14th Mar 2014 10:19
LONDON (Alliance News) - British pub chain JD Wetherspoon PLC Friday said sales and profits grew in the first half of its financial year, but it warned of slower like-for-like sales in the second half of the year and said investments, including on higher salaries and training for its staff, weighed on its profit margin.
The group maintained its interim dividend at 4.00 pence per share, after it reported a 3.2% increase in pretax profit for the 26 weeks ended January 26, boosted by a 9.1% increase in sales of its food, beverages, hotel rooms and machine income, and like-for-like sales growth of 5.2%.
The UK-base pub owner and operator said the strong trading momentum has continued, with total sales up 11.6% in the six weeks to March 9, and like-for-like sales 6.7%, but the group warned that it expects input costs to continue to rise, and is expecting like-for-like sales growth to slow in the second half of the year.
"We had a very good profitable second half in the last financial year, so we have some tough comparatives. We may not be able to shoot out the like-for-like sales growth in the second half, but we are still hoping for a 3% to 5% growth range," Chairman Tim Martin told Alliance News after the release of its interim results.
The group has been driving more aggressive like-for-like sales growth in recent years as a way of offsetting a variety of cost pressures that have hit the business. Like peers in the food and drink sector, it has extended its food serving hours.
JD Wetherspoon shares were down 2.4% Friday morning, trading at 809.00 pence per share.
Despite tax and cost pressures, the company said it is still targeting a reasonable outcome for the current financial year ending July 27, and has a solid platform for future growth.
For the first half of the year, the pub chain reported a pretax profit of GBP36.0 million, compared with GBP34.8 million for the same period a year earlier. It booked GBP1.8 million in exceptional costs relating to interest it had to pay HMRC in regards to gaming machines.
The profit improvement was largely driven by a strong increase in revenues to GBP683.2 million, up from GBP626.4 million the prior year.
On a like-for-like basis, bar sales were up 3.6% in the first half, and food sales up 11%, but both increases were not quite as strong as last year. It said fruit/slot machine sales decreased by 9.5%, compared with a 4.4% increase the prior year.
The group has been facing pressure on its profit margins, which in the first half of the year dipped slightly to 8.2% from 8.3% a year earlier.
"We are not going to try too hard to protect and maintain our margins, as we are trying to increase growth, profits and free cash flow. We are not as focused on margins, if they have to fall then we can deal with that," said Martin.
JD Wetherspoon has been investing heavily in the business, investing in its existing pubs and pipeline, and spending more on areas such as IT, staff wages, and staff training courses in areas such as coffee and real ale. Its also facing higher lease rental costs.
"We do sell a lot of coffee. If you add tea and coffee together we sell more than traditional ale, so it is an important and growing part of the business," said Martin. "I believe there is strong demand for coffee and tea, so if we can give Starbucks and Costa Coffee a run for their money, then great."
In the first half of the year it spent GBP26.1 million on investing in buildings and equipment, and GBP24.6 million on refurbishing and improving its existing pubs estate.
During the period, the group opened 19 new pubs, bringing the number of pubs open at the period's end to 905. It said it still expects to open between 40 and 50 new pubs in total this financial year, which means roll-out will be weighted to the second half of the financial year.
"Yes we may spend more capital expenditure in the second half of the year. We are not sure yet exactly how it will fall, but we are approximately in line with expectations," said Martin.
JD Wetherspoon owns and operates pubs across the UK, with a particularly heavy presence in London and the North of England.
"We haven't really noticed a north or south divide, but London has been strong in terms of trading," said Martin.
The pub chain also opened its first motorway pub recently, along the M40 in Beaconsfield. It was a controversial move.
"Trading there has been quite slow. I think there is a social stigma about going there, after all the bad press. But food sales are good, and it is still early days," said Martin.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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