Profits dive at JD Wetherspoon as labour costs soar

Rising costs squeeze profit margin as chairman Martin weighs in on Brexit

JD Wetherspoon has reported tumbling profits in the first half of the year, with increasing costs at the pub group outstripping a rise sales.

Pre-tax profits in the six months to 27 January fell 18.9 per cent to £50.3 million as costs rocketed, driving operating margin from 8.9 per cent to 7.1 per cent.

The group pointed to higher labour outgoings, which increased by around £33m.

However, revenues rose 7.1 per cent to £889.6m and likefor-like sales were up by 6.3 per cent in the period.

Chairman Tim Martin, who also used the half-year update to share his views about the Brexit negotiations, warned that costs would continue to rise in the second half.

He said: “As previously indicated, costs in the second half of the year will be higher than those of the same period last year. The company anticipates an unchanged trading outyear come for the current financial year.”

He added that in the six weeks to 10 March, like-forlike sales increased by 9.6 per cent and total revenue jumped 10.9 per cent, helped by good weather and favourable comparables.

Brexit-backing Martin went on to share his concern about “a barrage of negative economic forecasts” from the media predicting that “the UK will go to hell in a handcart without a ‘deal’ with the EU”.

He waded into the political debate, adding: “Previous referendum results on major constitutional issues have always been respected in the UK, but if Parliament votes either for Theresa May’s ‘deal’ (which keeps us in the EU by the back door) or to remain in the EU, the referendum result will not have been respected.

“This may well have significantly adverse economic consequences, as the country turns in on itself to endure months, or years, of stifling constitutional argument.”

Wetherspoon’s opened two new pubs in the first half of the and closed six, bringing its total estate to 879.

John Moore, senior investment manager at Brewin Dolphin Scotland, said: “Putting Tim Martin’s views on Brexit aside, there are some disappointing aspects to the numbers in JD Wetherspoon’s results.

“In the short term, cost and wage inflation may well continue to hurt profitability. However, looking past this, the business should be able to wear and, ultimately, pass through these costs and find itself in a better position than some of its peers.”

Paul Hickman, analyst at Edison Investment Research, said the chairman’s political commentary masked the group’s performance.

He said: “Buried in the by now usual diatribes against Brexit, corporate governance and ‘the Establishment’, is a serious decline in operating margin, from 8.9 per cent to 7.1 per cent.”

Hickman added that, despite the group’s unchanged fullyear forecast, analysts now expect pre-tax profits to slip 5 per cent to £102.1m for the current financial year.

hannah.burley@jpimedia.co.uk