22nd Mar 2024 11:13
(Alliance News) - JD Wetherspoon PLC's "thin" margins could hinder plans to profitably boost its estate, analysts said on Friday, after taking stock after half-year results.
Shares in JD Wetherspoon were down 8.1% at 732.00 pence each in London on Friday morning.
The Watford, Hertfordshire-based pub chain said it expects a "reasonable outcome" for its financial year despite its interim profit halving, but reported a surge in sales.
JD Wetherspoon said in the six months to January 28, pretax profit fell by more than half to GBP26.1 million from GBP57.0 million. This was amid property losses of GBP15.1 million, compared to GBP11.2 million the previous year.
In addition, Wetherspoon's operating costs grew 5.1% to GBP923.3 million in the first half of its financial year, from GBP878.5 million a year prior.
However, revenue rose 8.2% to GBP991.0 million from GBP916.0 million the year before.
Wetherspoon declared no interim dividend, unchanged from a year ago.
Looking ahead, the pub-owner said its sales have continued to improve, and noted that in the seven weeks to March 17, its like-for-like sales have increased by 5.8%.
Derren Nathan, head of equity research, Hargreaves Lansdown said the results tell "a story of an impressive recovery," albeit from a low-base.
But he felt that at under 7%, margins are still pretty thin and there was little in the statement to help see where an improvement might come from.
Nathan noted a lot of capacity has come out of the market and the hint that there might be potential of about 1,000 pubs compared to a current total of 814, could see the estate start to grow again.
But that may see the return of dividends kicked further down the road, Nathan commented.
Analysts at Stifel said best placed are operators in the sector with higher margin structures and/or the ability to profitably expand their estates, leveraging central costs over growing businesses.
"JDW does not screen well on either count," it stated.
"After a decade of margin erosion it remains difficult to forecasts JDW's profit trajectory with confidence," the broker added, noting industry costs are likely to "prove sticky (labour) and pricing will become harder to pass through."
Nonetheless, Stifel noted the business has proven resilient during periods of soft consumer confidence and it thinks the valuation is broadly fair, hence its 'hold' rating.
By Jeremy Cutler, Alliance News reporter
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