Yahoo Finance FTSE 100: Wetherspoon narrows losses to £30m as sales recover
JD Wetherspoon (JDW.L) has seen sales jump compared to last year and has narrowed losses but the pub chain is still not back to pre-pandemic levels.
The company posted a loss of £30.4m ($33.86m) for the 12 months ended 31 July compared to a £154.7m loss last year when COVID lockdowns were in place.
Total sales rose from £773m to more than £1.7bn in the year to the end of July. But sales were still behind the more than £1.8bn the company recorded in 2019.
Last week Wetherspoon announced it had put 32 of its pubs across England up for sale amid concerns about costs.
The group said it had made a "commercial decision" as costs of staff wages and repairs rise.
“The company has improved its prospects in a number of ways in recent financial years — we own an increasing percentage of freehold properties; the balance sheet has been strengthened; interest rates have been fixed at low levels until 2031; we have a large contingent of long-serving pub staff and underlying sales are improving,” founder and chairman Tim Martin, said.
Read more: JD Wetherspoon: Full list of 32 pubs put up for sale
“However, as a result of the previously reported increases in labour and repair costs and the potentially adverse effects of rises in interest rates and energy costs on the economy, firm predictions are hard to make.
“Perhaps the biggest threat to the hospitality industry is the possibility of further lockdowns and restrictions."
He complained again about the tax advantages supermarkets have over pubs when it comes to paying VAT on food.
“This competitive disadvantage has had an increasingly debilitating impact on the hospitality industry and will undoubtedly result in long-term financial weakness vis a vis supermarkets — which will also be harmful to employees, the Treasury and the overall economy,” Martin said.
The pub chain said that it is proving “a momentous challenge” to persuade pubgoers back into its bars across the country after they started stocking up their fridges during lockdown.
Sales of draught ales, lagers and ciders — previously the biggest driver of pub trade — were 8% below 2019 levels, the company revealed.
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“Many people predicted a boom in pub sales when lockdowns and restrictions ended due to pent-up demand, but recovery for many companies has been slower and more laborious than was anticipated,” the group said.
Wetherspoon said staff costs were far higher than before the pandemic, with firms across the sector having to increase wages to overcome recruitment difficulties.
It added that it is now “with minor exceptions, fully staffed”.
Matt Britzman, equity analyst at Hargreaves Lansdown, said: “It looks like the older demographic’s still cautious to get out and about and that comes through in the numbers.
“Lagers and ales were replaced by spirits and cocktails as sales in lively city locations, with music on the weekends, performed much better than quieter, suburban, pubs.
“The difficulty now, for the entire pub sector, is that drinking and eating at home looks to be sticking around longer than first thought.
“That trend’s likely to continue, as the cost of living crisis looks poised to accelerate the tightening of purse strings.”
Charlie Huggins, head of equities at Wealth Club, said: “2022 was another annus horribilis for Wetherspoons. The recovery from the pandemic has been slower than the group initially expected, meaning sales and profits are a long way short of where they would want them to be. And while the threat of COVID is now receding, another has reared its ugly head — inflation.
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"Wetherspoon's business model is heavily exposed to the rise in energy and food bills. While it can pass on some of these cost increases, it will be reluctant to push prices too far, for fear of ostracising its customer base.
"It's not all bad news. With almost 900 pubs, each massive and serving huge volumes of drink and pub grub, Spoons has a size advantage over pretty much all its rivals. Sales are also on an improving trajectory, up 10.1% in the first nine weeks of the year. Growing sales are vital in an inflationary environment, giving greater scope to shoulder cost increases.
"Nevertheless, 2023 is shaping up to be yet another challenging year for Wetherspoons. Higher interest rates and inflation are strangling the economy, and will lead to significantly higher costs for the group. Combine this with Wetherspoon’s low margins and low price strategy, it could leave investors nursing a hangover."
