ii view: pub chain Wetherspoons details mixed sales

Shares in this FTSE 250 company have almost halved in a year despite an end to Covid disruption. We assess prospects. 

First-half trading update to 22 January

• Like-for-like sales up 13.1% 
• Like-for-like sales down 0.7% compared to the same pre-pandemic period 

Chairman Tim Martin said:

"The biggest threat to the hospitality industry is the vast disparity in tax treatment between pubs and restaurants and supermarkets. Supermarkets pay zero VAT in respect of food sales, whereas pubs and restaurants pay 20%. This tax benefit allows supermarkets to subsidise the selling price of beer. We estimate that supermarkets have taken about half of the pub industry's beer volumes since Wetherspoon started trading in 1979, a process that has likely accelerated following the pandemic.”

ii round-up:

Pub group Wetherspoon (J D) (LSE:JDW) today reported a gain in same pub sales for its first half of the year but a small decline when compared to the same pre-pandemic period to late January 2020. 

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Like-for-like sales for the FTSE 250 company rose 13.1% compared to the same period last year, although still remained down 0.7% compared to the pre-pandemic period in 2019/2020. 

Wetherspoon shares fell by around 4% in UK trading having come into this latest news up by close to 8% year-to-date, but down by close to a half over the last year. Shares in rival Mitchells & Butlers (LSE:MAB) and owner of the All Bar One chain are down by close to a third over the last year, while the FTSE 250 index is down by just under a tenth. 

Wetherspoon like-for-like sales over the festive month of December rose 21.3%, outpacing gains of 15% for the broader UK pub and restaurant sector according to an industry business tracker.

The Watford headquartered company continued to flag costs such as wages, food, energy, and maintenance above pre-pandemic levels, although management remained cautiously optimistic regarding prospects for the second half. 

Group net debt now stands £60 million below its pre-pandemic level at £745 million, with financial headroom of £225 million flagged. 

The group currently has 844 trading pubs with ten previously sold giving a cash inflow of £2.9 million and 35 remaining up for sale. 

First half results are scheduled for 24 March. 

ii view:

Founded in 1979, Wetherspoon is known for converting unconventional premises into pubs, such as former cinemas and banks. Listing on the London Stock Exchange in 1992, its 844-pub estate today is down from over 920 pubs back in 2016. Relatively new pub openings include three in Ireland, including two in Dublin, with current pubs up for sale largely situated close to other Spoons pubs. 

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For investors, sales which are still below their pre-pandemic level offers some caution. Costs remain elevated, previous pandemic uncertainty has been replaced by high economic outlook uncertainty, while the pub operator’s dividend payment has been halted since the start of the pandemic.  

On the upside, like-for-like sales for this latest period are up from the pandemic hindered 2021. There's a focus on reducing debt, its pub locations continue to be managed, while a cost-of-living crisis may see consumers defecting away from higher priced rivals towards its budget model.

While the market remains unconvinced, there's lots going for Wetherspoons and the firm's budget focus should be popular as drinkers increasingly favour cheap beer. Shares have declined sharply in value and will tempt bargain hunters, but also come with a risk warning.

Positives: 

• Value customer offering
• Majority freehold properties

Negatives:

• Rising costs
• Uncertain economic outlook

The average rating of stock market analysts:

Strong hold