Must read weekly preview: JD Wetherspoon, US jobs report

JD Wetherspoon FY – Friday 2 October

Richard Hunter, Head of Markets, interactive investor says, “Wetherspoon (J D) (LSE:JDW)’s dogged determination to fight its corner has won the brand many friends, but from an investment perspective the jury remains out on prospects. The group’s value model leaves it continually bumping up against a wall of higher costs, which puts perennial pressure on margins and profits.

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In its July trading statement, as others in the sector were hailing a boost to sales from the impact of the World Cup and generally warm weather, Spoons did not apparently join the party.

Like-for-like sales in the final quarter arrested a recent trend which was moving in the wrong direction and came in at 4%, as compared to 3.7% in the first quarter, 6.1% in the second and 3.4% in the third. While this brings the cumulative year to date number to 4.2% and above the industry average for the 43rd consecutive month in March, sales are marginally below the comparable period.

In addition, at the half-year results the group warned that an already wafer-thin operating margin of 6.3% had fallen to 4.86% and, despite a 5.7% increase in revenues to £1.09 billion, pre-tax profit was down by 31.9% to £22.4 million for the period. More positively, the group has access to liquidity and a largely freehold estate valued at £1.4 billion lessens any immediate financial concerns.

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However, Spoons reiterated that profits for the year are likely to be below market expectations, citing higher costs in the form of food, labour, repairs, energy and business rates. The profit warning from earlier in the year means that the unfortunate prediction seems to be playing out, with additional annual costs of £60 million for the likes of wages and National Insurance contributions, £7 million for non-commodity energy and £2.4 million on a packaging levy being heavy headwinds.

Indeed, even now the previous lockdown continues to leave a stain and the share price remains 52% below pre-pandemic levels, although the shares have added some 18% in a mini recovery over the last year. At the last count, revenues had finally recovered to stand 22% higher than that period, but the group has 85 fewer pubs. This results in sales per pub which have increased by 35.4%, but in terms of profit that progress has been largely obliterated by growth of 80% and 61% in energy and wage costs respectively. As such, investors are braced for what could prove to have been another challenging year.”

US jobs report – Friday 2 October

Victoria Scholar, Head of Investment, interactive investor says, “September’s US jobs report due out on Friday 2 October will provide some clues into the strength of the US economy.

Last month US non farm payrolls hit 162,000 flying past expectations to hit a five-month high, benefitting from a summer season boost with a sharp increase in employment in food and drinks services as well as back to school hiring of local government education staff. This follows recent months of weakness in the labour market, weighed down by this year's energy shock.

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While September’s headline reading is unlikely to match last month’s high, non farm payrolls data is likely to come in at a respectably robust level around 80-100k, given the strength of recent economic growth indicators. Although this data can be notoriously volatile.

For Fed watchers, a hot jobs number could pave the way for another quarter-point rate hike in October, in addition to December rather than instead of. And for bond investors, good news could be bad news, with a strong reading likely to put further upward pressure on Treasury yields, exacerbating the recent bond market sell-off.”