JD Wetherspoons halves interim losses, sees higher costs

Pub chain JD Wetherspoon halved interim pre-tax losses as Covid restrictions eased and said trading in the last three weeks was now 2.6% below 2019 pre-pandemic levels.

The company on Friday reported a loss before exceptional items for the 26 weeks to January 23 of £26m, compared with £52m a year ago. Revenue climbed to £807m from £431m a year earlier. On straight pre-tax basis Wetherspoons lost £21.3m compared with a loss of £46.2m

Like-for-like sales were fell 11.8%, compared to the six-month period ended 26 January 2020, before pandemic lockdowns led to pub closures and were down 12.4% for the first four weeks of the second half of the financial year to February 20, compared to the same period in 2020.

Wetherspoon said it was facing higher costs of food, drink and energy, but expected the rise in input prices to be slightly lesser than the level of inflation

“There is pressure on input costs from food, drink and energy suppliers, mitigated to an extent by a number of long-term contracts,” the company said.

The impact of soaring inflation comes as the rate of value added tax on food and non-alcoholic drinks is set to increase from to 20% from 12.5% at the end of the month.

Richard Hunter at Interactive Investor said an operating margin of 0.1% compared with 0.8% in the prior period was "a metric of concern".

"Wetherspoons was famously able to operate on wafer-thin margins, but this development is the result of higher cost and inflationary pressures and will be the focus of repair from the management. Net debt has also risen to £920m from £805m, although in terms of the balance sheet, a property portfolio which is 70% freehold and which has some long-term fixed rates behind it provides some solace," he said.

"The company has prudently decided to shy away from share buybacks or the reintroduction of a dividend for the time being. While trading patterns are normalising towards pre-pandemic levels, the company has much ground to recover. "

The same could also be said of the share price, which has fallen 40% over the last year, as compared to a drop of just 3% for the wider FTSE250 index. Even so, with a potential cost of living crisis driving the spending habits of increasingly pressed consumers – which could play into Wetherspoon’s hands – the market consensus of the shares as a 'buy' remains intact.”