JD Wetherspoon (JDW) says its first half pre-tax profit is better than it expected as a result of decent sales. However, it warns that the performance will be tough to repeat in the second half of its financial year.
Given that the shares are up nearly 4% today to £13.16, are investors failing to spot the risks?
WHAT'S THE LATEST TRADING POSITION?
The pubs company says like-for-like sales increased by 6% for the 12 weeks to 21 January.
That is the same rate of like-for-like sales growth seen in its first-half period, excluding the final week to 28 January 2018 as those figures aren’t included in the trading statement.
The key question is whether investors will stay happy as the outlook is far from rosy.
WHAT ARE THE NEGATIVES AHEAD?
Significant costs for labour, business rates and sugar tax are expected to drag on profit.
The FIFA World Cup is Russia during June and July is also expected to be an issue as football fans may watch the games from the comfort of their own homes or enjoy a pint elsewhere.
Langton Capital analysts Mark Brumby also believes the World Cup will hit Wetherspoon’s sales, highlighting the impact of previous versions of the football tournament in the past having been ‘mildly negative’ by 1% to 2%.
WHAT'S HAPPENING TO PROFIT MARGINS?
We’re perplexed as to why Wetherspoon has failed to comment on profit margins in today’s trading update.
Indeed, we understand the company batted off a question about margins during today’s briefing with analysts, saying it wasn’t the primary focus.
However, we do know that Wetherspoon is flagging significant cost pressures, implying that margins could fall - unless it puts up the price of food and drink.
HOW MUCH COULD IT EARN IN THE FUTURE?
Pre-tax profit jumped from £75.3m to £100m in the year to 31 July 2017 after a fantastic year for the business. It now looks like it will be much harder to keep pushing up those earnings.
Investment bank Investec forecasts pre-tax profit to only nudge up to £104.3m in 2018 and then stay static in 2019 - with only minimal gains in 2020 to £106m.
Are Wetherspoon’s best days now behind it?
