J D Wetherspoon plc has issued its pre-close statement for the financial year to 26 July 2015. The preliminary results are due to be announced on 11 September 2015.
Fiona Cincotta, senior market analyst at www. finspreads.com commented:
“JD Wetherspoons reported a strong set of figures, however painted a bleaker picture going forward. The pub reported 2.9% growth in like for like sales in the 11 weeks to July 12 with total sales climbing 6.5%. Year to date figures were also encouraging, with like for like sales growing 3.4% and total sales rising 7.4%. However despite a solid set of sales figures JD warned that they did not expect pre- tax profits to be greater than last year.
“The CEO also slammed the government for the new living wage which he believes will have a considerable negative effect on the pub industry, an industry which is already suffering with the falling prices of alcohol in supermarkets and looks to struggle further with the increase in the minimum wage. The share price fell over 7% in the morning session lost confidence in the outlook of the pub.”
Current trading
For the 11 weeks to 12 July 2015 like-for-like sales increased by 2.9% and total sales increased by 6.5%. In the year to date (50 weeks to 12 July 2015) like-for-like sales increased by 3.4% and total sales increased by 7.6%.
The operating margin in the 11 weeks to 12 July 2015 was 7.0%, compared with 8.3% in the same 11 weeks last year. The full-year operating margin is expected to be around 7.4% and, as previously indicated, full-year profit before tax is unlikely to be higher than last year.
Property
The Company has opened 26 new pubs and disposed of 6 since the start of the financial year.There are 9 pubs under development and it is intended to open around 30 pubs in the current financial year.
It is the present intention to open between 20 and 30 pubs in the next financial year and Wetherspoon has recently announced it is to sell 20 pubs which no longer fit requirements.
Financial position
The company has bought back 1,621,163 shares, at a total cost of £12.5 million, since the start of the financial year. The preliminary results announcement will provide an update on impairment provisions. The Company remains in a sound financial position.
Outlook
The chairman of Wetherspoon, Tim Martin, said:
“The recent government announcement regarding the “living wage” adds considerable uncertainty to future financial projections in the pub industry. The average price of a pint in a supermarket is less than £1 and we estimate staff costs to be around 10% or 10 pence. In contrast, a pint in a pub costs around £3 and staff costs are about 25% or 75 pence. Increased labour costs therefore affect pubs with far greater force than supermarkets.
“This disadvantage is compounded by a huge VAT and business rates disparity between pubs and supermarkets, which is putting unsustainable pressure on many pubs in our industry, especially in smaller towns and less-affluent areas.
“Pubs contribute around 40% of sales as taxes of one kind or another and are important generators of jobs. Capricious initiatives by the government, widening the financial disparity between pubs and supermarkets, will threaten the future of many more pubs.
“Wetherspoon is conscious of the need to attract and retain excellent staff. In addition to a 5% minimum starting-pay increase announced last October, we agreed an 8% increase for the 3 August this year, before the government introduced its latest plans. We also pay approximately one third of profits to staff in bonuses and free shares and 80% of this is paid to staff who work in our pubs.
“Furthermore, we estimate that each of our pubs generates taxes of approximately £650,000 per annum, around 10 times our net profits per pub. We strongly urge the government to harmonise VAT and business rates for pubs and supermarkets and to end the current tax inequalities.”
“At this early stage, a number of factors likely to influence our trading performance next year are difficult to quantify. Positive aspects include an increase in pub numbers, a better economy and slightly lower interest rates. Less favourable aspects include heightened competition from supermarkets and restaurant groups, and increased staff, repairs, bar and food costs.
“We currently anticipate a trading performance similar to, or slightly above, the current year, with an increased second half weighting, and will provide updates in our regular statements in the course of the next 12 months.
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