radio Five recently that, as they would miss out on normal workplace interactions, staff working from home should expect to gradually lose ground on those working from the office. This may not be an issue for some staff but, when bonus time (or redundancy time) comes around, this could be a different story. Meanwhile City AM reports that 26% of UK businesses will either close, downsize or consolidate their offices in the coming months, as companies move to hybrid working models. Quoting research from You Gov, it says ‘53% of businesses plan to offer more flexible or remote working policies, while 30 per cent are expecting employees in the office between one and three days per week.’
• Langton comment: The jury is out here and the future is unknown. And it may be virtually unknowable but, to look at the issue from another direction, it is hardly likely that the pandemic will result in more working from the office. And, as office commuter numbers are also unlikely to remain unchanged, the most likely direction for the numbers is downwards. The scale really is uncertain. But, for Pret and other operators, much of the operators’ annual profits will be made on the margin and, if sales drop by 5%, 10% or 15% (which might even be seen as a pretty good result), then much of this profit could be threatened.
• On a tangential point, City AM says ‘just 14 per cent of employers are not expecting staff to return to the office at all post-pandemic.’ This is an instance where framing the statement influences its interpretation. The word ‘just’ has a judgemental edge. If City AM had said ‘as many as 14 per cent of employers are not expecting staff to return to the office at all post-pandemic’, then the statement could have been interpreted in a very different light.
• Vaccinations & variants. Damned if you do, damned if you don’t. No offence intended to Portugal, but the government has been criticised for leaving the majority of countries that holidaymakers would like to travel too off its green list. As we have mentioned previously, this does, however, achieve the goal of ‘allowing’ travel whilst not exactly ‘encouraging’ it. Comments from Grant Shapps and others re queues at border controls could also dampen demand. meanwhile, the Guardian quotes Professor Martin Hibberd, of the London School of Hygiene and Tropical Medicine, as saying ‘while in the UK, we look forward to less disease and fewer restrictions, this is not the case in most of the world. Indeed, for many countries infections are likely to come in waves for at least another year and perhaps longer. As a result, imports [of new variants] are likely to become an increasingly
• Langton comment: With light at the end of the tunnel, the big fear has to be the importation of a variant that undoes much of the vaccination programme’s good work. The vaccine(s) appear to be effective against most variants but, as was explained to me recently, vaccinated Brits will self-select nasty variants as they can’t pick up anything else. The traffic light system therefore makes sense – but problems could arise in airport departure lounges and the like, where passengers from a whole host of countries, although presumably masked, will be mixing.
• Delivery. Foodservice analyst Peter Backman points to likely slower growth when he highlights the fact that some 85,000 of a potential 105,000 hospitality sites in the UK that could use delivery, are already doing so. He says ‘room for growth by adding new outlets to delivery platforms is becoming very limited. Of course, you can add in new outlets that weren’t formerly part of the delivery universe, dark kitchens especially, and new entrants into delivery (such as workplace kitchens, hotels etc). But against that must be set those restaurants that, for one reason or another, will never do delivery. So 80% penetration seems about right.’
• Langton comment: In addition to the above, restaurants can now serve customers (outside now and inside from next Monday) directly. This brings with it all the advantages associated with lower delivery fees, increased chances of upselling, the opportunity to persuade guests to linger (and spend) and the chance to built loyalty. Delivery may not have peaked over the longer term but, in the short and medium term, a few steps backwards could be in order.
• Getting things in perspective. Hospitality has had it tough. The big operators are burning £20m, £30m plus – but spare a moment to consider British Airways’ parent IAG. The company has said it is burning through £178m of cash a WEEK and it has told its staff, with whom it is in dispute, that it does not have “an absolute right to exist.” More than half a billion quid a month? That must really hurt. BA says ‘despite our best efforts the amount of flying we will be doing this summer will be limited and fiercely competed.’
Company & other news:
• The City Pub Group, which has 45 pubs and four development sites in London, the south of England & Wales, has reported full year numbers to end-December saying that it has seen ‘significant investment in our pubs to optimise them for outdoor trading and take advantage of the strong pent-up demand and expected boom in staycations.’ The group says revenue was down from £60.0m to £25.8m, with an adjusted EBITDA loss of £800k (profit last year of £9.1m) and an adjusted loss of £5.1m against a profit last year of £5.3m.
