Langton Capital – 2022-07-20 – PREMIUM – CPI numbers, Tracker, labour issues, Shepherd Neame, NFX & other:
CPI numbers, Tracker, labour issues, Shepherd Neame, NFX & other:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
We’ve got a puppy and, as passport renewal problems and a dearth of people willing to dog-sit for us will be keeping us in the UK, we’re looking at staycation cottages.
Many of which say they’ll allow one well-behaved, small dog to stay in the property hence we’re working on the basis that two out of three isn’t bad.
Or maybe even three out of four because there’s only one of her, she’s definitely a dog and she is, at the moment at least, small.
The well-behaved bit perhaps not so much but, if you view that as an aspiration rather than a demand, we’re home and dry with all four requirements met.
Anyway, we’ll continue to do our bit for the domestic hospitality industry this summer and, with that in mind, we’d better get on and book something.
Here’s to a somewhat cooler day and on to the news.
TRACKER NUMBERS FOR JUNE:
CGA has reported that ‘hospitality groups’ like-for-like sales up 5% in June, but inflation bites.’ It says that the Jubilee holidays helped restaurants, pubs and bars to solid growth but it adds that London trading dipped back below pre-COVID-19 levels after the rail strikes. This ‘represents the strongest month of like-for-like growth since the start of 2022. However, June’s figures are skewed by the Queen’s Platinum Jubilee, which provided two Bank Holidays against none in June 2019. The growth is also below inflation as measured by the Consumer Price Index, which recently topped 9%…’
• CGA says ‘restaurants were the strongest performing of the Tracker’s three hospitality segments in June, with like-for-like growth of 8%. Pubs’ sales were up by 3% on three years ago, and bars’ sales rose by 5%.’
• Regionally, CGA says ‘trading in London remains challenging, the Tracker shows. After a flat performance in May, like-for-like sales within the M25 were down by 1% in June, compared to 7% growth beyond the M25. It follows rail strikes over several days in June, which significantly reduced footfall from workers and visitors in London.’
• It goes on to say that delivery remains a major feature but adds the Tracker also suggests that some consumers who have opted for deliveries since the start of the pandemic are now returning to eating out. Managed groups’ dine-in only sales were up by 2% on a like-for-like basis in June—the first time this year that they have been in line with total growth.’
Inflation taking the shine off:
• CGA’s Karl Chessell says ‘like-for-like sales growth of 5% would represent a strong performance for managed groups in most months. However, high inflation means sales are down in real terms, and mounting costs continue to pile pressure on profit margins. The first half of 2022 has brought some welcome stability to the hospitality sector, and consumers have returned to most of their pre-pandemic habits—but while the long-term outlook remains good, there may be some tough months ahead for many businesses.’
• Mark Sheehan at Coffer Corporate Leisure comments ‘we are seeing a very slow return to normality. Recently publicly announced results show Loungers at 17.9% like-for-likes on 2019 and Wetherspoons at 0.5% for example. Some operators and locations are trading well. Inflation and recruitment remains a priority.’
• Paul Newman at accountant RSM UK comments ‘with the late May bank holiday falling into June this year and the additional day for the Jubilee, operators saw a welcome boost to sales for the month.’
• He adds ‘but even the Queen’s gift to the nation won’t reverse the wider economic challenges facing the sector. Stripping out the bumper bank holiday, and with sales growth tracking behind inflation, the underlying trend is still one of squeezed margins and flat sales. A new Prime Minister could be just the silver lining operators have been waiting for, with a change in tone at the top of Government potentially bringing about meaningful reforms to the way businesses are taxed. An improved business rates system would be an obvious way for new leadership to bring back the UK’s thriving high streets and encourage consumer spending.’
• The Tracker makes the point that 5% LfL growth, which is ‘good’, is actually not good enough for operators to stand still in the current inflationary environment.
• LfL is a decent measure of performance, but it does not tell the full story. The numbers do not comment as to costs and therefore margins and nor do they in this case split out food from drink or comment on volumes (which will be down) versus price increases. There is no comment on discounting versus full price sales.
PUBS & RESTAURANTS:
Labour & real wages :
Although views may differ about which inflation figure to use to deflate nominal earnings, the press seems in no doubt that ‘regular pay is falling at the fastest rate since 2001 when taking into account rising prices, official figures show.’ That from the BBC.
The above is not lost on organised labour, which is responding in a predictable though untried-for-decades manner, namely by going on strike. Strikes are announce and looming or likely from the RMT and Aslef on the railways, from BT and from Royal Mail workers. Heathrow is also facing a strike by refuellers this week after the latter rejected a revised pay offer.
• And the unions could be restive elsewhere in the public sector. NHS staff are to get at least a 4.5% pay rise with teachers at least 5% and police officers £1,900 a year.
