ii view: Wetherspoons has a moan amid tough trading

Plan B measures have impacted but management is optimistic for the second half. Buy, sell, or hold?

First half and second quarter trading to 16 January

• First half like for like sales down 11.7%
• Second quarter like for like sales down 15.6%

Guidance:

• Expects to generate a first-half loss

ii round-up:

Value pub chain Wetherspoon (J D) (LSE:JDW) today detailed a tough second-quarter trading update, laying the blame firmly at the door of the government’s ‘Plan B’ restrictions. 

Like-for-like second-quarter sales fell by 15.6%, with the Watford headquartered company now definitively expecting a first-half loss. However, that did beat analyst expectations for a fall in sales of 20%.

Wetherspoons shares rose by more than 3% in UK trading, having fallen by almost 14% over the last six months. That compares to a gain of 3% for the FTSE 250 index. Shares for rival pub groups Mitchells & Butlers (LSE:MAB) and Marston's (LSE:MARS) have gained by around 5%. 

In mid-December, Wetherspoons forecast either a first-half loss or a marginal profit. Like-for-like sales for the first half when business wasn’t impacted as much by recent measures fell by 11.7%.

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Management reiterated that the uncertainty created by the introduction of Plan B Covid-19 measures makes predictions for sales and profits hazardous. It hopes that the ending of restrictions, improved customer confidence and better weather, will give it a much stronger performance in the second half.

First-half results are scheduled for 18 March. 

ii view:

Founded in 1979 in North London, today Wetherspoons operates over 850 pubs including 46 Lloyds branded pubs and around 60 hotels connected to its pub outlets. Its freehold/leasehold split comes in at 66.3%/33.7%, compared to a ratio of 43.4%/56.6% 10 years ago. 

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For investors, pandemic related uncertainty persists, a first-half loss is confirmed, and the dividend is still suspended.

But the pub group’s value offering will likely remain a favourite with drinkers given rising energy prices and UK inflation at a 30-year high. Both supply chain and labour issues are being managed and management hopes for the second half are more optimistic.

In all, and while its recovery from the pandemic is likely to remain volatile, a strong brand and market position continue to offer long-term recovery potential.

Positives: 

• Value customer offering
• Majority freeholds

Negatives:

• Covid clouded outlook
• Suspended dividend payment

The average rating of stock market analysts:

Buy