JD Wetherspoon saw like-for-like sales increase by 7.2% in the first 12 weeks of its second quarter, it reports today. But costs are rising, too.
A Wetherspoon spokesperson said: “The company has spent £56m in the year to date on buying the freeholds of pubs of which we were previously tenants.
“The company remains in a sound financial position. Net debt at the end of this financial year is currently expected to be around £10m higher than the level at the last financial year end.”
Chairman, Tim Martin, said costs, as previously indicated, are considerably higher than the previous year, especially labour, which has increased by about £30m in the period, but also in other areas, including interest, utilities, repairs and depreciation. Profit before tax in the first half is expected to be lower than the same period last year.
Fiona Cincotta, a senior market analyst at www.cityindex.co.uk, told Beer Today: “JD Wetherspoon has served up a hot and cold result here: sales have grown strongly, but costs have risen at a rapid clip.
“The cost side of the equation is arguably more important, though, because Wetherspoon is a low-margin operator, compared to its competitors.
“Relying more heavily on volume to generate profit, rather than higher prices, leaves the company particularly vulnerable to cost pressures, especially should sales sales start to slip.”
Cincotta added: “Wetherspoon is evidently keeping punters happy with its current price offering. But past periods have shown how sensitive its sales can be to the vagaries of the weather and fickle consumer tastes.
“More detail on how management intends to the manage spiraling costs will be expected by investors when interim results are handed down in March.”