Wetherspoons shares drop following half-year results
J D Wetherspoon shares slumped by 10% after it announced its half-year results on Friday, with analysts saying life has “never been tougher” for pub and bar operators in the UK.
Budget pub group J D Wetherspoon revealed solid sales for the 26 weeks ended 26 January, with like-for-like sales up 4.8%.
The pub group has also seen robust trading over the last seven weeks, up 5%.
Charlie Huggins, manager of the quality shares portfolio at investment service Wealth Club, said: “Wetherspoons has delivered a solid like-for-like sales performance in the period and trading in the last seven weeks has been robust.”
However, profits tell a different story for the business, having fallen 4.3% in the same six-month period. Huggins blamed “higher utility and labour costs” for the decline.
The group has calculated that increases in labour rates and National Insurance will add some £60 million per year to its costs from 1 April, equivalent to £1,500 per pub, per week.
Huggins said: “The extent of cost increases is going to get much worse from 1 April. Labour costs will rise by £60 million which is frankly crippling and will likely eat further into profit margins going forwards.
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“The cost of a burger and pint will have to rise to help mitigate this pressure, which hardly encourages more punters through the door.
I”n all, aside from the depths of the pandemic, life has probably never been tougher for pub and bar operators. Wetherspoons has scale advantages others lack and a mightily loyal customer base, which really helps. But it is not immune to industry pressures.”
Revenues overall increased by 3.9% in the 26 weeks ended 26 January to £1.03 billion, with adjusted pre-tax profit rising by 58.2% to £41.3 million. Without the adjustments, pre-tax profit showed a decline of 8.6% to £32.9 million, some of which was due to capital investment of £64.6 million compared to £57.2 million the year previous, and additional staff costs.
Net debt rose to £703.5 million from £664.8 million, and the estate was further reduced to 796 pubs, although the group aspires to return this number to 1000 sites in due course.
Food now represents 38% of group revenues for J D Wetherspoon. According to Interactive Investor, the most popular drinks in its pubs are Pepsi, coffee and tea as habits continue to change.
However, bar sales still represent the majority of income at 57%. Like-for-like sales for bar and food lines grew by 4.3% and 5.4% respectively in the last six months.
J D Wetherspoon shares are down by 25% over the last year, as compared to a gain of 1.8% for the wider FTSE250, Interactive Investor has said.
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