Yahoo Finance Wetherspoons share price slumps after warning of annual loss
JD Wetherspoon (JDW.L) has warned annual losses will be bigger than forecast after it ramped up wages to attract staff and spent heavily on repairs and marketing.
The FSE 250 (^FTMC) pub chain now expects losses of around £30m for the year to the end of July after investing in staff and the business to "strengthen our position" for the new financial year.
Wetherspoons said that although sales were now matching pre-COVID levels, staff costs were far higher than before Covid as firms across the sector have had to hike wages to overcome recruitment difficulties.
The group added that it was now "with minor exceptions, fully staffed".
Repair costs have also surged, with the company saying it will have spent about £99m on this in the current year, compared to £76.9m in 2018-2019, due to "catch-up" work since pandemic restrictions were lifted.
"Wetherspoon has tried to take a long-term approach to these issues, investing heavily in the workforce, in buildings, in marketing and in contracts with landlords and suppliers, which will hopefully create a solid base for future growth," chairman Tim Martin said. "The company remains cautiously optimistic about future prospects."
Shares dropped more than 10% to the bottom of the FTSE 250 in early trade on Wednesday in London.
It comes after the group warned recovery for many pub firms had been "slower and more laborious" than expected, while the sector is also grappling with soaring costs and a pull-back in consumer spending due to the cost of living.
"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," it said.
Wetherspoon’s latest trading update showed that like-for-like sales in the first 11 weeks of its fourth quarter to 31 July fell 0.4% below the same pre-pandemic period in 2019. They fell 4% in the previous quarter.
"The difficulty now, for the entire pub sector, is that drinking and eating at home looks to be sticking around longer than first thought," Matt Britzman, equity analyst at Hargreaves Lansdown said. "That trend’s likely to continue, as the cost of living crisis looks poised to accelerate the tightening of purse strings."
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Experts have said that the pub chain's business model is a "double-edged sword".
Charlie Huggins, head of equities at Wealth Club, said: "It's been an incredibly tough couple of years for Wetherspoons, but there are signs it is now emerging from the abyss.
"On the one hand its scale, low prices and brand leave it well positioned to deal with an inflation-led economic downturn.
"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. This helps it extract great deals from its suppliers, giving it a cost advantage."
"But, while a cult-like obsession with low prices is great for Wetherspoon’s customers, it’s not so good for shareholders, especially when inflation is through the roof. While the group has taken some price actions in response to rising food and energy costs, it will be reluctant to push prices too far, for fear of ostracising its customer base."
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