Yahoo Finance FTSE 100: Wetherspoons returns to profit on strong demand for pub food and beer
JD Wetherspoon (JDW.L) reported a rise in sales with strong demand for its lower-than-average priced drinks and food as consumers opt for affordability amid the cost of living crisis.
The UK pub chain said like-for-like sales increased by 9.9% in the first nine weeks of the current financial year to 1 October.
Profit before tax for the year ended 30 July was £42.6m ($51.9m), up from the £30.4m loss it reported a year earlier.
“Wetherspoons seems to be moving in the right direction, following a very difficult few years. Like-for-like sales are growing, profits are recovering and debt is coming down. All-in-all, a solid performance,” Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, said.
“The rise in energy and food costs over the last 18 months has posed major headaches for Wetherspoons and put pressure on margins. However, inflation now appears to be moderating which should bode well for profits in 2024.”
Despite rising costs, Wetherspoon's has maintained low prices, which has helped keep customers loyal, as reflected in the like-for-like sales growth.
“Spending has held up much better than expected. Whether this can continue into 2024, as the impact of interest rate hikes really starts to bite, remains to be seen. But all-in-all, given easing cost pressures and Wetherspoon's value credentials, it looks well set for the year ahead," Huggins added.
Trading compared to pre-pandemic
Richard Hunter, head of markets at Interactive Investor, said: “The group also highlights a stronger balance sheet since pre-pandemic, due both to a revision of its estate (over the last 12 years the proportion of freehold pubs has risen from 43% to 70%) and a previous fundraising exercise.
"However, on closer inspection, the fallout from the pandemic and the subsequent spike in input costs has resulted in a situation where the pre-tax profit reported this year of £42.6m compares with a number of £102.5m in 2019.”
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He also noted Wetherspoon’s perennial point on the disparity of tax treatment on alcohol between pubs and supermarkets, both in terms of VAT and business rates and the situation in its Scottish estate, where it describes business rates as a sales rather than property tax.
“The group had previously reported that the sale of a number of interest rate swaps had raised £169m before tax. In addition, a revision to the pub estate saw three new pubs opened in the year to date, but with 31 closed for any number of reasons, such as the expiry of the lease or simply an outright sale. The group had also clarified that in the majority of cases, any closures were offset by the fact that another Wetherspoons outlet was available nearby,” he added.
Wetherspoon’s share price
The company’s stock was down nearly 5% on Friday.
The share price has yet to regain the previously heady levels of pre-pandemic, where shares peaked at almost £17 in December 2019, compared to the current level of around £7.
“Some significant progress has been made most recently, with the price having added 63% over the last year, which compares to a marginal dip of 0.2% for the wider FTSE 250 (^FTMC) in that period,” Hunter added.
Despite this bounce, however, he noted its shares are still down by 33% over the last two years.
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