Interest rates, state of play, C&C, Jet2, un-lockdown losers & other:

PREMIUM EMAIL – PLEASE DO NOT FORWARD:

A DAY IN THE LIFE:

How is it that, when I try to navigate our Firestick or even the general remote, the speed of light seems to slow down?

I mean I doubt I’m bouncing the signal off the moon or any other body distant enough to make a difference, so what’s going on?

Indeed it’s so bad that, when scrolling programmes or changing from one channel to another, I can end up five or ten clicks ahead of the screen such that I don’t know what on earth is going on.

And I know the rationale response it to throw the remote at the screen and knock over your cup of tea before flouncing out of the room – but that just wouldn’t solve the problem at all, would it?

Anyway, the Championship playoffs start this weekend. They were skilfully swerved by The Mighty Hull City (by losing on the last day of the season) and the team went on to accidentally sack its highly-regarded manager leaving supporters somewhat baffled. 

Anyway, have a great weekend, weather looks good. On to the news:

PUBS & RESTAURANTS:

Interest rates:

Bank of England Governor Andrew Bailey indicated interest rate cuts could happen as early as June but are more likely in August or September. Bailey stated that while there’s optimism about slowing price rises, more evidence is needed before considering cuts. Despite inflation currently at 3.2%, forecasts suggest it will approach the Bank’s 2% target soon, with economic growth expected to be 0.4% for Q1 2024 and 0.2% from April to June. UKH has expressed disappointment…

• Anna Leach, Deputy Chief Economist at the CBI, commented that the 7-2 vote to hold rates aligns with their expectations, indicating the MPC’s cautious approach. Leach said that despite signs of economic recovery, the delicate balance between managing inflation and supporting growth suggests a likely rate cut in August.

• The Telegraph and some others (such as UKH, see below) are still lobbying for a June cut.

• Kate Nicholls, Chief Executive of UKHospitality, expressed disappointment at the decision to not ease interest rates despite sustained decreases in inflation. Nicholls highlighted the challenges faced by hospitality businesses, especially regarding Covid-related loan repayments, and emphasised the importance of lower interest rates in freeing up cash for investment and business growth.

• As would be expected, Ms Nicholls stresses the positive role that hospitality can play in revitalising the economy. She says ‘hospitality has a track record of driving economic growth, creating jobs and helping regenerate towns and cities, when it has the financial headroom to invest. A lower interest rate is a key component of freeing up cash for businesses, and I hope to see rates come down next month.’

State of play:

A joint survey by UKHospitality, the British Beer & Pub Association, Hospitality Ulster and the British Institute of Innkeeping has showed that pubs and hospitality venues ‘have the appetite to invest in the future of their businesses, despite the wide range of cost pressures they continue to face.’

• The survey reports that, despite financial pressures, ‘95% of operators are planning to invest in customer service, 92% in staff training, and 71% in venue refurbishments, all up significantly on last quarter.’

• The survey finds that ‘despite more than 33% of operators seeing an increase in revenues, 70% of venues have seen a reduction in profit, with nearly 50% of venues operating at a loss or just breaking even.’ It adds that ‘one-in-four businesses still remain completely exposed, having no cash reserves, with nearly one-in-two having six months or less’ and says that ‘66% of businesses now have significantly increased wage costs.’

• In a joint statement, the trade bodies commented ‘our regular survey of our joint memberships showed the resilience of our sector, as well as an appetite to invest in teams and venues for the future. Consumers choosing to spend their disposable income in pubs, restaurants, hotels, and cafes is no surprise, as we provide a much-needed opportunity for fun, celebration and vital social connection, but in order for our members to survive and thrive, they need to be profitable.’

• The bodies add ‘profitability has been heavily impacted by high inflation in food and drink, high energy costs, disruption from rail strikes and the impact of increased labour costs, that have had a ripple effect at every level.’

• The statement concludes ‘the sector is innovative, adaptable and has the potential to provide much needed growth for the economy, creating vital local employment and bolstering local supply chains, all whilst supporting essential social connection in high streets, towns and cities. In order for operators to invest in this potential, however, the sector also needs a fairer, modern and more proportionate tax and regulatory regime, enabling it to remain at the heart of local economies and communities across the UK.’

Other news:

Costs. Interviewed on the Today Programme earlier this morning, City Pub Group’s Clive Watson said that labour costs had risen by around 20% in the last two years and that prices had moved up to cope. He suggested that the move by government was inflationary and that a better way to address low pay would have been to increase personal allowances. Mr Watson reported that beer prices had risen ‘by 7-8%’ in the last year or around 40p per pint.