• Langton comment. City Pub Group says that it has streamlined its operations and recently acquired a 49% stake in ‘the iconic Kensington Park Hotel and increased [its] shareholding in Mosaic Pub and Dining Group to 24%.’ The company says it has seen ‘encouraging trading since outdoor reopening, with the 24 pubs currently open and trading at 77% of 2019 levels, demonstrating the high levels of pent-up demand.’ It says it is ‘on track to open 45 sites on 17 May with significant number of bookings taken.’ The group adds it has ‘strong liquidity and asset backed balance sheet’ and is in ‘an excellent position to grow the estate once conditions normalise.’
• Chairman Clive Watson says ’the business has been significantly improved over the past year placing us in an excellent position to take advantage of the pent-up demand as the country reopens.’ He adds ‘the early signs since we have been allowed to trade outdoors have been very heartening and it has been great to bring back our immensely talented staff and to see our customers enjoying our pubs once again. We are a streamlined, well-invested business with a first-rate customer offer. Our pub estate is unique in terms of quality and, with the step change in the business, we have an ideal platform to grow successfully in the future.’
• Revolution Bars Group, which has 66 premium bars, trading under the Revolution and Revolucion de Cuba brands, updates and says it ‘welcomes the comments by the Prime Minister, Boris Johnson on 10 May 2021 in relation to the Roadmap for England, further easing restrictions to allow indoor trading of our bars on 17 May 2021 and confirming that the Roadmap remains on track for a return to restriction free trading on 21 June 2021.’ It says it has recommenced trading already in 20 bars and adds ‘since that date [of outdoor reopening], a further five bars have opened outdoor space including those as permitted by the relaxation of restrictions in Scotland, Wales and Northern Ireland.’
• Langton comment. Revolution Bars says ‘we are pleased to report that since opening those bars have traded extremely strongly, fulfilling the desire for our customers to return despite the often unseasonably cold weather. The restrictions in place are such that in the bars where we have been able to trade outdoors the covers available represent approximately only 15% of total capacity of those venues, which are also trading for shorter hours than normal. Despite these constraints, we are delighted to report that these venues have delivered 48% of the sales in the four weeks to 9 May 2021 when compared to the same period in 2019, when there were no COVID-19 restrictions.’
• Revolution says ‘we believe this performance has been underpinned by the strength of our brands, our loyal customer base and the improvements we have made to the business during the period of forced closure. Net bank debt at 10 May 2021 stood at £28.5m, with total available facilities of £40.2m.’ It says ‘we now expect that our full year performance for the year ending 30 June 2021 will be ahead of previous management expectations.’ CEO Rob Pitcher says ‘as predicted we have seen huge pent up demand and a rapid recovery across the nation in the bars with outside space that we have been able to open to date.’ He adds ‘the ability to trade inside from 17 May 2021 provides another landmark in the Roadmap and whilst we will still be restricted to using less than 50% of our actual capacity, the demand that we have experienced in recent weeks provides us with the confidence to open all the
• Gregg’s. Shares in the bakery chain jumped yesterday to record highs of around £26 on the better than expected update. The company has said that it may repay some or all of the furlough cash, around £87m, that it has received during the pandemic. CEO Roger Whiteside said ‘we’ve done better than we thought we could under social distancing measures.’ He adds ‘there’s a lot of uncertainty still. But, we think it could be that we get back to 2019 levels of profit this year, when previously we said we couldn’t see that happening until the earliest next year.’ Mr Whiteside says ‘never make a decision until you have to, because you have no idea what’s around the corner.’ Pent up demand and a desire across its customer base for a return to more normal conditions buoyed Gregg’s sales.
• Writing in the US, Restaurant Dive says that ‘McDonald’s employees in 15 cities are planning to strike on May 19, a day before the company’s annual shareholder meeting.’ The online journal says ‘the strike comes as the restaurant industry faces a massive labour shortage. McDonald’s is one of several chains that have facilitated hiring events in a bid to add thousands of employees as the segment begins to recover from the COVID-19 pandemic.’
