Langton Capital – 2021-06-11 – PREMIUM – May Tracker, 21 June, football, BrewDog, feedback loops & other:
May Tracker, 21 June, football, BrewDog, feedback loops & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
Langton was on the Central on the Central Line earlier in the week and it was almost back to its sweaty, cramped, claustrophobic best.
I suppose there must be a reason why it’s so horrible, maybe it’s the law.
Some legislation, somewhere, written by the taxi drivers’ union that dictates you must, from time to time, have ghastly journeys to incentivise you to stay above ground or something.
Anyway, see our tweets from yesterday for further details and, before we get too steamed up about it, it just remains to say, have a great weekend and here’s the news:
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MAY SALES TRACKER:
• The Coffer CGA CGA Business Tracker for May has been released showing that ‘Britain’s managed pub, restaurant and bar groups recorded a 26% drop in total sales in May from the same month in 2019.’
• May is the latest in a run of many, many abnormal months. In this case because outdoor dining only was allowed until 17 May, after which, pubs and restaurants could offer (a form of) indoor service.
• Although this is a short release, these are complicated numbers.
• In addition to the period being very much a month of two halves, total sales will include closed units whilst LfL sales will include only those that have reopened. These, for some operators, will be the cream of their estates whilst others made the decision to reopen virtually all of their units.
• Furthermore, pubs and restaurant performance diverged as did the performance of wet versus food-led pubs.
• Hospitality combined:
o The Tracker maintains that ‘on a like-for-like sales basis, groups recorded a 15% drop in May 2021 from May 2019—a modest improvement on April’s figure of minus 26%. Restaurants were down only 6%, but pubs (down 22%) and bars (down 25%) again lagged behind on this measure.’
o The room for misinterpretation is significant. But, as we interpret it, the Tracker says ‘the freedom to serve indoors gave a boost to the managed restaurant sector, where total sales were down 13% on May 2019.’
o This looks like a good performance but what we don’t quite understand is how total sales could be better (or less bad) than LfL sales in an environment where fewer units are open in 2021 than were in 2019.
o This could be a feature of the specific groups that are providing information though, as RTN is one of them (in it has had two subsidiaries put int administration and another undergo a CVA), we don’t quite see how the sample group has more units open and trading than it did two years ago.
o The Tracker then says ‘however, ongoing distancing restrictions held down pubs’ sales at 34% below 2019’s levels, despite a sunny Bank Holiday weekend helping them to end May strongly.’
o Bars, where hot weather can be a disadvantage, ‘were the weakest segment for the second month in a row, with total sales down 38%.’
• Reopened units:
o CGA says ‘while the return of inside service has led to the reopening of the majority of restaurants, pubs and bars, CGA’s research shows that a significant number remain closed.’
o See our confusion above.
• What the numbers mean:
o The Tracker says ‘profitable trading is not yet viable for many operators, and businesses in the late-night sector and parts of Scotland that have faced stricter restrictions in May 2021 remain particularly vulnerable.’
o This is true, though freehold-owning operators will be in a much better (or less bad) position than will operators trading from leasehold sites.
o The Tracker says the ‘rolling 12-month sales to the end of May were 48% below the previous 12 months—a reminder of the huge toll that the COVID-19 has taken on hospitality.’
o CGA says ‘May brought a solid if unspectacular return to inside trading for managed restaurants, pubs and bars.’ It adds ‘consumers have been eager to get back inside restaurants, and sunny weather helped pubs close the month on a high, but distancing and other trading constraints continue to offset those benefits.’
o CGA adds ‘while the long-term outlook for the sector remains good, so much now hinges on whether the government sticks to its roadmap to recovery. Any delay to the removal of restrictions from 21 June would badly set back hospitality’s fragile recovery just as it starts.’
o Coffer Corporate Leisure says ‘not surprisingly restaurants are coming back faster than pubs and bars given the prohibition on vertical drinking.’ This isn’t altogether a slam dunk, however, as pubs at least have outside space and benefit from warmer weather (as they will the upcoming football).
• Langton comment:
o LfLs are a function of which units have reopened. The weather will have had a major and variable impact. Freehold operators are better-positioned than those with leases. Restaurants ‘bouncing back’ quicker might require closer examination etc but most parties are agreed that these are the foothills of recovery and much depends on what happens in the next few months.
o Furthermore, for investors, it isn’t an option to buy shares in The Sector PLC. One has to pick a handful of stocks. We would suggest that the opportunity for winners to put a vast amount of clear, blue water between them and the losers is greater now than it has been for many years.
PUBS & RESTAURANTS:
Trading & 21 June:
• The British Chambers of Commerce (BCC) claims a delay in lifting restrictions would ‘materially’ hamper Britain’s economic recovery.
