JD Wetherspoon battles cost pressures

By THIS IS MONEY
Updated: 11:18 EST, 4 May 2011

JD Wetherspoon has predicted a reasonable perfomance in its current financial year but its boss admitted the pub industry is under 'extreme pressure'.

Tim Martin: Innovating to keep pubgoers spending

Like-for-like sales at the group were up 2.4% in the 13 weeks to April 24, and by the same amount over the 39 weeks to the same date.

Chairman Tim Martin said the company had shed 'blood, sweat and tears' to drive growth in the third quarter in the face of low consumer spending.

Mr Martin said it had brought in a wider spirits range, a beer festival and a new and improved menu in order to pull in customers.

'The industry is under extreme pressure,' Mr Martin said. 'This is not change for change's sake. We're trying to make the company better.'

Mr Martin said rising oil and wheat prices, as well as other soaring food costs, were putting further pressure on the firm to lift prices.

'Our margins are lower than they were a year ago,' he said. 'So the price increases we've introduced so far aren't covering the increase in costs.'

Wetherspoon recently warned prices in its pubs and those across the industry would need to rise by around 4% to combat inflation, adding to the squeeze on customers. This comes on top of a 3% to 4% hike in October, introduced after Wetherspoon faced price increases from suppliers.

Shares in the pub group were down 7.6p at 446.4p in trading today.

Wetherspoon, which has 800 pubs, is being hit by increased taxes and labour costs as well as rising prices relating to utility bills and bar and food supplies.

But the company said it continues to expand, opening 29 new pubs since the start of the financial year and aiming for 50 in total.

'Sales and cashflow continue to be resilient and the performance of our recently opened pubs remains encouraging, which should enable the company to produce a reasonable outcome in the current financial year,' it said.

Wetherspoon has spent £32.6m on share buybacks in the present year.

View from the City

Simon French, an analyst at broker Panmure Gordon, said Wetherspoon's update came in slightly below its expectations.

However, Panmure held its profits forecast for the year to July at £68.5m, down on £71m in the previous year.

Investment bank Altium Securities said: 'We note that the reporting period did not include Easter Monday or the Royal Wedding weekend which should have provided a further boost.

'We retain our view that the shares offer meaningful medium term upside, aided by the self-funded roll-out programme which equates to estate expansion of around 6.5% per annum which is materially ahead of peers and similar to the 7% planned at Restaurant Group.

Nigel Parson of broker Evolution commented: 'JD Wetherspoon has signalled its confidence in its strategy by buying back 5.5% of its equity this year (marginally earnings enhancing).

'The ramp up in catering-related costs is starting to show some traction, with like-for-like sales and EBIT (earnings before interest and tax) margin both ticking up slightly as expected. The stock is to the top of its 12-month trading range and we have upped our target price to 470p (was 420p) to reflect progress.'