Wetherspoon toasts sales rise but margin hit

Tim Martin: Raised concerns over impact of VAT on tradeTim Martin: Raised concerns over impact of VAT on trade
Tim Martin: Raised concerns over impact of VAT on trade
Pubs group JD Wetherspoon served up some appetising sales growth yesterday but rising costs have eaten into its operating margins.

The firm, whose 900-odd watering holes include Edinburgh’s Standing Order and the Crystal Palace in Glasgow, reported that like-for-like sales increased by 6.3 per cent in the 13 weeks to 26 October following a surge in business during August and ­September.

However, the pace of growth decreased in October while the month also saw a number of cost increases, including a 5 per cent pay rise for thousands of staff and higher supplier costs.

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As a result, operating margin fell to 7.7 per cent in the period, from 8.3 per cent for the same time a year earlier.

In addition, the company – which has grown rapidly on the back of demand for its cheap drinks and food promotions – highlighted changes to the VAT treatment of gaming machines, which meant pubs are no longer allowed to off-set all VAT charged by suppliers against that charged to customers. It said the change cost it an extra £3.6 million between February 2013 and last July.

Chairman Tim Martin ­recently called for a level playing-field for pubs after revealing his firm paid £600m in tax over the past year.

He said pubs continued to be at a disadvantage as supermarkets do not have to pay VAT on food sales and are effectively able to subsidise alcohol prices.

Yesterday, the company added: “The biggest financial dangers to the pub industry continue to be the VAT and business rates disparity between supermarkets and pubs and the continuing imposition of stealth taxes, such as the late-night levy and the reduced allowances for gaming machine income.”

Investec Securities analyst Andrew Fitchie, who lowered his rating on the stock to “add”, said: “Reflecting cost pressures, we have increased our cost assumptions with the net effect being that our [full-year 2015] operating margin estimate [after share-based payments] is 7.7 per cent, down from 8 per cent.”

Meanwhile, rival Marston’s yesterday gave details of its latest investment in Scotland, where it already has seven establishments and plans several more.

It said it had started work on site to build two pub/restaurants – in Balloch, at Loch Lomond Shores, and in Armadale, West Lothian. They represent a combined investment of £7m and will create 80 permanent jobs. Marston’s opened its first ­Scottish site in Dunbar.