No respite for Wetherspoon shares as lockdowns bite

In one of the worst-affected sectors, this well-run pub chain is really struggling during the pandemic.

In one of the worst-affected sectors, this well-run pub chain is really struggling during the pandemic. 

Wetherspoons (LSE:JDW) has come out all guns blazing in these full-year results as revenue continues to suffer from the effects of enforced restrictions.

Within the chairman’s traditionally colourful invective is the lament that renewed lockdowns, shorter opening hours, additional costs and restrictive operating conditions place pub operators in an invidious position.

Indeed, these full-year results run to the end of July and show a decline on like-for-like sales of 29.5%. Since then, the first 11 weeks of the new financial year have also seen a drop of 15%, with the latest targeted lockdown measures likely to inflate this figure over the coming period. 

While no specific mention is made of any boost which the August “Eat Out to Help Out” scheme may have provided, the overall picture is one dominated by lower sales of beer and food, which obviously represent the vast majority of revenues.

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Covid-19 related costs exceeded £29 million, including perished stocks during the full lockdown, additional staff costs and an investment in PPE and hygiene measures across the estate.

Revenues declined by 31%, net debt increased by 11% and the company now has a fully drawn down credit facility. Although there is a net cash position of £194 million, it is of little surprise that the dividend has been cancelled in an effort to mitigate the financial pain. Wetherspoon’s £34.1 million pre-tax loss compares to a profit of £102.5 million in the previous year.

Whether Wetherspoons is approaching its darkest hour – and indeed, the hospitality sector in general – remains to be seen, but the current situation is unquestionably parlous.

It is also uncertain how much of the news has been accounted for in the share price. Despite an increase of 62% since the March low, the shares remain down by 42% in the year to date. Over the last year, the picture is similar, where a decline of 38% compares to a loss of 12% for the wider FTSE 250 index.

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Even with the cloudy outlook, the market consensus of the shares remains positive. Perhaps allied to the company’s ability to contain costs and benefit from any eventual recovery in the economic fortunes of UK plc, the general view of the shares is a ‘buy’, notwithstanding that they may only be suitable for investors of a steely nature at present.

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