• This isn’t the place to go into the whys and wherefores of calling inflation ‘transient’ – as governor of the Bank of England Andrew Bailey did for some considerable time – but rather, perhaps, to consider that ‘Team Transient’ is in full retreat (per Bloomberg) and that sneakily stopping the game of ‘pass the (unpleasant) parcel’ was never likely to get past those whose labour is professionally represented.
The ONS this morning has announced that the Consumer Prices Index (CPI) rose by 9.4% in the 12 months to June 2022, up from 9.1% in May. It says ‘on a monthly basis, CPI rose by 0.8% in June 2022, compared with a rise of 0.5% in June 2021.’
• The ONS adds ‘rising prices for motor fuels and food made the largest upward contributions to the change in both the CPIH and CPI 12-month inflation rates between May and June 2022.’ Interestingly, the ONS says that second hand car prices have been falling. It adds ‘the largest, partially offsetting downward contributions to change in the rates were from second-hand cars and audio-visual equipment (principally recording media).’
The ONS adds ‘food and non-alcoholic beverage prices have risen by 9.8% in the year to June 2022, up from 8.7% in May, and the highest rate since March 2009…’
• It says ‘the annual rate partly reflects price rises over the latest few months, including a 1.2% rise between May and June 2022. This monthly rise was the largest between May and June since 2008, and it follows similar monthly rises into April and May 2022.’ The ONS says ‘the largest upward effect came from milk, cheese and eggs, where prices of milk and cheese rose between May and June 2022, compared with price falls a year ago. Other upward effects came from vegetables, meat and other food products (such as ready meals).’
• The stats also report that ‘prices charged in restaurants and for accommodation rose by 8.6% in the year to June 2022, up from 7.6% in May. The annual rate to June 2022 was the highest since 8.6% recorded in August 2021, which was influenced by the effect of the previous year’s Eat Out to Help Out scheme.’
• Continuing on restaurants & accommodation, the ONS says ‘prices rose by 1.2% between May and June 2022, compared with a smaller rise of 0.3% a year ago. However, it should be noted that some items within this category were imputed in June 2021 because they were still not available following the coronavirus lockdown earlier in the year. This means that monthly movements for those items in 2021 reflect imputed index movements and should be interpreted with caution.’
In addition to today’s news on the CPI from the ONS, Kantar reports that annual grocery bills have risen by £454. Kantar Worldpane4l says that grocery price inflation was 9.9% in early July, the second-highest level it had ever recorded since comparable records began in 2008.
• Kantar says ‘grocery prices continue to soar to near record-breaking heights and have jumped by another 1.6 percentage points since last month’. That, annualised, is clearly a lot more than 9.9%.
• So it’s to be hoped that current months do not annualise. The numbers have a demographic implication in that less well-off consumers have a higher propensity to spend and, in addition, they are obliged to spend a larger proportion of their income on food, energy and other essentials.
• Kantar concludes – and this may not come as a surprise – that ‘all this means that people will be feeling the pinch during our first restriction-free summer since 2019.’ It says ‘taking a barbecue as an example, buying burgers, halloumi and coleslaw for some al fresco dining would cost you 13%, 17% and 14% more than it would have this time last year.’ What’s halloumi?
Giving a view as to what the main drivers are in the off-trade, Premier Foods has updated on Q1 trading today saying that sales are up 6% and that the co remains ‘firmly on track to deliver full year expectations…’
The co says that ‘we have made good progress in recovering our input cost inflation through a range of measures, including cost efficiencies and pricing, and we continue to monitor the situation closely. Consumers are increasingly looking to cook tasty affordable meals at home; this fits well with our broad portfolio of brands and was illustrated by the strong performance of Batchelors and Nissin in the quarter. With this positive trading momentum behind us, we remain firmly on track to deliver our expectations for the year…’
• Re the outlook, PFD says ‘trading so far this year has been in line with the Board’s expectations, with the Group delivering strong sales growth and further market share gains. As expected, good progress has been made in recovering industry wide input cost inflation through a range of measures, including cost efficiency and pricing action and the Group continues to monitor the situation closely. The Group’s expectations for FY22/23 remain unchanged and in the medium term, it expects to continue to realise further shareholder value through the ongoing delivery of its five pillar growth strategy.’
Sacha Lord, NTIA Chairman and one of the UK’s four Night Time Economy Advisers, has called on the Government to ease visa rules to stem the jobs crisis hitting the hospitality sector…
• Lord has called for a relaxation to current visa rules to allow international entry-level hospitality staff to enter the workforce. The Office for National Statistics revealed in March that almost 100,000 EU nationals had left accommodation and food services in the two years to June 2021 — the highest of any industry, a result of the Covid pandemic which prompted many foreign staff to return to their families, and difficulties meeting the criteria needed in the EU Settlement Scheme introduced during Brexit.
