Wetherspoon shares dive as pub chain warns on profit again
JD Wetherspoon shares slumped after it issued its fourth profit warning this year, as the pub chain grapples with surging food and energy costs and a rising business rates bill.
Tim Martin, founder and chairman of the UK’s best-known pub chain, said: “Profits for the year are likely to be below market expectations, with marginally lower sales than anticipated in the final quarter, combined with higher costs in the areas of food, labour, repairs, energy and business rates.”
Shares in the FTSE 250 pub chain fell by more than nine per cent on Wednesday’s market open, to 686p, leaving the stock down seven per cent in the year to date.
This is Wetherspoon’s second profit warning in three months, as rising energy and supply costs caused by the Iran war threaten the pub chain’s famously thin margins. The group’s £70m pre-tax profit target was already far below last year’s £80m.
In May, Wetherspoon warned of “substantial increases in costs” caused by the conflict in the Middle East.
The pub boss had been suggesting as early as March that rising costs could force him to hike pint prices.
“Rising energy costs are bad news for pubs. As well as direct increases for gas and electricity, they make customers poorer and also push up the costs for suppliers,” he said.
Wetherspoon calls for business rates reform
Wetherspoon saw sales growth slow to four per cent in the last three months, down from 4.8 per cent in the first six months of the year, it said on Wednesday.
The pub chain has bought back £42m worth of shares in the year to date, along with the freehold rights to four of its pubs at a cost of £12.2m. Net debt will be £720m at the end of the year, level on the year before.
Wetherspoon has sold nine pubs and bought eight in the year to date. The group operates 793 managed pubs and 23 franchised sites across the UK.
Along with rising costs caused by the Iran war, pubs across the country faced higher business rates bills in April, following changes made at last year’s Autumn Budget.
Martin has long campaigned for reform to business rates, along with a cut to value-added tax (VAT) which he claims would bring pubs’ tax burden in line with supermarkets.
Slim margins vulnerable to price hikes
The pub chain, which is well-known for its cheap pints, operates on “relatively slender margins” compared to its competitors, said Duncan Ferris, an analyst at Freetrade.
“Wetherspoon’s busy pubs mean its value proposition is resonating with customers, but the ultimate goal is converting rising sales into rising profits,” he added.
Rival pub chains including Fuller’s and Young’s have hailed a huge surge in takings due to the World Cup. Sales rose by as much as 170 per cent at Marston’s’ “grandstand” sports bars during England matches.
Ahead of the World Cup, Martin told City PM that he was not expecting a huge surge in sales from the tournament.
“Wetherspoon pubs aren’t regarded as sports venues, although many football supporters use our pubs before and after games. However, we are showing all World Cup games, so we’re hoping for a useful boost in trade, touch wood,” he said.
Ferris said: “Wetherspoon probably enjoyed its own World Cup boost, but thirsty football fans clearly were not enough to stop final-quarter sales from disappointing.”