• Langton comment: US employers have something of a reputation for hiring and firing rapidly and with few strings attached. The read across to the UK, therefore, could be limited – but the fact that McDonald’s is seeking to attract ‘thousands’ of workers could have resonance here if a material proportion of staff that have been on furlough for some time now do not choose to return to their former employers.
• Drinks Business reports that the major brewers have put big money into the market for hard seltzers. It says sales therein have risen by 600% in the last two years and adds that the category is now estimated to be worth €4.5 billion.
• Hogs Back Brewery is to brew its Three Hogs beer for this year’s Euro football championship. The beer was first brewed for the 2016 event.
• Non-alcoholic drinks brand Lyre’s has raised £100m in its latest funding round
HOTELS & LEISURE TRAVEL:
• Traffic lights. Complaints and grudging acceptance seems to be the order of the day.
• London is to advertise to would be visitors via a £6m ‘Let’s Do London’ tourist campaign. The campaign will advertise the Capital’s attractions and run alongside a programme of seasonal events and cultural activities.
• Marriott has reported Q1 numbers saying that LfL systemwide constant dollar RevPAR declined 46.3% in the period versus the same quarter last year. Nonetheless, CEO Tony Capuano says ‘we were pleased to see demand improve meaningfully [sequentially though not against a year ago] during the first quarter.’ Marriott’s CEO says ‘as vaccines roll out around the world and government restrictions ease, I am optimistic that demand will continue to strengthen. We have seen signs that there is a significant amount of pent-up demand, regardless of trip purpose.’
FINANCE & MARKETS:
• The NIESR reports that ‘global economic activity has rebounded from the sharp fall in the first half of last year.’ This will come as a shock to few. It says ‘the pace of economic recovery will differ across economies. GDP in the US is now expected to reach its pre-pandemic level this year, while GDP in the Euro Area is forecast to remain below its pre-pandemic level until late 2022. In contrast, GDP in China is already 8 per cent above its level at the end of 2019.’
• Concerning the UK economy, the NIESR says ‘our central forecast for UK economic growth in 2021 has been revised up to 5.7 per cent, compared to 3.4 per cent in February, with 4.5 per cent growth forecast for 2022.’ The 2021 figure is considerably lower than the Bank of England’s 7.25% estimate. Much of the difference will be timing as the Bank said that its recent upgrade was partly as a result of the economy pulling 2022 growth forward into this year.
• The Halifax reports that UK house prices last month were up 8.4% on the same month a year earlier. The Halifax says ‘the stamp duty holiday continues to add impetus to an extremely active market, magnifying the current shortage of available homes as buyers aim to take advantage of the Government scheme.’
• Sterling considerably stronger at $1.4121 and €1.1627. Oil lower at $67.66. UK 10yr gilt yield up 2bps at 0.79%. World markets heading lower yesterday and London set to open down around 82pts.
RETAIL WITH NICK BUBB:
Today’s News: Ahead of today’s scheduled news, the fast-growing Online giant THG (aka The Hut Group) announced after hours a big new acquisition and fund-raising package. Having agreed to acquire Bentley Laboratories, a New Jersey based prestige beauty developer and manufacturer for $255m, THG has decided to raise even more money to accelerate its M&A splurge. And although the share price has been pretty weak so far this year, the overnight placing at last night’s close of 596p was increased in size from $270m to $320m because of demand, whilst the big Japanese investment group Softbank is subscribing $730m for new shares at the same level, providing THG with a total of $1.05bn of extra firepower in total. As for today’s news, the Morrisons Q1 update (for the 14 weeks to May 8th) is said to be strong by the management, but Retail LFL sales were only 1.7% up ex-fuel, on top of 5.1%
BRC Retail Sales for April (the 4 weeks to May 1st): We flagged yesterday that, having fallen by 19.1% on a total basis last year, the outcome of April’s BRC survey should have been over 20% up this year, but the focus was on the 2-year outcome, which was up 7.3%. The BRC notes that Food was still in growth in April year-on-year, but the big rebound against 2020 was obviously driven by Non-Food, with categories such as Jewellery, Accessories and Footwear said to have registered triple digit growth. Given the re-opening of non-essential shops in England on April 12th, the Non-Food Online sales penetration rate fell back from c69% in April last year to c43% this year.