The latest Bloomberg Pret index concentrates on the bigger picture, saying the purpose of it was always ‘to track the economy’s return to normality using transactions at Pret A Manger Ltd.’ It says numbers showed ‘whether hundreds of thousands of bankers, asset managers and corporate lawyers were repopulating those areas [city centres] as firms recalled workers to the office’.
• The index shows that, for the week to 14 July, mobility declined. This may have been partly down to the weather. Pret says UK airport sales were 140% of pre-Covid levels, down 2pps on pre-Covid numbers. London suburbs were 118% (down 7pps) and London stations were 101% (down 7pps). The West End was at 88% (down 9pps) and London City was 83% (down 4pps). By way of comparison, New York mid-town and downtown were at 45% and 38% of pre-Covid levels respectively.
WFH. Whilst Pret data above shows the West End lagging, Shaftesbury Capital CEO Brian Bickell has told City AM that the West End will bounce back quickly after what could be a quiet period as a result of the heat…
• Mr Bickell says ‘people are going to avoid city centres because they’re the hottest places.’ He adds ‘by the weekend people will be back to doing the things they’re normally doing.’ It certainly would appear that, to the naked eye at least, the international tourists are back.
The BII has said the heat has obliged a number of pubs to close in order to keep staff sate.
Travel will have been difficult yesterday (and rolling stock will be out of place today) as a result of cancellations of rail services due to the hot weather. There were no services into or out of King’s Cross and cancellations yesterday pushed what should have been a 2hr journey out to around 5hrs…
The FT reports that leading retailers have urged the UK government to pass on an expected reduction in business rates as a result or re- and de-valuations of assets immediately. One property consultancy believes around £1bn in excess rates should be handed back to retail.
Sunscreen and ice cream sales have shot up. Wet sales should have been good though with the temperatures as high as they were, many consumers may have stayed at home.
Subscriptions, one of the un-lockdown losers. Netflix is reported to be expanding its push to charge people for sharing accounts.
Shepherd Neame has announce that it has ‘expanded its estate with the acquisition of contemporary Bournemouth seaside bar and restaurant Urban Reef.’ It says ‘located next to the beach on Boscombe Promenade, Urban Reef opened in 2009 and is a stylish two-storey venue comprising a bar, café, deli and restaurant, boasting stunning panoramic views of Bournemouth Bay, from the Isle of Wight to the Purbecks and beyond.
• MD Pubs Jonathan Swaine says ‘this acquisition follows the strong company performance revealed in our latest Trading Update at the end of June. We are now actively looking for opportunities to grow and develop our high quality estate and are delighted to have acquired Urban Reef, a unique offering in a unique beachfront location. Our coastal pubs and hotels have seen particularly encouraging sales during the past year, and we are confident that with its fantastic reputation and loyal customer base, the addition of Urban Reef to our portfolio will allow us to accelerate that growth.’
RedCat Pub Company has acquired The Meynell Ingram Arms and The Cock Inn Mugginton from Berkeley Inns Limited.
Chipotle in the US has closed its first store in the country to unionise. The co says ‘despite the considerable time and resources we’ve spent trying to staff the restaurant, we don’t have management necessary to reopen and, combined with the ongoing callouts and lack of availability of existing staff, we won’t be able to open the restaurant for the foreseeable future.’
Risk reduction. Stonegate has told the MCA that its investments in the short term will focus on conversions.
• This may become a theme. Not quite in our sector but, yesterday, Hotel Chocolat announced reduced ambitions / a more cautious approach to expansion. The latter fell by 44% on the day.
Fever-Tree has announced that NED Kevin Havelock has bought 30,816 ordinary shares in the Company at a volume weighted average price of GBP £8.90 per ordinary share.
HOLIDAYS & LEISURE TRAVEL:
Luton airport reopened yesterday after mending its melted runway. Train services to the airport remained subject to substantial disruption.
Eurostar says it has seen a “robust return” of business travellers. It says 75% of the pre-pandemic timetable is now running and business travel is up to 70% of 2019 levels.
Apple is planning to slow hiring and spending growth next year reports Bloomberg.
Netflix yesterday reported better-than-expected Q2 earnings seeing a smaller fall in subscriptions than had been originally forecast.
• Netflix reported revenue for the quarter of $7.97bn, below analysts’ expectations of $8.04bn. The co says ‘our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content and marketing as we’ve done for the last 25 years, and to better monetize our big audience.’ The shares are down by around 67% this year.
The Guardian reports that ‘Twitter has won the first legal skirmish in its attempt to force Elon Musk to complete a $44bn (£36.7bn) takeover of the social media company, after a judge ruled that a trial will take place in October.’
