- Full-year profits at the high end of market expectations
- Action on net debt and estate rationalisation
The share price of JD Wetherspoon (JDW) has been ticking up since the end of last year, but it may be premature to characterise the stock as a recovery play. Yet given the unprecedented trading circumstances faced by the pubco since 2020, the news that it expects profits in the current financial year to be towards the top of market expectations represents progress of sorts. The company’s latest trading update also detailed a 12.2 per cent like-for-like increase in third-quarter sales, with trading volumes helped along by a particularly strong Easter period.
Sales are now ahead of pre-pandemic levels, but it’s impossible to overstate the damage wrought on the hospitality sector by the enforced business closures. Wetherspoon chairman Tim Martin certainly remains critical of over-regulation in the wider economy, asserting that some senior politicians fail to grasp “the need to encourage a successful free market economy”. And though he welcomed the positive momentum on the sales front, he cautioned that “inflation, especially in labour, energy and food costs, remains a more intractable issue”. The read-through is that margins will be dampened by rising input costs for longer than expected, although you would imagine that sales volumes could prove more resilient than those of industry peers due to the company’s value-for-money business model – we shall see.
Further actions have been taken to reduce the debt overhang and rationalise the estate. The company has closed 21 pubs in the year to date, most of which were smaller and/or older establishments. The sales brought in £4.7mn and another 30 boozers remain on the market. Net debt (ex-lease liabilities) stood at £738mn at the end of the quarter, which is £67mn below the figure given in the company’s interim results for FY2020, immediately before the pandemic.
The market welcomed the update, evidenced by a 5 per cent share price hike in early trading. It’s a long road back from the initial lockdown, which caused the company to report its first loss in 36 years, but this was a positive update overall.
Last IC view: Sell, 640p, 24 Mar 2023
