Wetherspoon's profits leak lower as labour costs mount
Profits at JD Wetherspoon fell 18.9% in the first half of its trading year as a big jump in labour costs outweighed an increase in sales for the pro-Brexit pub chain.
Group sales of £889.6m in the 26 weeks to 27 January were up 7.1% on the same period a year ago, driven by a 6.3% improvement in like-for-like sales.
But profits before tax and exceptional items plunged to £50.3m from £62m as labour costs increased £33m, along with £12m more for repairs, utilities, interest and depreciation. Operating margin dropped to 7.1% from 8.9%. Exceptional items fell to £1.6m from £6.8m.
Earnings per share, including shares held in trust, fell 18.2% to 37.4p, with no share repurchases in the period.
Free cash flow almost doubled to £71.7m, mainly to the timing of supplier payments, which expected to reverse by the year end, and to lower investment in existing pubs.
With two pubs opened in the period and six closed, the half-year ended with 879 pubs, of which 60% are freehold, compared to 42% a decade ago.
After getting a bit of a rant about Brexit off his chest, founder and chairman Tim Martin also revealed that LFL sales in the six weeks to 10 March had accelerated to 9.6% and that with the unusually sunny weather this year and Beast from the East last year total sales were up 10.9%.
"As previously indicated, costs in the second half of the year will be higher than those of the same period last year. The company anticipates an unchanged trading outcome for the current financial year."
'Spoons shares fell initially on Friday but after an hour of trading in London were up almost 2% to 1,315p.
It was an "impressive" half from a sales perspective, said broker Liberum, with LFLs "solid" and growth accelerating post period end.
On the cost increases, analysts added: "Questions will be asked as previous comments suggested that LFL growth of over 4.0% could support a higher margin."
Those at Peel Hunt noted that the City consensus was forecasting flat profits for the full year but that with the company anticipating an unchanged trading outcome for the current financial year, this implies "an expectation on the part of management of very strong profit performance in the 2H".
Nevertheless, Peel Hunt cut its PBT forecast by £5m to £99.1m and our EPS forecast to 73.6p from 79.4p.