Increased growth but dividends cancelled for JD Wetherspoon

JD Wetherspoon (JDW) updated on trading for the first 12 weeks of its second quarter on 20 January. The results revealed like-for-like growth from 1.5% in its first quarter to 2.6%. However, the company announced that it would be cancelling future dividend payments and reducing capital expenditure.

With a US$140M debt repayment due in September, the moves to cancel dividend payments and reduce future capital expenditure are seen as safeguards in a time of such economic uncertainty. With this in mind the company has also stressed that it will be concentrating on increasing cash flow, which some have speculated could be the source for the debt repayments.

JDW has already opened 23 pubs this financial year, and another 11 are expected to open before the year ends in August, a total of 10 more pub openings for the company than the previous year. However, despite the swathe of pub closures allowing the company to pick up new assets for a low premium, it is expected that the number of openings will be slightly less next year.

The move to cancel dividend payments and reduce capital expenditure has been met with mixed reactions by analysts. Some are worried by the debt, while others felt that the decision to cancel payments was disappointing. Yet there is general acknowledgment that the sales performance should be commended.

The group had already announced that its start to the year had been "encouraging", and Christmas sales were also up by 3.7%. With the debt issues being addressed, JDW is seen as being in a strong position to weather the current economic situation and profit from the demise of other groups.

Mark Brumby from Blue Oar Securities commented: "JDW is materially outperforming a poor market and is growing in absolute terms. It is turning up the heat on its competitors and to be increasing like-for-like sales in the current environment is a remarkable achievement."

JDW found itself heavily featured in the news at the turn of the year, thanks to its New Deal menu offering, amongst other items, a pint of Greene King IPA for 99p, and meals for £2.99. The last two weeks reported upon include the New Deal, and were also up by 6.4%, providing yet another boost to the group’s day to day trading.

"From a trading point of view it has gone as well as we could have hoped for at this point," said JD Wetherspoon chief executive John Hutson (pictured). "It has been a good start to the new year with increased sales, though we must take into account the media coverage and subsequent interest that the New Deal has created.

"In order to pay the US private placement, we will use existing UK bank borrowing as well as cash flow. We don’t need to take a loan out, but we are taking a very cautious view regarding cash flow. We have put ourselves in a position where we are able to do this."

As for the dividend payments, Hutson said: "We thought it was better to do this. Tim Martin (JDW’s founder) was quoted as saying that it wasn’t an ideal situation, but the way things are at the moment isn’t ideal either."

For an in-depth profile looking at JD Wetherspoon, including an interview with John Hutson, see February’s edition of the drinks business.

Alexis Hercules, 21.01.09