FINANCE & MARKETS:
Inflation numbers from the ONS. See Pubs & Restaurants above.
Commenting on the latest Labour Market statistics, the BCC says ‘the labour market remains incredibly tight, in many cases affecting firms’ ability to maintain normal operations.’
• The BCC adds ‘the problems in the labour market are restricting growth and choking off any hope of a recovery for many firms; as inflation, supply chain disruption and energy costs also add to their headaches.’ The BCC says ‘we need to bring more economically inactive people back into the UK labour market by offering flexible working practices, rapid re-training opportunities and a focus on workplace healthcare and support.’
• The BCC has called for a post-Brexit reform of ‘the Shortage Occupations List criteria to include more jobs at more skill levels to give firms breathing space to train and upskill their workforce.’ It concludes ‘the huge number of vacancies is holding back productivity and growth, and employers are at their wits’ end.’
Bank of England governor Andrew Bailey, who had earlier maintained that inflation was transient, seems to have changed his mind. He says that bigger interest rate hikes (i.e. larger than 0.25%) could be on the cards. He said that such a move is “not locked in.”
• Mr Bailey said yesterday ‘at the MPC’s last meeting we adopted language which made clear that if we see signs of greater persistence of inflation, and price and wage setting would be such signs, we will have to act forcefully.’ He added ‘in simple terms this means that a 50 basis point increase will be among the choices on the table when we next meet.’
Sterling mixed at $1.2031 and €1.1741. Oil higher at $106.76. UK 10yr gilt yield up 4bps at 2.20%. World markets better yesterday and London set to open around 39pts higher as at 6.30am.
Deliveroo and Tortilla update on trading on Monday and Loungers hosts investor presentations on Tuesday. Fuller’s hosts its AGM (and will update on trading) on Wednesday and Premier Foods also updates on Q1 on Wednesday and Fulham Shore reports full year numbers on Thursday. DPEU will update on H1 trading, also on Thursday.
Big week for economic releases. We have Unemployment and Average Earnings numbers on Tuesday then Inflation numbers on Wednesday. Thursday sees the ONS admit to how much the government is Borrowing on behalf of taxpayers and on Friday we have a triple whammy of Retail Sales numbers, the GfK Consumer Confidence Index and Flash PMIs for July.
RETAIL WITH NICK BUBB:
• Today’s News: On top of all the usual share buyback announcements, there’s been an update from the Motor dealer Pendragon (best known for its Evans Halshaw and Stratstone brands), to flag a strong H1, with PBT only slightly down from £35m to £33m and that, despite softening consumer sentiment, “we continue to expect to deliver group underlying profit before tax in line with Board expectations”. We can’t see anything from Ocado or M&S, however, to confirm yesterday’s news that the head of Ocado Retail, Melanie Smith, is to step down suddenly after 3 years in charge…
• Grocery Market Share Watch: The latest monthly Kantar grocery sales figures (for the 4 weeks/12 weeks to July 10th) came out at 8am yesterday morning and the Kantar overview was headlined “Grocery prices continue to climb as shoppers prepare for scorching summer heat”, flagging that total take-home grocery sales over the last 12 weeks were just 0.1% up on a year ago, even though the food industry price inflation rate edged up from +8.3% a month ago to as much as +9.9% in the last four weeks…Kantar also flagged that shoppers are now facing a £454 increase to their annual grocery bills, people are increasingly turning to own-label products to drive down the cost of their weekly shop and Lidl was the fastest growing supermarket again in the last 12 weeks, as its sales increased by 13.9% (Aldi was up 11.3%).
• Today’s Press: According to the invaluable Guardian morning email briefing, the hottest temperature ever recorded in Britain dominates today’s front-pages. The Daily Mirror’s splash headline says “40C Britain’s burning” across a shocking photo of the houses on fire in the village of Wennington in Essex, on the eastern outskirts of London. A strap line says “Hottest day in history”. The Guardian shows the burning houses as well and its splash headline reads: “‘A wakeup call’: UK hits highest ever temperature”. The Metro picks out 40.3C in flaming orange and says “Burning hot Britain”. The Sun has “Hellfire” over a similar picture and says the heatwave “brings UK to standstill”, but adds “now bring on the rain” with some showers and storms forecast. “Britain ignites as temperatures break 40C barrier for first time” says the Telegraph, accompanied by the burning house. In a change of tone
• This Week’s News: Tomorrow brings the Frasers trading update, the Howden interims, the Ocado interims and the Dunelm Q4 update. On Friday we get the latest monthly GFK Consumer Confidence index and the ONS Retail Sales figures for June, plus the JD Sports AGM.