ii view: JD Wetherspoon forced to gulp down higher costs

Second-quarter trading update to 18 January

• Like-for-like (LFL) sales up 6.1% and up from 3.7% in the prior first quarter
• LFL sales for the main three-week Christmas period rose 8.8%

Guidance:

• Financial year-end debt expected to be between £740 to £760 million, potentially up from £724 million at the end of its last financial year in July 2025

ii round-up:

Began in 1979, Wetherspoon (J D) (LSE:JDW) today operates 794 pubs across the UK and Ireland with some also offering hotel accommodation.

Headquartered in Watford, Hertfordshire, it employs over 40,000 people.

For a round-up of this latest trading update announced on 21 January, please click here. 

ii view:

Coming to the stock market in 1992, Wetherspoon is known for converting unconventional premises such as former cinemas and banks into pubs. The FTSE 250 company competes against rivals such as All Bar One owner Mitchells & Butlers (LSE:MAB), Fuller Smith & Turner Class A (LSE:FSTA), Marston's (LSE:MARS) and Young & Co's Brewery Class A (LSE:YNGA).

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Headed by founder Tim Martin, the pub operator’s estate peaked at 955 in December 2015. Management, relatively recently, hinted at a possible return to 1,000 pubs. Bar sales over the 2025 financial year accounted for its biggest slug of revenues at 57%, followed by food at 38%, slot and fruit machines 3% and hotel accommodation most of the 2% balance. 

For investors, increases in energy, wages, repairs and business rates are all now expected to add an additional £45 million to group costs over this latest first half, with profits for the full year now likely marginally lower. Expected group net debt in late July of up to £760 million is potentially up from the previous year and compares to a stock market value of around £730 million. Corporation tax has increased from 19% in 2019 to a current 25% for larger companies, while a forecast future dividend yield of 1.7% sits below the 3%-plus at fellow hospitality providers Fullers and Premier Inn owner Whitbread (LSE:WTB).    

• Stockwatch: time to take profits in Vodafone?
• The fund firm topping the performance charts
• Are high fees chipping away at your investment returns?

To the upside, growth in like-for-like sales remains ahead of the broader market with the gain in festive sales of 8.8% outpacing a 5.2% increase at rival Mitchells & Butlers. Previous changes in group debt should led to full-year interest costs falling. Shareholder returns included £67 million of share buybacks over the group’s last financial year, while competition has eased since the pandemic given the failure of some smaller players.

For now, cost headwinds provide room for caution. That said, Wetherspoon’s focus on consumer value should keep it in the eyes of consumers and investors alike over the longer term.

Positives: 

• Value customer offering
• Majority freehold properties

Negatives:

• Tough economic backdrop
• Rising taxes

The average rating of stock market analysts:

Strong hold