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Wetherspoons sales strong, but ‘at the mercy of politicians’
J D Wetherspoon has reported a solid sales performance in its latest trading update, with like-for-like sales up 5.1% in the 25 weeks to 19 January 2025.
The pub chain also posted a 4.6% increase in like-for-like sales for the second quarter, bolstered by a 6.1% rise during the critical three-week Christmas period. But as the tills rang merrily, the company’s future increasingly appears “at the mercy of politicians,” with cost pressures mounting.
Chairman Tim Martin, addressing the results, said that sales during the Christmas period were particularly strong, showing customer loyalty to Wetherspoons’ value-oriented proposition. Martin said: “Sales during the Christmas period were robust, highlighting the resilience of our approach in challenging times.”
Despite the solid trading results, the company faces significant headwinds. Labour-related costs are set to rise by £60 million per annum from 1 April, a figure that demonstrates the intense cost pressures facing the hospitality sector as a whole. This increase in costs is equivalent to nearly 81% of the group’s profit before tax for the previous financial year, which stood at £73.9 million.
Balancing act
Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, explained the precarious balancing act Wetherspoons faces. He said: “Wetherspoons sales growth slowed slightly in the second quarter but still remained solid with robust trading over the key Christmas period. Its commitment to low prices and doing the basics well are helping to keep punters loyal.
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“However, the extent of cost increases for the sector is crippling. The £60 million annual increase in labour-related costs Wetherspoons is facing is almost equivalent to the entire profit it made last year (PBT of £73.9 million). Price increases are inevitable, but for Wetherspoons, this is a delicate balance. Raise prices too much, and it risks ostracising its loyal customer base. Not enough, and margins could come under serious pressure.”
Huggins also commented on Wetherspoons’ advantages, adding: “At least Wetherspoons has scale on its side, leaving it better positioned than many in the sector. It will flex these muscles as much as it can to contain costs in other areas. In addition, the share price already incorporates a lot of bad news and may start to attract bargain hunters. But it’s hard to escape the conclusion that, increasingly, its destiny seems out of its own hands and at the mercy of politicians.”
Analysts’ outlook
Peel Hunt analysts offered a similar perspective, pointing out that while Wetherspoons has consistently delivered value, the magnitude of the upcoming cost increases could weigh heavily on profitability. The firm reiterated that cost inflation across the sector is a significant challenge, with factors such as wage hikes and energy costs impacting margins.
However, the company remains cautiously optimistic, aiming for what it described as a “reasonable” outcome for the financial year, yet the road ahead appears fraught with challenges. The delicate interplay between maintaining affordability for customers and safeguarding profitability will likely define the company’s strategy moving forward. The concern remains with much smaller businesses, unable to carry the burden of looming cost increases.
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