Wetherspoon's earnings fizz as Martin plans more 'advantageous investments'

JD Wetherspoon served up a potent shot of 43% earnings growth and a passionate diatribe about Brexit from founder and executive chairman Tim Martin.

On like-for-like sales that rose 4% in the 53 weeks to 30 July, profit before tax and exceptional items increased 25% on a 52-week basis to £76.4m and earnings per share to 69.2p.

The full year dividend was held at 12p per share after free cash flow swelled 26.5% to 97p per share.

Dividends were not increased as Martin, whose shareholding has increased from 21.2% to 31.7% as a results of the company's share buybacks over the last 11 years, said it was better to preserve some cash to keep up the high level of capital expenditure and sees further potential for "advantageous investments".

If including exceptional items, mostly from losses on the 45 pub disposals completed during the year, PBT was up 14% to £76.4m and EPS up 16.1% to 50.4p.

Since the year end, Wetherspoon's like-for-like sales have increased by 6.1%.

"This is a positive start, but is for a few weeks only - and is very unlikely to continue for the rest of the year. Comparisons will become more stretching - and sales, which were very strong in the summer holidays, are likely to return to more modest levels," said Martin, reiterating his guidance that like-for-like sales of around 3-4% is likely to be required in order to repeat the profit performance.

Digging down into revenues, LFL bar sales increased by 3.1% versus 3.3% the prior year, food sales were up 5.7% versus 3.5% and fruit machine sales decreased by 1.2% versus a decrease of 2.2%.

Earnings were boosted as operating margin, before exceptional items, increased to 7.7% from 6.9% thanks to improved sales, lower utility and interest costs, and the sale of some lower-margin pubs.

Net debt rose to £696.3m from £650.8m.

Martin's haranguing on Brexit is partially seeking to reassure investors that Wetherspoon's will continue to thrive post-Brexit, trumpeting his view that "the main risk from the current Brexit negotiations is not to Wetherspoon, but to our excellent EU suppliers and to EU economies".

This, his confidence in being able to switch suppliers, and several other Brexit-related issues is supplied in an article as an appendix to the results, preceded by another landlordly rant on an issue that all his shareholders could get behind, the unequal taxes imposed on pubs compared to supermarkets that allows the latter to subsidise the price of alcoholic drinks.

Martin again called for the government to create tax equality among supermarkets, pubs and restaurants.

"Pubs have lost 50% of their beer sales to supermarkets since the 1970s as VAT has climbed from 8% to 20%. It makes no sense for the government to treat supermarkets more leniently than pubs, since pubs generate far more jobs per pint or meal than supermarkets do, as well as far higher levels of tax. Pubs also make an important contribution to the social life of many communities and create better visibility and control of consumers of alcoholic drinks."

This heady mix of financial outperformance and political ranting saw JS Wetherspoon shares fizz 7% higher to 1120p in early trading on Friday.

"More a paean to Brexit and rebuttal of 'unelected EU oligarchs' than a traditional financial report," said analyst Neil Wilson at ETX Capital said, "today's preliminary results from JD Wetherspoon features a very interesting and at times eloquent defence of democracy as the catalyst for economic prosperity from chairman Tim Martin."

Nonetheless he said there were some very encouraging numbers buried within the political rhetoric that implies Wetherspoon is thriving in post-referendum Britain.

"And according to the chairman, it will continue to do so after Brexit. The positivity is admirable - instead of talking about margin pressures from the weak exchange rate causing prices to rise like everyone else, he argues that the biggest threat of Britain leaving is to European suppliers as UK importers look elsewhere."