J D Wetherspoon, the British pub chain, has issued its fourth profit warning this year, indicating that its annual profits are likely to fall below market expectations. Chairman Tim Martin cited a combination of marginally lower sales than anticipated in the final quarter and increased costs across various operational areas, including food, staff wages, repairs, energy, and business rates. This marks a hardening of tone compared to May's update, which suggested profits might be "slightly below market expectations."
The company announced that like-for-like sales grew by 4.0% in the 12 weeks leading up to July 19th, bringing the year-to-date like-for-like growth to 4.2%. This is a slight decrease from the 4.3% reported in May. Wetherspoon currently operates 793 managed pubs, having opened eight and sold nine this financial year, while its franchised estate has expanded to 23 pubs. The company repurchased 6.4 million shares this year at an average price of $6.52, and expects year-end net debt to be approximately $720 million, roughly in line with the previous year.
Analysts are downgrading profit forecasts, with some predicting a full-year pre-tax profit around $72-73 million, which remains below pre-pandemic levels despite higher revenues. LSEG data, cited by Reuters, suggests an expected pre-tax profit of $69.52 million for the year. This persistent margin pressure is attributed to the company's reluctance to significantly increase prices, maintaining its value-pricing model amidst rising input costs. Shares in J D Wetherspoon experienced a sharp decline on Wednesday, falling by approximately 8.5% to 690p, after an earlier drop of up to 9.8% to 680p.
Key headwinds impacting Wetherspoon and the broader UK hospitality sector include substantial increases in operating costs. Approximately $60 million is attributed to higher National Insurance and wages, $7 million to non-commodity energy costs, and an additional $1.6 million from the Extended Producer Responsibility packaging levy. Furthermore, the company has struggled to pass these rising costs onto customers without affecting its competitive pricing strategy. The impact of higher energy costs linked to the Iran conflict and reduced pub visits during Europe's early summer heatwave have also contributed to the challenges faced by the sector.
