JD Wetherspoon warns profits will be at lower end of forecasts

JD Wetherspoon said like-for-like sales improved in the first 12 weeks of the second quarter but that operating margins would be 1.1% lower than the same period last year due to increased labour costs.

But chairman Tim Martin warned that his current view was that profits for this year were "likely to be towards the lower end of analysts' expectations".

The consensus had stood at £69m-£78m, according to Bloomberg research.

LFL sales rose 3.3% and total sales by 6.3% in the 12-week period, meaning LFL sales have grown 2.8% in the year to date and total sales by 6.1%.

This compares to the 3.3% LFL and 7.4% turnover in the last full year.

Martin reminded that he had cautioned in the November trading update that increased labour costs "will be an important factor in the outcome for this financial year", following a 5% increase in hourly staff pay in October 2014 and a further 8% to a £7/hour starting wage in July 2015.

From April 2016, the National Living Wage will require a further 3% increase for qualifying workers, which led analysts to believe margins have further to soften.

On Wednesday he said he expected operating margin before any exceptional items for the half-year to 24 January 2016 to be around 6.3%, 1.1% lower than the same period last year due to the 13% pay increases.

The group also noted that it had opened five new pubs since the start of the financial year and has sold two, with the intention of opening a total of 10-to-15 pubs across the financial year, a reduction from the November's guidance of "approximately 15".

Leisure sector analysts Langton Capital observed that “JD Wetherspoon has released a less-downbeat-than-usual statement”, but others had mixed reactions.

Broker Shore Capital said: "Given the concerns following Restaurant Group last week the revenue picture is encouraging. However, margins continue to disappoint."

ShoreCap said it expected to lower its forecasts to circa £69m and EPS to 43p, implying circa 6.45% operating margins.

Panmure Gordon also said it expected a likely 5% downgrade to profits as a result.

Nomura said the statement suggested first-half EBIT of £49.9m, a 9% reduction on the previous comparative period versus the 3% Bloomberg consensus for the full year. With the NLW coming in April, it added that they believed it "is too early to conclude that margins have reached a trough".