ii view: sales number offsets profit boost at JD Wetherspoon

First-half results to 28 January

• Revenues up 8% to £991 million
• Pre-tax profit of £36 million, up from £4.6 million in H1 last year
• Net debt up 8% from late July 2023 to £694 million
• No interim dividend

ii round-up:

Budget pub chain Wetherspoon (J D) (LSE:JDW) today detailed first-half profit ahead of City expectations but with a slowdown in recent sales. 

Pre-tax profit for the six months to late January rose to £36 million from £6.4 million in the pandemic affected first half of the prior year. Analysts had pencilled in around £30 million. However, like-for-like, or same pub sales for the seven weeks to 17 March slowed to growth of 5.8% from 10% seen up to late January. 

Shares in the FTSE 250 company fell 9% in UK trading having come into this latest news up by just over a third during the last year. That’s similar to Domino’s Pizza but behind a 46% gain for All Bar One owner Mitchells & Butlers (LSE:MAB). The FTSE 250 index itself is up 5%.  

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Wetherspoon operates 814 pubs across the UK and Ireland with recent openings including the Captain Flinders near Euston Station, London, and The Star Light at Heathrow Airport.

Its estate peaked at 955 outlets in December 2015, and management is now hinting at a possible return to 1,000 pubs in future. 

Total revenue for the first half climbed 8% year-over-year to £991 million, driven higher by an 11.6% gain in like-for-like drink sales. Food sales on the same basis climbed 7.2%, with slot/fruit machine revenues up 10.5% and hotel rooms improving 2.8%. 

Group net debt adjusted for property leases rose 8% to £694 million. Wetherspoons again declared no dividend payment, but highlighted the £34 million of share buybacks made during the period. 

Accompanying management comments pointed to an expectation for a “a reasonable outcome for the financial year subject to our future sales performance."

A third-quarter trading update is scheduled for 8 May. 

ii view:

The FTSE 250 pub company opened its first outlet in Colney Hatch Lane, Muswell Hill, North London. Known for converting unconventional premises into pubs, such as former cinemas and banks, it listed on the London Stock Exchange in 1992. Bar sales over its last financial year accounted for its biggest slug of revenues at around 57%, with food a further 38%, slot and fruit machines 3% and pub attached hotels most of the 2% balance.

For investors, heightened costs such as elevated mortgage and rental payments continue to pressure customer expenditure. Business costs including energy, food and wages have risen, the dividend payment has remained suspended since the start of the pandemic, while a forecast price/earnings (PE) ratio of around 17 times is back in line with its pre-pandemic average. 

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On the upside, sales and profits have made a recovery from the pandemic. Costs such as those for food have eased, rises in some drink and food prices have helped boost revenues, while competition has eased since the pandemic given the failure of some smaller players. 

For now, and while recovery from the pandemic has been two steps forward, one step back, a value customer offering in tough economic times, plus potential to restart the dividend payment, is likely to maintain investor interest in this iconic pub operator.  

Positives: 

• Value customer offering
• Majority freehold properties

Negatives:

• Tough economic backdrop
• Elevated costs

The average rating of stock market analysts:

Strong hold