• Suren Thiru, head of economics at the BCC, said ‘The UK economy is in a temporary sweet spot with the boost from the release of pent-up demand, if restrictions ease as planned, and ongoing government support expected to drive a substantial summer revival in economic activity, underpinned by the rapid vaccine rollout.’
• The BBPA predicts that England fans will buy 3 million pints on Sunday 13th June when England faces Croatia in the Euros.
• CEO of the BBPA, Emma McClarkin, said that due to physical restrictions ‘we expect pubs to sell 1 million pints less than they would have done without restrictions. That will cost our pubs £3 million on Sunday alone. Given our pubs have been closed or faced restrictions for more than a year, every little helps and is critical to our recovery and survival.’
• The Welsh Beer & Pub Association (WBPA) predict that Welsh fans will buy 250,000 pints as they watch their team take on Switzerland on Saturday 12th June in the Euros.
Working from home & labour issues.
• Go-ahead, the transport operator which runs the Govia Thameslink and Southeastern rail franchises, has said more people are taking its buses and trains than at any time since the start of the pandemic. Passenger numbers are at 65-70% of typical levels on most days and at 80% in some regions.
• A YouGov poll reveals that 70% of British workers agree travelling for work and meeting face-to-face strengthens business relationships. The survey found that young workers aged 18 to 34 were the keenest to escape the house for business travel.
• The BBC asks where have all the workers gone? Good question. Whether it’s beetroot rotting in fields or restaurants having to cut their hours, the shortage of staff is being felt in a number of areas. UKH tells the BBC that there may be ‘the wrong workers in the wrong place at the wrong time’. Meanwhile, unemployment is also an issue with some young people, in particular, struggling to find jobs.
• Tech in a time of inflation. NRN in the US says that, although customers are returning, ‘the threat of inflation keeps anxiety levels high. Food costs, labour costs, equipment, lumber – and even rent – are all skyrocketing to unheard of levels.’ NRN adds ‘inflation is here, no matter what the Fed says.’ NRN says that the use of technology, where possible, will be accelerated in order to cut staff and restrain cost increases elsewhere.
• Menu prices. Albeit in the US, NRN says ‘in the face of inflation, one thing is certain: restaurants will need to increase menu prices in order to maintain profitability. Doing so—particularly in an inflationary macroeconomic environment that could reduce purchasing power for restaurant customers—is a dangerous, if necessary, endeavour.’
Supply chain issues:
• In the US, Starbucks has been hit by supply shortages, reports Bloomberg. Supply chain issues was another of our ‘elephants in the room’. Although it was a somewhat smaller elephant than rent arrears, inflation and labour shortages, having to report that there are “temporary supply shortages” of some key ingredients will not help companies to recover from the Covid-19 pandemic. Starbucks says ‘specific items will vary by market and store, and some stores will experience outages of various items at the same time.’ This would cause “inconvenience” to customers. You can say that again.
Other Covid news:
• UKH has commented on Labour’s calls for further economic support for businesses should unlocking be delayed saying ‘hospitality businesses cannot continue to operate under conditions that leave them unable to trade profitably and so we echo the importance of Government support should there be any delay to the complete lifting of restrictions on 21st June’. UKH continues ‘if Government decides it has to keep some restrictions in place after this date, then it must prioritise those that do the least damage to business and commit to further supporting the sector. Among other measures, the Government must postpone business rates payments until at least October and extend the rent moratorium while a long-term solution is found.’
• The government has launched a Tourism Recovery Plan which aims to bring domestic tourism to pre-pandemic levels by 2022 and in international tourism by 2023. These are both a year ahead of external estimates. There will be a rail pass to encourage staycation travel and there will be “a new focus” on technology and data. There is little detail. There is also the promise of a Sustainable Tourism Plan later this year, which will build on investments such as the England Coast Path. Just how much is new money is unclear.
• UKH has welcomed the above plan saying that ‘we are delighted to see the Government recognising the key role hospitality and tourism plays in the UK with this new Plan.’ It adds ‘the sector is a huge employer of people and investor in local communities and will pay forward to both any support it is given.’ UKH goes further and says ‘as well as this new Plan, this support needs to include a root and branch reform of business rates, support in promoting our sector as a career of choice for everyone and a permanently reduced rate of VAT.’
Company & other news:
• Domino’s Pizza and Fuller’s have this morning separately announced that Neil Smith is to leave his role as CFA at the former to take up the same position at the latter. Fuller’s says Neil ‘is a highly regarded finance leader with over a decade’s experience as a FTSE 250 Chief Financial Officer and comes with a wealth of experience in the pub sector having spent nine years as Chief Financial Officer of Ei Group plc (formerly Enterprise Inns plc), prior to joining Domino’s.’ Fuller’s goes on to say ‘Neil is a strategic thinker and his breadth of experience covers areas including investor relations, corporate finance, treasury and strategic transformation in both testing and buoyant economic environments. In addition, he has a strong track record of building successful teams both within finance and in collaboration with other areas of the business.’
