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Morning Briefing for pub, restaurant and food wervice operators

Wed 16th Sep 2020 - Loungers founder says this could be ‘our time’ as like-for-likes rise 29.9%
Loungers founder says this could be ‘our time’ as like-for-likes rise 29.9%: Loungers has reported 29.9% like-for-like sales growth in the ten weeks since reopening on 4 July to 13 September. The like-for-like sales benefit from Eat Out To Help Out and the VAT cut on food and non-alcoholic drinks. The company stated: “Excluding these positive impacts, like-for-like sales have been positive over the nine weeks from 13 July to 13 September. The company has opened two new sites – and plans to open four more by the end of the current financial year.” Chief executive Nick Collins said: “I am delighted with the strength of our performance since reopening, which highlights how strategically well-positioned we are in both Lounge and Cosy Club. Our like-for-like sales increase of 30% over the past ten weeks includes the remarkable four weeks of the Eat Out To Help Out scheme and the government’s support for our sector continues to be much appreciated. More importantly, however, having fully reopened, our underlying sales are in growth even without this support. We have focused on providing amazing hospitality, while reassuring our teams and customers the Lounges and Cosy Clubs are a safe environment, and our customers have been quick to return. During lock-down we were confident the flexibility of our all-day offer, our suburban and market-town locations and our focus on hospitality and community would ensure we emerged strongly. I believe these results have confirmed that to be the case. Clearly we don’t know what is around the corner. We anticipate further interruption to trade on either a local or regional basis in the short-term and have the balance sheet and liquidity to withstand significant further covid impacts. Covid has, however, strengthened our belief in the potential scale of both brands in the longer-term and the behavioural shifts being witnessed further underline this. In the second half of the year we will cautiously restart the roll-out and we are excited about the property opportunities available to us and getting back to opening 25 sites a year in due course. I would like to thank our team across the UK for their extraordinary contribution over the last six months. It has been an immensely challenging period and their determination and hard-work have allowed us to not just get through it, but to emerge a better business.” Chairman Alex Reilley added: “At the turn of the calendar year I imagined my inaugural Loungers plc chairman’s statement would be a relatively straightforward affair. While we are reporting on FY20, the reality is we are providing more detailed commentary on the final weeks of FY20 and the subsequent months of the current financial year, in regard to how the business has dealt with the monumental challenge of covid-19 in particular. Consequently, and for good reason, my statement is a lengthy one. Having successfully listed the business in April 2019, I think it’s fair to say we always expected FY20 would be a challenging year as the business adjusted to life as a plc. Little did we know that a far greater challenge lay ahead and, that by the end of the financial year, we’d have a business that was generating no revenue and we’d have no certainty as to when we would be permitted to reopen. There are many aspects of the events of the past few months that will live with us for many years to come. The business has faced enormous challenges and I am extremely proud of the roles the board, the executive/senior management team and the operations team have played in dealing with these challenges head-on and making the right calls at the right time. Putting the impact of covid aside, it was a historic year for Loungers and, as a co-founder of the business, I am extremely proud Loungers is a plc. I am also thrilled we currently have 480 employees who are now shareholders in the company and very much look forward to being able to see the success of Loungers shared with an ever-increasing number of our people in future. The business continued to trade very strongly right up until the week before lock-down and we remained on track to meet the objectives we had set out at the time of the initial public offering. We continued to deliver sector-leading like-for-like sales and were expanding at a rate of 25 new sites a year. Pleasingly, we opened some particularly profitable sites over the course of the financial year with FY20 new openings looking like an especially strong vintage. We continued to evolve our offer in both brands, making a number of improvements to our food menus and undertaking a significant and exciting overhaul of our drinks offering. We also continued to see margin improvement as we increasingly reaped the benefits of greater scale. Ultimately FY20 saw an 8.8% increase in net turnover to £166.5m (FY19: £153.0m) and, while it is pleasing to register another year of year-on-year growth, covid-19 clearly stopped us in our tracks in March, five weeks prior to our year end. Having successfully listed the business against a challenging backdrop in April 2019 (as Brexit negotiations to-ed and fro-ed), the executive team immediately set about executing and delivering the plan. We genuinely believe the Loungers team is operationally one of the finest in the sector. Under Nick Collins’ collaborative and steadfast leadership, everyone has responded to the monumental challenge brought about by covid-19, clearly demonstrating the talent and tenacity we have within our ranks. I’d like to thank our teams at every level but would like to reserve special praise for the immense effort put in by the small group of head office staff who worked tirelessly throughout lock-down, often in very difficult circumstances, to ensure the business was in the very best possible position to rise to the challenges of the past few months. I am also delighted at how well the relationship between the executive team and non-executive directors has developed and I’d like to thank the non-executive directors for their guidance and contribution over the past 16 months in bringing challenge, wisdom and experience to the Loungers’ table. When assembling the plc board, the executive team were keen to ensure board meetings retained the same level of intensity and challenge we’d been accustomed to under private equity partnership and I am