Pub operator JD Wetherspoon (JDW) posted a fall in H1 profit and warned FY earnings might miss expectations ‘slightly’. Despite higher sales, the firm is battling cost increases and the prospect of declining consumer confidence.
Sales up, profits down
For the six months to 25 January, Wetherspoon registered a 5.7% increase in sales to £1.09 billion. LFL sales growth of 4.8% was well ahead of the overall market, although it slowed after the period end.
February LFL sales rose 3.2% against a 0.2% drop in industry LFLs, while in the seven weeks to 15 March growth was 2.6%. Operating profit for H1 was down 18% to £52.9 million while pre-tax profit fell 32% to £22.4 million. On a positive note, free cash outflow was reduced by 75% over the period.
Commenting on the results, chairman Tim Martin flagged the impact of rising costs, especially labour and energy. Martin also flagged the new ‘Extended Producer Responsibility’ tax which he said would treble packaging costs.
‘There is clearly considerable pressure on consumer finances, combined with higher taxes, wages and energy costs for the hospitality industry. This may result in profits that are slightly below current market expectations’, added Martin stoically.
The hospitality industry works on very small margins, as these figures demonstrate. Despite being one of the leanest operators in the sector, Wetherspoon’s operating profit was just over 5% of sales.
Martin had already prepared the market to expect a dip in FY26 profit relative to FY25. Therefore, today’s news should be seen in that context as another ‘adjustment’ rather than a bolt from the blue.
Unfortunately, as well as forcing energy prices higher the attack on Iran has completely shifted UK interest rate expectations. Whereas previously the market was expecting cuts, the Bank of England may now have to raise rates to head off inflation.
That all plays into consumer confidence and peoples’ willingness to spend. We don’t doubt ‘Spoons will be a long-term winner, but many other players will have to leave the pitch first.
Read the press release here: https://www.investors.jdwetherspoon.com/
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