ii view: Wetherspoons optimistic but shares fall fast

Shares for this budget pub operator are down around a quarter year-to-date. We assess prospects. 

Third-quarter trading update to 24 April

• Like-for-like sales down 4% versus Q3 2019
• Net debt of £906 million, down from £920 million at end of the first half

Chairman Tim Martin said:

"The company anticipates a continuing slow improvement in sales, in the absence of further restrictions, and anticipates a "break-even" outcome for profits in the current financial year.”

ii round-up:

Founded in 1979, Wetherspoon (J D) (LSE:JDW) today operates over 850 pubs and more than 55 hotels.

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

Just under 50 of its pub outlets which allow music trade under the under the ‘Lloyds’ brand name. 

For a round-up of this latest trading update, please click here. 

ii view:

A constituent of the FTSE 250 index, Wetherspoon is known for converting unconventional premises into pubs, such as former cinemas and banks. It listed on the London Stock Exchange back in 1992. Drink sales generated almost 60% of overall revenues during its first half to 23 January, with food accounting for 36%. Next comes fruit and slot machines at around 3% of revenues, followed by hotels at just over 1%.  

• How I’m positioning my investments this tax year
• How to invest for difficult times
• Shares to protect against persistently high inflation

Shares recovered most of the ground lost during the Covid crash, but have fallen steadily over the past year and now trade near pandemic lows. 

For investors, a return to pre-pandemic sales and profitability has yet to be achieved. Previous pandemic uncertainty has now been replaced by high economic uncertainty, with a cost-of-living crisis potentially placing downward pressure on consumer leisure spending. Interest rates are rising, group costs such as energy are elevated, while the pub operator’s dividend payment remains suspended. 

More positively, Covid restrictions have ceased, while spring and summer weather should help customers return to its outlets. Both supply chain and labour issues are being managed, while a cost-of-living crisis could see consumers defecting away from higher priced rivals towards this budget operator. For now, and with net debt expected to fall by the end of this financial year, plus accompanying outlook comments hoping for a return to ‘relative normality’ during the full year 2023, speculative investors are likely to keep Wetherspoon shares on their watchlist.

Positives: 

• Value customer offering
• Majority freehold properties

Negatives:

• Rising costs
• Uncertain economic outlook

The average rating of stock market analysts:

Buy