JD Wetherspoon reported a sharp fall in annual profit as rising costs outpaced growing sales, though the pub chain pointed to a strong start to its new financial year.
The company said pre-tax profit, before one-off items, fell 28% to £58.6m in the 52 weeks to 26 July, even as revenue rose 5.2% to £2.24bn and like-for-like sales grew 4.2%.
The drop resulted from higher costs, with wages up £46m, repairs £31m and business rates £9m, pushing its operating margin down to 5.4% from 6.9%. It held its dividend at 12p and continued share buybacks.
“Wetherspoons has little trouble getting people through the door, making more money from them is proving considerably harder,” said Mark Crouch, Market Analyst at eToro.
The Wetherspoon Chairman took the opportunity to weigh in on the UK government and the difficult trading environment it has created for pubs.
“The hospitality industry, as many commentators and companies have noted, has borne the brunt of government-led tax and regulatory cost increases, especially in the last two budgets. This has resulted in pubs becoming even more expensive than supermarkets, leading to job losses, closures and high street dereliction,” said Tim Martin, the Chairman of J D Wetherspoon plc.
“It is to be hoped that the powers-that-be will refrain from any further increases, since pubs and restaurants pay around 40% of their receipts as taxes of one sort or another – and provide immense financial support to the Treasury, as well as social support to the community.
“In addition, as Jacques Borel, Tom Kerridge and multifarious individuals and organisations have noted, including, indeed, the Prime Minister and other party leaders, VAT is the main culprit in the disparity with supermarkets – and the hospitality industry will not be able to survive or thrive unless taxes and other costs are equalised”
But despite the external pressures, trading has picked up sharply since year-end for Wetherspoons.
Like-for-like sales rose 8.6% in the nine weeks to 27 September, helped by warm weather and the company’s investment in beer gardens and outdoor seating, and it said it had outperformed an industry sales tracker for the 48th month in a row. It expects full-year profit in line with market forecasts.
Strong recent trading helped shares rise 5% in early trading.