JD Wetherspoon reported a jump in third-quarter sales at its 900-odd pubs in Britain and Ireland but its shares fell 6% at one point as analysts said sales were not translating into higher profit because of rising costs.
Like most restaurant chains in Britain, Wetherspoon has been battling increased costs due to a minimum wage hike, higher property prices and energy bills, as well as a shift away from pub drinking by younger people.
Wetherspoon’s comparable sales rose 7.6% during the 13 weeks to 28 April, with an 8.4% rise in total sales in Britain and Ireland. The company said its expectations for the full year were unchanged.
Tim Martin, the founder and chair of Wetherspoon, said: “Costs are significantly higher than last year, labour costs especially, stemming from very low unemployment. Other cost increases include business rates and repairs, the latter as a result of an ageing estate of pubs.”
Wetherspoon had said in March it expected costs in the second half to remain high, after rising wages hit the budget pub chain’s profit. It announced a pay increase for its employees in November.
Wetherspoon was one of the biggest fallers on the FTSE 250 after the update, down 5% in afternoon trading at £12.74.
“With a company that is growing so impressively on the top line … it is unusual to not have a profit upgrade … there isn’t an upgrade because of margin pressure, which is largely from labour cost but also from repair and maintenance cost,” said Anna Barnfather, an analyst at Liberum. “I think the disappointment is that this strong sales growth isn’t translating into profit growth.”
Barnfather expects annual pre-tax profit to fall to £103m from £107.2m in the year to the end of July 2018.
Growth for Wetherspoon has come from the sale of gin, craft beers from smaller brewers, and coffee and tea, which are big sellers. Food sales were propped up by fish and chips, Martin said.
David Madden, an analyst at CMC Markets, said: “There is a concern over mounting costs for Wetherspoon. To a lesser extent, net debt ticked up as well, even though in the more medium term it anticipates debt to fall back again.”
