7th Oct 2022 14:48
(Alliance News) - JD Wetherspoon PLC shares surged in London on Friday, as the pub chain let investors know that its current financial year has gotten off to a hot start.
Shares in FTSE 250-listed Spoons were 14% higher in London on Friday afternoon at 499.00 pence each. The shares are still down 48% in 2022, however.
The Watford, England-based pub chain said revenue in the 53 weeks to July 31 came in at GBP1.74 billion, up significantly from GBP772.6 million the year prior.
Compared to financial 2020, however, revenue was down 4.3% from GBP1.82 billion.
Pretax loss before exceptional items narrowed substantially to GBP30.4 million from a GBP167.2 million loss on the year before.
"The results themselves yielded few surprises and it is encouraging to see a good uplift in sales so far in the first ten weeks of the current financial year," Derren Nathan, head of equity research at Hargreaves Lansdown, said.
"However, the question is how long this can go on for. Without doubt pub-goers have bigger hits to come to their wallet, be it from energy costs or increased mortgage payments."
AJ Bell Investment Director Russ Mould said pubs are "not having a great time".
"Coming out of lockdown in 2021, a lot of people predicted a big boom for the leisure and hospitality industry, but it's not played out as expected," he continued. "People have got used to reaching for the fridge when they want a cold beer, not stepping outside to the pub. Wetherspoons says it has been a 'momentous challenge' to get them on its bar stools again."
The company explained: "A possible reason for the much slower-than-anticipated recovery has been an underestimation of the power of habit in determining human behaviour.
"During lockdown, dyed-in-the-wool pub-goers, many for the first time, filled their fridges with supermarket beer - and it has proved to be a momentous challenge to persuade them to return to the more salubrious environment of the saloon bar."
Operating costs jumped to GBP1.7 billion from GBP872.9 million.
Stripping out exceptional items, pretax profit amounted to GBP56.7 million, compared to a GBP27.5 million loss the year before.
It declared neither a dividend nor share buybacks, unchanged from the previous year. It noted covenants restrict the payment of dividends while the company is part of the coronavirus large business interruption loan scheme.
To start the current financial year, like-for-like sales increased by 10% in the nine weeks to October 2 compared to the same period a year before.
Looking further ahead, the pub chain warned firm predictions about its financial performance are difficult to make, owing to rising costs of labour and repairs, but it is "cautiously optimistic".
"Perhaps the biggest threat to the hospitality industry is the possibility of further lockdowns and restrictions," it said.
HL's Nathan added: "JD Wetherspoon has its own cost challenges to face particularly when it comes to staff and maintaining the quality of its estate.
"With that in mind it is hard to see how further lockdowns are really the most tangible threat, and don't anticipate a return to dividends any time soon given that net debt is hovering at close to GBP900,000."
Mould noted the strong start to financial 2023 explains the stellar share price performance on Friday, particularly, he said, as a lot of bad news was already priced in.
"However, operating profit margins are being squeezed as hard as a barman trying to get all the juice out of a lime," he added. "Inflation has been brutal for every business, and when your modus operandi is to sell drinks cheaper than others, it's hard to be too aggressive on price increases, which means sacrificing some profit margin."
By Paul McGowan; [email protected]
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