John Lewis is reported set to cut 3,800 jobs. A weakening jobs market will a) impact demand and b) will strengthen the case for rate cuts.

COMPANY NEWS:

C&C Group has this morning announced that its full year numbers, previously scheduled to be released on 23 May, will be delayed. The company reports ‘whilst the preparation of the Group’s Annual Report and Accounts for FY2024 is well advanced, additional time is required to complete a review of certain non-cash accounting measurements relating to previous financial periods…’

• C&C adds that it ‘re-affirms its guidance of an expected FY2024 underlying operating profit outcome of c.€60 million, in line with current market expectations. With increasing confidence in the medium-term outlook for the business, together with its strong cash generation and conversion, C&C also re-affirms its intention to return €150 million to shareholders over the next three years within its stated leverage range.’

• The company, which isn’t the first to delay results due to longer audit processes than in prior years and is unlikely to be the last, says ‘the rescheduled date for the Group’s FY2024 full year results announcement will be provided as soon as possible.’

Dishoom is set to expand its Permit Room concept with new venues in Oxford and Cambridge this year. The all-day bar-café concept, inspired by Bombay’s permit rooms, will offer a range of ‘drinking food’.

Insolvency Insider reports that Ryan Grant and Howard Smith of Interpath Advisory, the joint administrators of Milton Portfolio Op Co 3, (a portfolio of Wear Inn Pubs) have secured deals for all 25 of the company’s pubs after the sites traded for over five months in administration….

• The trade knew that already but, looking at the deal from the point of view of the administrator, Insolvency Insider says that ‘all 264 employees were retained while a competitive bidding process was conducted, resulting in significant interest across the nation.’ It adds that ‘Avison Young and Watling Real Estate were joint agents for the sale, and said that interest had exceeded expectations, demonstrating that the market remains strong for the right pub product.’

Oregon-based Dutch Bros reported record Q1 sales, reaching $275.1m, up 39% YoY….

• LfL sales increased by 10%, with the drive-thru coffee chain attributing its success to menu additions like protein coffee and bubble tea. Dutch Bros plans to open over 150 new stores in 2024 to reach 1,000 sites by mid-2025.

• CEO Christine Barone says ‘we delivered exceptional results and witnessed the momentum we saw leaving 2023 continue into the first quarter. Our traffic trajectory is particularly encouraging and has now improved for two consecutive quarters. We are also seeing traction driving awareness in new markets, and are investing more to capitalise on this opportunity,’

Krispy Kreme reported strong Q1 results, with net revenue up 5.7% YoY to $442.7m and organic revenue increasing by 6.7% to $440.9m….

• Despite a GAAP net loss of $6.7m, adjusted EBITDA grew 5.9% to $58.2m, driven by increased digital sales and strong consumer demand. CEO Josh Charlesworth highlighted the success of their global expansion strategy, particularly the Delivered Fresh Daily program, which will accelerate further with the nationwide rollout at McDonald’s.

• Josh Charlesworth, CEO, says ‘first-quarter results exceeded our expectations, driven by increased digital sales and strong consumer demand, highlighted by a record setting Valentine’s Day with specialty doughnuts available in 33 countries around the world.’ 

Papa John’s announced its Q1 results, revealing a 2% decline in North America comparable sales and a 3% decrease in International comparable sales. Despite challenges, the company reported 8 net unit openings and global system-wide restaurant sales of $1.23bn. Operating income decreased by 11% YoY, while adjusted operating income increased by 10%….

• Ravi Thanawala, Papa John’s Interim CEO and CFO, emphasised the progress made on strategic initiatives like Back to Better 2.0 and International Transformation, aiming for sustainable growth and increased franchisee profitability.

Beyond Meat reported a wider-than-expected quarterly loss and an 18% drop in revenue due to weakened demand for its higher-priced plant-based meat products….

• Despite price increases, volumes fell by 16.1% as consumers tightened spending, leading to pressure on margins from higher manufacturing and material costs. Analysts note that the plant-based industry faces challenges amid consumer belt-tightening, with Beyond Meat’s shares falling about 14% in after-hours trading.

The Times reports that Gordon Ramsay is ‘betting on the continuing return of City workers to the office after announcing plans for the UK’s highest restaurant and bar at 22 Bishopsgate, London.’

Heineken’s United Breweries Limited (UBL) reported a significant increase in profit, with net profits soaring to $7.7m and revenue from operations rising 17% YoY to $459m in calendar Q1….

• The company attributed the growth to strong performance in the premium segment, particularly driven by brands like Kingfisher Ultra and Kingfisher Ultra Max. UBL remains optimistic about long-term growth prospects.

