Wetherspoon recovery ‘painstakingly slow’
Pub chain JD Wetherspoon fell to another annual loss as it made a “painstakingly slow recovery” from the pandemic.
It posted a £30.4m pre-tax loss before exceptionals for the year to the end of July from a £102.5m profit in 2019.
There was a £167m loss in 2021 when lockdown measures were still in place. Profit after exceptionals fell 72.4% to £26.3m (2019: £95.4m) and no dividend is recommended.
The board noted that “most commentators, including most publicans, understandably predicted a post-lockdown boom, in which the public would react to enforced cabin fever by embarking on a celebratory spree.
“But the reality has, in contrast, been a painstakingly slow recovery in sales, for some but not all, accompanied by great inflation in costs.”
Chair Tim Martin said the group was cautiously optimistic as he took another pop at government policies during the pandemic and at supermarkets gaining a VAT advantage over the hospitality sector.
In the first 9 weeks of the current financial year, to 2 October 2022, like-for-like sales increased by 10.1%, compared to the 9 weeks to 3 October 2021, but he said “firm predictions are hard to make”.
He said the company has improved its prospects in a number of ways in recent financial years.
“We own an increasing percentage of freehold properties; the balance sheet has been strengthened; interest rates have been fixed at low levels until 2031; we have a large contingent of long-serving pub staff and underlying sales are improving.
“However, as a result of the previously reported increases in labour and repair costs and the potentially adverse effects of rises in interest rates and energy costs on the economy, firm predictions are hard to make.
“Perhaps the biggest threat to the hospitality industry is the possibility of further lockdowns and restrictions.
Shares in the company leapt 17%.
Charlie Huggins, head of equities at Wealth Club, says: “2022 was another annus horribilis for Wetherspoons. The recovery from the pandemic has been slower than the group initially expected, meaning sales and profits are a long way short of where they would want them to be. And while the threat of covid is now receding, another has reared its ugly head – inflation.
“Wetherspoons business model is heavily exposed to the rise in energy and food bills. While it can pass on some of these cost increases, it will be reluctant to push prices too far, for fear of ostracizing its customer base.
“It’s not all bad news. With almost 900 pubs, each massive and serving huge volumes of drink and pub grub, Spoons has a size advantage over pretty much all its rivals. Sales are also on an improving trajectory, up 10.1% in the first 9 weeks of the year. Growing sales are vital in an inflationary environment, giving greater scope to shoulder cost increases.
“Nevertheless, 2023 is shaping up to be yet another challenging year for Wetherspoon’s. Higher interest rates and inflation are strangling the economy, and will lead to significantly higher costs for the group. Combine this with Wetherspoon’s low margins and low price strategy, it could leave investors nursing a hangover.”