Pub chain in good health after sales rise

Published on Wednesday 15 July 2009 21:35

PUBS group JD Wetherspoon cheered the market yesterday by disclosing it expected its pre-tax profit for the trading year just ending to come in towards the top end of market hopes.

Shares in the firm, which have risen by more than 40 per cent since the start of the year, making it the best performer among pubs stocks, initially rose 3.6 per cent on the news. The stock later closed 0.5p lower at 428.5p.

Following the issue of a pre-close trading statement, Wetherspoon's finance director Keith Down said: "I think we're probably ahead of expectations on where the consensus previously was. We're towards the top end of market expectations."

The previous City consensus for profits at the group, which has some 40 outlets in Scotland, was 59 million for the year to 26 July. The overall range of City profit expectation was between 52m and 64.2m.

Wetherspoon, which has more than 700 UK pubs in all, said like-for-like sales fell 0.8 per cent in the 11 weeks to 12 July. It said this reflected the benefits in the same period of 2008 from a marketing campaign that offered reductions in drink and food prices.

For the financial year to date, covering the 50 weeks to 12 July, it said like-for-like sales rose by 1.2 per cent. Overall company sales lifted 5.2 per cent.

The group said: "This is an encouraging sales performance, both from our existing pubs and new openings."

Wetherspoon added that its performance had been helped by costs being "lower than anticipated in a number of areas, including energy, labour and marketing".

Down said: "It's efficiency rather than cost cutting, so it should mean a large proportion are relatively permanent."

The company, which earlier this year sharply cut its capital investment in order to meet interest payments on its 522m of debt, said that, as a result of these lower costs, it expected underlying profit margins to have been "at least 10 per cent higher" than originally anticipated for the second half of the financial year.

In the light of its sales and profit margin performance, Wetherspoon said it was "optimistic" about prospects for the next financial year.

Down said the company would look to buy pubs from distressed sellers and reaffirmed plans to open 30 new pubs a year. "We're seeing the opportunity to pick up pubs without a premium and at lower rents than we've paid in the past," he said.

Numis Securities lifted its pre-tax profit forecasts for 2009 by 11 per cent to 65m, and by 13 per cent to 70m for 2010, while Paul Hickman, drinks analyst at KBC Peel Hunt, said: "Wetherspoon's ability to grow despite this difficult market is demonstrated by its firm Q4 performance."

Matthew Gerard, an analyst at Investec, said: "To deliver like-for-like sales growth and margin improvement in one of the toughest years for the pub sector is highly commendable."