LOSING STREAK OF WHAT HAD PREVOUSLY BEEN LOCKDOWN WINNERS:

Introduction:

• The FT ran an interesting piece yesterday suggesting that pandemic era winners have suffered a US$1.5 trillion fall in value. The piece is rather US-centric but, whilst the bigger examples cited by the FT may include US giants such as Zoom, Peloton, Pinterest, there are several examples on this side of the pond.

In the UK

• Online retailers may have been amongst the largest losers in the UK. Habits did revert and, whilst online delivery remains a growth industry, volumes have been either exhibiting more modest growth or, in some cases, have actually been under downward pressure.

Food delivery:

• Similarly, food-delivery majors, Just Eat Takeaway and Deliveroo, are currently trading down 88% and 68% respectively from their Covid-era peaks. And, interestingly, ROO, which floated in 2021, considered that it was in danger of going bust when it was soliciting permission for Amazon to take a stake in 2020.

Online gambling:

• Whilst the gaming companies are part of larger corporations – and they have been embroiled in legislative issues – they have also lost value. Entertain (Ladbrokes) and 888 Holdings (William Hill) have lost 68% and 81% respectively of their value since their 2021 peaks.

Video gamers:

• Also caught up in the idea that habits had changed permanently were the video games companies. People were at home, they had more time on their hands but, as the world unlocked, they simply weren’t and they didn’t. Tinybuild, Frontier Developments, Devolver and Team 17 are down 98%, 91%, 89% and 69% respectively since their peaks.

Lessons to be learned:

• Hope springe eternal and the vendors of shares in the (largely disastrous) IPOs of 2021 used this to their advantage. Not that there won’t be winners from the ashes, of course. Think Amazon (vs the likes of Toys.com etc) post the dot.com crash. But, almost always, there will be ashes before there are winners.

HOLIDAYS, HOTELS & LEISURE TRAVEL:

Jet2.com and Jet2holidays are boosting capacity for summer 2025 by adding 35,000 seats across destinations in Spain, Turkey, Greece, and Croatia from nine UK airports….

• The expansion includes additional seats to popular destinations like Malaga, Majorca, and Dubrovnik, with Jet2holidays also advancing its summer 2025 programme from Liverpool by a month. CEO Steve Heapy highlighted the response to customer demand and the positive impact on the Liverpool operation.

• As mentioned previously, supply in the holiday market can be (almost) as big a problem as demand because, when capacity goes on, it will sell – it is just a question of ‘at what price?’

Alpine Action, a UK ski operator with five catered ski chalets in Meribel, has ceased trading as of May 7, 2024, due to significant commercial challenges exacerbated by Brexit and Covid. The closure impacts bookings for the 2024-25 winter season, with affected clients to receive full refunds.

Hoseasons experienced a significant increase in staycation bookings during the recent bank holiday weekend,  up 44% YoY….

• This surge was attributed to ‘improved British weather conditions; (which passed unnoticed by many) and the company’s Great British Super Sale. Bookings for later in the month, including the Whitsun half-term, were particularly strong, with Devon being the most popular destination.

Amadeus reported a 2.8% increase in air bookings through its global distribution system in Q1, signalling a normalisation in booking growth….

• The company’s air distribution revenue rose by 12.6% YoY to €764.4m, with increased revenue per booking attributed to factors like pricing effects and a lower mix of local bookings. Bookings in the Asia-Pacific region drove growth, while other regions saw mixed performance.

Research quoted by The Times suggests that ‘thousands of international travellers who used to visit the UK for VAT-free shopping have turned to luxury retailers in Paris and Milan after the British government scrapped the tax incentive in 2021.’ It says some 162,000 visitors from non-EU countries sought VAT refunds in the UK in 2019. Now 20 per cent of those tourists are claiming tax rebates in EU countries which still have shopping schemes.

OTHER LEISURE:

Blackstone appears to have emerged as the likely winner in the bidding war for Hipgnosis Songs Fund with its £1.26bn offer after rival Concord Music decided not to up its £1.21bn offer. If approved by at least 75% of Hipgnosis shareholders, Blackstone’s bid would mark a significant development in the music rights investment landscape.

FINANCE & MARKETS:

For interest rate comments see Pubs & Restaurants above

In a move that is likely to confirm that the UK’s recession was a) short and shallow b) over, the ONS reports this morning that ‘monthly real gross domestic product (GDP) is estimated to have grown by 0.4% in March 2024, following growth of 0.2% in February 2024 (revised up from 0.1% growth in our previous publication) and an unrevised growth of 0.3% in January 2024….’

