JD Wetherspoon saw its shares tumble by 10 per cent after posting lower-than-expected first-half profits, despite solid sales growth across its pub estate. The pub group blamed higher labour and utility costs for the dip in performance, sparking investor concern and a sharp sell-off.
Shares in the company dropped 62p to 535p as operating profits fell to £64.8 million in the six months to January 26, down from £67.7 million a year earlier. Analysts had been expecting an increase.
The impact of a £31 million increase in labour and energy costs was clear, with operating margins narrowing to 6.3 per cent from 6.83 per cent. Pre-tax profits dropped by 8.6 per cent to £32.9 million.
Wetherspoon, famed for its low-cost ales and meals, said total revenue rose by 3.9 per cent to £1.03 billion during the half-year. Like-for-like sales were up 4.8 per cent, with bar sales growing 4.3 per cent and food sales rising 5.4 per cent. Fruit machine revenue, while a smaller part of the business, surged 12.4 per cent.
Despite the pressure on margins, the group declared a 4p interim dividend, payable on 30 May.
Sir Tim Martin, the company’s founder and chairman, remained optimistic, pointing to a continuation of strong trading into the second half. Like-for-like sales rose 5 per cent in the seven weeks to 16 March.
However, Martin warned that the rise in the national living wage and employer national insurance contributions announced in the Autumn Budget would add an estimated £60 million in annual costs—roughly £1,500 per pub per week.
Analysts at Shore Capital described the first-half results as “somewhat disappointing”, noting that they had forecast a £3 million increase in profits, not a decline. However, they added that the resilience in like-for-like sales bodes well for the broader pub sector.
Jefferies analysts struck a more positive tone, noting Wetherspoon’s competitive pricing: “With a low price position relative to other operators, and increased wages affecting the whole industry, we argue that Wetherspoon is relatively better-placed to absorb the wage inflation.”
Founded by Martin in 1979, Wetherspoon reached its peak size in 2015 with 951 pubs. At the end of the latest half-year, the chain operated 796 pubs, having opened two new locations and sold six.
As costs climb and margins tighten, Wetherspoon’s ability to maintain customer loyalty while managing expenses will be key to its longer-term performance.
