JD Wetherspoon shares sank on Friday after the pub chain warned increasing taxes would result in substantial cost increases.
The warning overshadowed the reintroduction of a 4p half-year dividend and a 4.8% increase in like-for-like sales and shares were down 9% at the time of writing.
Such are the pressures on JD Wetherspoon, shares are now trading at the lowest levels since 2023.
Today’s warning on rising taxes isn’t the first from JD Wetherspoon or, indeed, the wider industry. But it was the clearest illustration of how damaging the rise in national insurance and staff costs would impact the pub chain.
“Increases in national insurance and labour rates will result in company cost increases of approximately £60 million per annum, which amount to approximately £1,500 per pub, per week,” said Tim Martin, the Chairman of J D Wetherspoon.
There are some bright spots in the group’s update released on Friday, but such a sharp increase in costs poses a real threat to profits going forward. Mark Crouch, market analyst at Etoro, highlighted a pick up in recent trading and pointed to the importance of the upcoming summer trading period as national insurance rises.
“Investors might want to look at JD Wetherspoon’s half year earnings with a glass-half-full perspective, but that might be clutching at straws. After food and drink sales went flat at the tail end of last year, the UK pub operator continues to struggle with rising costs, hindering efforts to regain momentum from 2023,” said Mark Crouch.
“Although like-for-like sales have increased, higher labour costs and increased VAT rates for pubs are smothering the sector. The government’s decision to raise the national minimum wage may grab positive headlines, but the economic impact on businesses like JD Wetherspoon — and potential employees who may miss out as a result — is turning out to be anything but.
“It wasn’t all bad news, Wetherspoon has reintroduced its interim dividend, which will be welcome news for shareholders. And as summer approaches, the arrival of warmer weather will be crucial to Wetherspoon turning their year around with punters more likely to venture out for a pint, hopefully adding a well needed boost for the pub chain.”
Tim Martin will be praying for a scorching summer this year.