15th Jul 2015 10:36
LONDON (Alliance News) - JD Wetherspoon PLC Wednesday reported a rise in revenue in the 50 weeks to July 12 but reaffirmed that pretax profit for the full year is unlikely to be higher than the prior year, as it continues to take a hit to its operating margin.
Shares in Wetherspoons were down 7.6% at 716.50 pence late Wednesday morning, making it the second worst performer in the FTSE 250.
The pub company said that total sales increased 6.5% in the 11 weeks to July 12 and 7.6% in the 50 weeks to the same date, growing 2.9% and 3.4% on a like-for-like basis, respectively.
Operating margin in the 11 weeks was 7.0%, compared with 8.3% in the same period the year before, and is expected to be around 7.4% for the full year, while pretax profit for the full year is still unlikely to be higher than last year, Wetherspoons said.
Wetherspoons' operating margin has suffered this year as the company increased pay for pub staff and was hit by higher utility costs. In the first half of its financial year, the operating margin weakened to 7.4% from 8.2% in the corresponding period the year before. This improved slightly to 7.5% in the third quarter, but was still lower than the 8.0% reported in the third quarter of the prior year. Wetherspoons said in May that it expected its operating margin to be in the region of 7.3% to 7.7% for the full year.
Last October, Wetherspoons announced a 5% minimum starting-pay increase for its employees which would rise to 8% in August this year. It said that it also pays approximately one third of profits to staff in bonuses and free shares, 80% of which is paid to staff who work in the pubs.
Chairman Tim Martin warned on Wednesday that the UK government's recent announcement regarding the introduction of a 'national living wage' is likely to hit the pub industry on the whole.
The national living wage, which applies to workers over the age of 25, will start at GBP7.20 an hour from April next year, rising to GBP9 an hour by 2020, and will supplement the current GBP6.50 minimum wage, which also applies to under 25s.
"The recent government announcement regarding the 'living wage' adds considerable uncertainty to future financial projections in the pub industry. The average price of a pint in a supermarket is less than GBP1 and we estimate staff costs to be around 10% or 10 pence. In contrast, a pint in a pub costs around GBP3 and staff costs are about 25% or 75 pence. Increased labour costs therefore affect pubs with far greater force than supermarkets," Martin said.
"This disadvantage is compounded by a huge VAT and business rates disparity between pubs and supermarkets, which is putting unsustainable pressure on many pubs in our industry, especially in smaller towns and less-affluent areas," he added.
Since the start of the financial year, Wetherspoons has opened 26 new pubs and disposed of six, and intends to open around 30 pubs in the current financial year, which ends on July 26, and between 20 and 30 in the following financial year. Wetherspoons recently announced that it would sell 20 pubs across the UK which no longer fit its requirements.
"At this early stage, a number of factors likely to influence our trading performance next year are difficult to quantify. Positive aspects include an increase in pub numbers, a better economy and slightly lower interest rates. Less favourable aspects include heightened competition from supermarkets and restaurant groups, and increased staff, repairs, bar and food costs," Martin said.
"We currently anticipate a trading performance similar to, or slightly above, the current year, with an increased second half weighting, and will provide updates in our regular statements in the course of the next 12 months," he added.
Wetherspoons will release its full-year results for the year to July 26 on September 11.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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