Little cheer for JD Wetherspoon shares after it accuses governments of robbing poor pubs
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
‘’JD Wetherspoon’s trading update has been greeted with very little cheer among investors with shares down around 0.5% in early trading.
Although across the sector outside terraces are heaving and revellers are making the most of their new found social freedoms, sales at the chains are still like a weak pint of beer.
Far from being a cash cow, the Euros haven’t helped boost trade, with like for like sales down 20.8% between June 10th and July 4th, whereas just before the tournament they were down by 8.1%. The company may be ruing its decision only to televise a handful of matches as much of the football fan crowd has clearly gone elsewhere. It still expects to make a loss for the year to July 25th.
The company also accused successive governments of robbing poor pubs to help rich supermarkets. It says the phased increase in VAT from emergency levels is unfair, given that grocers won’t have to pay the same amount on beer shifted from stores. Sainsbury’s reported yesterday that beer sales had soared by 60% above normal levels since the start of the Euros, so clearly the company is concerned about the stiff competition going forward. Although it has to be noted that the company made pre-tax profit of £95.4 million in 2019, before the pandemic hit.
The company is in need of the dose of tonic which Freedom day will present, given that punters will be able to pack in shoulder to shoulder once more. Its business model relies on filling its vast venues and selling large quantities of cheap alcohol and social distancing restrictions wreaked havoc with this.
850 out of 860 of its pubs have now flung open the doors once more with only bars at airports remaining closed. With so many people cancelling foreign holidays for staycation entertainment, there should be more ready custom over the summer to help give a boost to its fortunes and the company expects to claw back to level of sales it rang up in 2019 during the next financial year.
The company had planned to use some of the money raised from shareholders as a war chest for further expansion, to snap up properties from distressed rivals. There is progress on this front, with a pipeline of new projects including 18 new pubs and 57 extensions or upgrades, which could be a driver for longer term growth.
A fly in the beer glass though could be the lack of staff available to keep up with demand. Already there are indications the company is finding it hard to recruit, given chairman Tim Martin’s earlier call for a fast track visa for European workers. So to fill vacancies wages may have to rise, which could eat into margins.’’