• Domino’s says only that ‘Neil Smith, Chief Financial Officer, has informed the Board that he has decided to leave the Company to take up another opportunity.’ The compnay says ‘the Board will now commence a search process to identify and appoint a successor. Neil will work with Dominic Paul, Chief Executive Officer, and the Board to ensure an orderly transition and is expected to leave on 26 November 2021 following completion of his notice period.’
• Naked Wines plc has reported full year numbers for the 52 weeks ending 29 March 2021 saying that the company is now ‘a bigger and better business with +53% customers and +78% US sales growth.’ Total sales in the year are up 68% to £340.2 million ‘driven by the accelerated channel shift to online wine purchasing due to COVID-19, investment in customer acquisition and favourable customer retention and frequency trends.’ There is nonetheless an adjusted EBITDA loss of £1.5m which is markedly lower than the loss of £10.7m reported in the prior year.
• Re current trading and FY22 guidance, Naked Wines says ‘we have seen a continued strong performance in our Repeat Customer base in the first two months of FY22, with total sales +8% year on year on a constant currency basis. CEO Nick Devlin says the group’s mission has been ‘to disrupt the wine industry for the benefit of customers, our winemakers and our people. In FY21, we made significant progress towards this objective. It is clear to us that t’ He says ‘we believe Naked now stands at an inflection point with outstanding growth potential ahead.’
• Grubhub’s shareholders have approved the proposals necessary to complete the proposed acquisition by Just Eat Takeaway.com N.V. Just Eat says ‘we are pleased that Grubhub stockholders overwhelmingly supported the recommendation of Grubhub’s board of directors on the pending combination with Just Eat Takeaway.com and voted in favor of the transaction.’
• A further $60bn is being proposed for the Restaurant Revitalization Fund in the US. The NRA says ‘for much of the country, life is starting to feel close to normal. While restaurants are optimistic about this trend, we’re still in the early days of rebuilding and are far from recovery.’
• The Mosaic Pub & Dining Company is to open a darts pub in Cheltenham. The company says ‘we couldn’t be happier to be bringing our insanely popular 180 Club concept to this fantastic town.’
• North Coast Brewing Co has acquired Wooha Brewing from administration.
• The Society of Independent Brewers (SIBA) names Roy Allkin as its new National Chair. Mr Allkin is from Boss Brewing, in Swansea.
• Starbucks is to once again allow customers (in the US) to bring their own reusable cups from 22 June
• BrewDog. An open letter issued by former staff at BrewDog alleges a ‘culture of fear’ at the beer company with a ‘toxic attitude’ towards junior employees. BrewDog founder James Watt has said BrewDog was ‘sorry’ and that it would not contest the letter. See also comments in premium email re fear & dysfunctional feedback loops.
• We commented last month that these are good when they work and bad when they don’t.
Dis-functional feedback loops:
• BrewDog is now in the news for operating a ‘cult of personality’ and for leaving employees across different departments with a “residual feeling of fear.”
• There are allegations of bullying, cult-like behaviour, misogyny and hypocrisy. So often, these types of words are used together.
• Also mentioned are private jets, vanity projects and a ‘trigger-happy legal team’ presumably wheeled out to still dissent and quell criticism.
• We won’t go into BrewDog’s ethos, brands, valuations or culture.
• But what we would venture is that bullying behaviour, in business if not on the playing field, can hurt the bully almost as much as the ‘victim’
• This because feedback channels may not function.
Making useful things useful:
• We said previously, feedback needs to be timely, accurate and relevant.
• 360 degree reviews may indeed ‘clog up the system’ – but they are not altogether a terrible idea
• Underlings (be they civil servants, the finance team or the internal auditors), need to be able to speak truth to power
• Incorrect (or incompetent) inputs lead to suboptimal outputs.
• Allowing this to happen, although it is associated with some tyrannical or dysfunctional success stories as well as many failures, is a grievous management failure
• This is Business 1.01.
HOTELS & LEISURE TRAVEL:
• Travel Weekly reports that holiday prices in Portugal have fallen sharply on the country’s removal from the UK’s green list. TravelSupermarket ‘shows the cost for departures in July or August from the UK to Portugal fell by 64% following last Thursday’s announcement.’ It reports that clicks on holidays to the country dropped by 85%.
• EasyJet and Ryanair have echoed Theresa May’s comments that the UK’s traffic light system is a “shambles.” EasyJet says of the UK government that ‘they are making it up as they go along. The UK is isolating itself from the rest of the world.’
• BA is to put thousands of its staff back on furlough due to delays to the restart of international travel.