delighted we have achieved this as a public company. I would also like to take this opportunity to thank the non-executive directors for their dedication and commitment to the business during the period of closure resulting from covid-19. Having temporarily closed the entire business and secure in the knowledge that the livelihoods of our workforce would be protected through the Coronavirus Job Retention Scheme, the executive team worked closely with the board to set about ensuring the business had sufficient liquidity to survive a prolonged period of full closure, well beyond 2020 should that be required. We agreed an additional £15m revolving credit facility with our existing lenders and raised a further £8.1m through the issue of equity. We were grateful and extremely encouraged by the support from our shareholders, which not only ensured the placing was successful but was ultimately oversubscribed. With the liquidity of the business secured, the executive/senior management team set about tackling a number of significant challenges. The key areas of focus were on culture and communication, rent negotiations and the reopening of 27 sites during lock-down for takeout. We also started planning the reopening of the business and considered what changes we would need to make to menu, service style and site layouts. This was a significant piece of work and required the team to be very entrepreneurial and at times fleet of foot – our ‘at-seat’ ordering capability being an excellent example of something that has been an undeniable game- changer for the business and was developed and implemented in just four weeks. With regards to social distancing, we adopted a positive mindset and approached what we needed to do with a mentality that we had decided to make the changes ourselves and not because we had been forced to. I genuinely believe the team could not have done a more sterling job and I believe the decisions and changes we made, and subsequently implemented, ensured the business was very much on the front foot when we were permitted to reopen. I am also of the view the unprecedented challenges of lock-down resulted in an acceleration of changes in the business that had been more mid to long-term objectives. As a result, we face the future in a much stronger, and better equipped, position. Over a seven-week period from early June, I made a conscious effort to visit 103 of our sites personally, with our logistics team who were busy removing furniture to go into storage and delivering our bespoke social distancing partitions. This gave me an opportunity to spend time with our operators, to catch up with some of our teams as they returned to work ahead of reopening and to oversee the implementation of our plan to ensure our sites felt safe and reassuring but, critically, they still retained our unique look and feel and very much felt like a Lounge or Cosy Club. It was a gruelling but hugely rewarding few weeks that left me feeling very positively charged at how our operators and teams felt about the way we had looked after them during lock-down and about how excited they were to welcome back their customers. I was also hugely encouraged at how good, and normal, our sites looked – while adhering to covid-19 social distancing requirements, which I genuinely believe has been a major reason as to why we have reopened so strongly. It was also really encouraging to see how busy the vast majority of the high streets and locations we operate from were ahead of us reopening and I felt cautiously optimistic we would trade significantly better than we have anticipated. Consequently, I wasn’t surprised that within a week of our initial phase of reopening we opted to accelerate the reopening process, which resulted in all 165 sites being reopen by 7 August. Our approach to reopening has had a number of benefits. Most notably, we have learnt and adapted to trading in a covid-compliant environment, which has enabled us to improve the overall customer experience. We also fully benefitted from the Eat Out To Help Out initiative, which has resulted in record sales for the business during the month of August. We are delighted to have 90% of our team back from furlough and doing what they do best. We are clearly still in unprecedented times and the coming weeks and months are almost certainly going to be uncertain at best and possibly challenging. That said I think we have every reason to be optimistic and excited for the future. Trading since we reopened has been remarkable and, while we have clearly benefited enormously from the government’s Eat Out To Help Out scheme, to date trading outside of the Eat Out To Help Out days has been – and continues to be – very encouraging. Having reopened has given us significant competitive advantage over those businesses that have been slower to do so. With the undeniable change underway in the way people live, and more specifically work, we believe we are extremely well-placed to benefit. The suburban and small town locations of the vast majority of our Lounge estate have remained strong and our large, airy Cosy Club venues – coupled with an offer that is sufficiently differentiated from our competitors – mean both brands are in a strong position to prosper. Our lack of exposure to central London and travel hubs has meant the strength of performance across the business is both sustainable and consistent. This, together with a reduction in the number of food and drink operators, positions Loungers well to benefit from a significant contraction in supply. Following reopening, we are sufficiently confident and excited to be resuming our roll-out – albeit we will do so cautiously and it will take some months for us to get back up to a run-rate of 25 sites a year. However, we have some high quality sites within our current pipeline and will be able to benefit from some exciting opportunities against a backdrop of an extremely soft property market. Our opportunity remains exciting as we have barely reached 30% of the potential scale in the UK of both brands and, in the case of Lounge, our stated target of 400 sites feels increasingly conservative. Our team has the drive, determination, and talent to deliver our long-term objectives but, importantly, working through the challenges of lock-down has further enhanced the entrepreneurial flame inherent within the business. I genuinely believe this could be ‘our time’ and the burning ambition within Loungers has never been stronger.”

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