• The ONS reports that ‘real gross domestic product is estimated to have grown by 0.6% in the three months to March 2024, compared with the three months to December 2023.’ It says that on a quarterly basis, this gives growth of 0.6% in Quarter 1 (Jan to Mar) 2024, following declines of 0.3% in Quarter 4 (Oct to Dec) 2023 and 0.1% Quarter 3 (July to Sept) 2023.’

• The ONS says that ‘services output grew by 0.5% in March 2024, following growth of 0.3% in February 2024 (revised up from 0.1% growth in our previous publication), and grew by 0.7% in the three months to March 2024; services output was the largest contributor to the growth in GDP on both the month and the three months to March 2024.’ Production output grew by 0.2% in March 2024 and construction output fell by 0.4% in March 2024.

• Ben Jones, CBI Lead Economist, comments ‘back-to-back increases in output over the first months of this year suggest the UK is now on the road to recovery. With falling inflation boosting households’ spending power, as well as opening the way for a reduction in interest rates in the months ahead, the economy should be able to sustain some momentum through the year.’

• He says ‘but a consumer-led recovery could prove short-lived without more determined action to tackle the long-standing problem of weak productivity growth, which ultimately sets the UK’s economic speed limit.’

• Mr Jones says ‘firms want to see action that could help support investment and cut costs which, includes extending full expensing to leased and rented assets, and a business tax roadmap to give firms the certainty and confidence they need to plan ahead and invest in a vibrant UK economy.’

The NIESR says ‘we do not expect a rate cut until August. We now anticipate only two rate cuts by the end of 2024, leaving Bank Rate at 4.75 per cent….’

• It adds ‘this path reflects a cautious unwinding of monetary policy given the upside risks posed by persistent core inflation, elevated wage growth and geopolitical challenges.’

• The NIESR adds ‘we forecast GDP growth of…0.8 per cent in 2024 relative to 2023. However, geopolitical risks from the conflict in the Middle East present substantial downside risk and our view remains that the trend growth rate of UK GDP is only 1 per cent.’

• It goes on to say that, whoever wins the next general election, taxes will have to go up if it is to ‘meet its (arbitrary) fiscal rules’. The NIESR says ‘we now project that the government does not meet its fiscal targets based on its current spending plans. Not only are these rules are not being met, but they are also inadvertently constraining the public investment needed to improve economic growth.’

Sterling mixed at $1.2512 and €1.1623. Oil higher at $84.45. UK 10 year gilt yield up 1 basis point at 4.15%. World markets better again yesterday and London set to open up around 40 points as at 6.30am.

RETAIL WITH NICK BUBB:

• Today’s News: After the Boohoo finals on Wednesday, Frasers announced after-hours yesterday that it had topped up its stake in Boohoo from c22.1% to c23.1%…but there is no confirmation yet of the recent Sky News story that Mike Ashley’s Frasers is close to agreeing a deal to buy Ted Baker’s British operations from the administrator. As for today, Mothercare has issued a trading update for y/e March, to flag that adjusted EBITDA for FY24 will be marginally above the £6.7m achieved in the previous year and in line with market expectations, despite a 13% drop in net worldwide retail sales by franchise partners to £281m. However, Mothercare has also noted that “the interest rate on the group’s existing loan facility is currently c19.2%, which coupled with the extended time to return to pre-pandemic retail sales levels, particularly in our Middle Eastern markets, means the Board’s current
forecasts for continuing operations show the group requires waivers to our covenant tests…we are well advanced in looking at various financing alternatives to give us both additional flexibility and reduced cash financing costs”.

• Today’s Press: The invaluable press summary email from the Guardian flags that the Guardian itself leads its front-page today with the headline “Fear and trepidation’ as 100,000 people flee Rafah bombardment”. The Telegraph has “Hunt urges bank not to rush rate cuts”, while the Financial Times says “Anglo’s investors in South Africa open to sweetened takeover offer”. The Daily Mail reports “Worse whooping cough outbreak in forty years” and the Daily Mirror follows the same story with “Whooping cough warning”. The i has an interview with Boris Johnson’s former chief adviser under the bizarre headline “Cummings: ‘Boris and I saved thousands from Covid – but we won’t talk again’”. Finally, the Times leads with “Truancy up by a fifth on Fridays”, but it also flags the latest MPC interest rate decision (to leave rates unchanged at 5.25% by a 7-2 majority) with the headline “Bank raises
hopes of rate cut but Hunt warns against ‘rush decision’”.

• News Flow Next  Week: Tuesday brings the Currys pre-close update and a Greggs trading update. On Wednesday we get the Burberry finals and the Lords Group finals, along with the Greggs AGM. Thursday then brings the Watches of Switzerland Q4 update, plus the Next AGM and the Just Eat AGM, with the LandSecs finals following on Friday.