25th Jan 2023 18:03
(Alliance News) - For some analysts JD Wetherspoon PLC's latest update on Wednesday was a sign that the cost-of-living crisis was not hitting the firm as hard as expected, while others viewed it as a sign the pub chain was struggling to recover past its pre-pandemic levels.
JD Wetherspoon reported like-for-like sales in the 25 weeks to January 22 were up 13% on a year before and only 0.7% below the same 25 weeks to January 2020, before the Covid-19 lockdowns in the UK.
More recently, it said like-for-like sales in the 12 weeks to the same date were up 18% on a year ago, but 2.0% below pre-pandemic.
Wetherspoon did not provide actual sales figures. Its full results for the six months ending on Sunday will be released on March 24.
For Susannah Streeter at Hargreaves Lansdown the update showed that whilst the cost-of-living crisis may still be raging in the UK, it's not affecting the appetite to socialise down at the pub.
"Instead," she argued, "it seems many punters are after a cheaper drink in hand and the choice of a cut-price meal from the menu."
Wetherspoon said it outperformed the UK pub and restaurant sector in December. Its like-for-like sales were up 21% last month on a year before. This compares to a 15% increase for the overall sector, according to the Coffer CGA Business Tracker.
"The curse of Omicron which saw bars empty out last year was clearly more disruptive than striking rail workers," Streeter noted.
Victoria Scholar, from interactive investor, cited the benefits of a post-pandemic return to pub culture, the football World Cup and the Golden Quarter's key festive drinking season as drivers behind the firm's improved performance.
However, Russ Mould at AJ Bell argued the fact Wetherspoon did better in the Christmas just gone than the Omicron-marred festive period of 2021 was "not really news."
"It would have been difficult to do worse given restrictions are no longer in place and the fear factor associated with going about normal life has receded," he said.
"What is damaging for Wetherspoons is that trading is still behind where it was pre-pandemic. Wetherspoons has always had a model of prizing volume over margins, so when you consider how fast costs are rising it is not surprising profitability is under pressure," Mould continued.
Nonetheless, Chair Tim Martin said that the firm is "cautiously optimistic" about its prospects for its current financial year.
However, the outspoken chair said that the "biggest threat" to the hospitality industry is the "vast disparity in tax treatment between pubs and restaurants and supermarkets".
"Supermarkets pay zero VAT in respect of food sales, whereas pubs and restaurants pay 20%. This tax benefit allows supermarkets to subsidise the selling price of beer. We estimate that supermarkets have taken about half of the pub industry's beer volumes since Wetherspoon started trading in 1979, a process that has likely accelerated following the pandemic," Martin argued.
For AJ Bell's Mould, all Wetherspoon can do in this context - barring some kind of concession by the government - is redoubling its efforts to make its venues "appealing places for people to visit, rather than just somewhere to buy relatively inexpensive drinks."
"A pub's role goes beyond just a venue for drinking – after all there's not much company to be found sat on your living room sofa," Mould said.
Derren Nathan at Hargreaves Lansdown said, in his opinion, there is "no doubt" Wetherspoons can survive as the clouds continue to darken for the hospitality sector. He added that it could even be a case of "last man standing" for Wetherspoon, suggesting the firm may "prosper" with increased market share for when the cycle turns.
"But in the short term, the news could well get worse before it gets better," he cautioned.
Shares in JD Wetherspoon closed 6.2% lower at 449.40 pence on Wednesday in London. Over the past 12-months, the stock has fallen 51%.
By Heather Rydings, Alliance News senior economics reporter
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