• Carnival Cruise Line has confirmed the first cruise for Mardi Gras and has outlined the return of additional ships in August.
• STR reports that US hotel performance was flat week-on-week in the week to 5 June. Occupancy is around 62% (down 14% on 2019) and rates are down c7%. REVPAR is some 20% down.
• Polling has revealed that 20% of people are still considering taking a holiday to foreign countries on England’s amber list, despite increased testing and quarantine requirements. Travel agents are calling for ministers to allow people who have had both doses of vaccine to travel to amber countries without testing and 10 days’ quarantine on return.
• Theresa May, fast establishing her rebel creds, has said her government’s traffic lights system is “chaotic.”
• Carnival’s Aida Cruises are to recommence on 29 July.
• Staycity is opening this month in Heidelberg, Germany and the French city of Bordeaux.
• Entain is preparing for more than three million fans across Europe to place bets on the Euros which kick off tomorrow night. This is roughly twice as many as bet on the last World Cup in 2018. France is the most backed to win with almost half of UK fans so far putting money on Les Bleus.
FINANCE & MARKETS:
• OECD figures show that the UK’s recovery from the damage caused by the Covid pandemic lagged behind other big economies in the first quarter of 2021, with economic output 8.7% below pre-pandemic levels at the end of 2019.
• Last month the OECD predicted the UK was likely to grow 7.2% in 2021, up from its March projection of 5.1%, making it the fastest among the large rich countries.
• The Royal Institute of Chartered Surveyors said the housing market is continuing to gain momentum as buyers rush to meet the deadline for the end to partial stamp duty relief, in its monthly survey.
• The ONS has reported that The UK economy grew 2.3% in April, its fastest monthly rate since July last year.
• The BBC asks ‘can countries pay back pandemic debt?’ Good question. A bit of inflation would help reduce the real value of the obligations.
• Sterling up at $1.4181 and €1.1634. Oil higher at $72.19. UK 10yr gilt yield up 3bps at 0.76%. World markets mixed yesterday with London due to open around 12pts higher.
RETAIL WITH NICK BUBB:
• Today’s News: The Naked Wines finals (for y/e March) show the expected strong sales growth (up 68%, with the US up by 79%) and the focus is on the bottom-line impact of that growth and on the outlook. On the former, it is a surprise that losses actually increased slightly, given new customer acquisition costs, but investors will be reassured to hear that sales are still increasing, despite the very tough comps, with total sales up 8% in April/May (up 96% on 2019 levels).
• Yesterday’s News: The delayed Ted Baker finals did not materialise yesterday, as, embarrassingly, the company had to postpone them again (until Monday), as the hapless auditors BDO still weren’t ready…but the delayed Card Factory finals came out, along with a surprise trading update from DFS and a pre-close update from the recently floated Music Magpie. There were few surprises in the Card Factory results, with the business racking up a £15m loss in y/e Jan, after a 37% slump in revenues, but the new CEO Darcy Willson-Rymer, said: “Since joining Card Factory in March 2021, I’ve been immensely encouraged by what I have seen and heard”. DFS, however, flagged that the recent order intake has been so strong (up 92% in the last 10 weeks) that it is confident enough to expect PBT in y/e June 2022 of £66m-£96m, which is down on the £105m expected for the year about to end, but materially
• BDO High Street Sales Tracker: Given the impact of the first lockdown on “non-essential” stores and Food shopping a year ago, it remains hard to make sense of the year-on-year Retail Sales figures at the present, but today’s BDO High Street Sales Tracker for medium-sized Non-Food chains paints another very strong picture for w/e June 6th, given the soft comps. We would, however, as normal, warn that the BDO index is just an unweighted average of the percentage changes in the sales of their reporting retailers and that it is skewed to Fashion…so we don’t think it should be taken too literally. BDO Fashion LFL sales were up c95% (with Online Fashion up c32% on a year ago), whilst Total BDO LFL sales (including some Homewares and Lifestyle retailers, as well as the Fashion retailers) were said to be up by c81% (up no less than c2,252% in Store sales, but up by c8% in Online sales, which
• Next Week’s News: Monday brings the much-delayed Ted Baker finals. The Boohoo Q1 update is on Tuesday (ahead of the Boohoo AGM on Friday). The AO.com finals are on Wednesday, along with the Motorpoint finals. Thursday brings the Halfords finals and the Sainsbury ESG event/presentation to investors/analysts. Then on Friday we get the ONS Retail Sales for May and the Tesco Q1 update. The European Football Championship starts this evening, but England don’t play their first match, against Croatia, until Sunday afternoon. In other news, the hapless PM is expected to tell the nation on Monday evening (after briefing the press first) whether the lifting of Covid restrictions will occur on June 21st, as per the roadmap…and there should be more news next week on the progress of the IPO’s of Made.com and Victorian Plumbing…