Shares in pub group JD Wetherspoon (JDW) tanked 12% to 839p on Friday after the firm reported a pre-tax loss of £34 million for the year ended 26 July, while like-for-like sales in the first 11 weeks of the new financial year were 15% below the same period last year, impacted by curfew restrictions.
Chair and founder Tim Martin commented, ‘the company and the entire hospitality industry need a more sensible and consistent regulatory framework in which to operate - the current environment of lockdowns, curfews and constantly changing regulations and announcements threatens not only pub companies, but the entire economy’.
Sales for the year were down 30.6% to £1.3 billion with like-for-like sales falling 29.5% while the company managed to just scrape an operating profit of £7.2 million, down 95% from the £132 million delivered in 2019.
After capital spending of £44 million on existing pubs, £11 million spent on share repurchases for employees and payments of tax and interest, the business saw a net cash outflow of £59 million compared with £97 million of free cash inflow last year.
As expected, the company did not recommend a dividend. Year-end net debt amounted to £817 million, up £80 million, representing a net debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio of 9.48 times compared with 3.36 times in 2019.
At year-end the company had £194 million of cash and in August raised £48 million via the coronavirus large business interruption loan scheme.
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Russ Mould, investment director at AJ Bell commented, ‘Wetherspoon probably has a better chance of surviving the crisis than most of its peer group. It will have to knock some heads together to come up with some clever marketing tactics to get more people through its doors, yet the business is never afraid of lowering prices even if it means lower profit margins’.
Analyst Gregg Johnson at Shore Capital concurred, saying ‘its value, high volume model and scale means it will survive, and possible thrive, when normality, in whatever guise, returns’.
The problem is that no-one knows when relative normality will re-appear. At least the business is ahead of its worst case scenario outlined at the equity raise earlier in the year where like-for-like sales were expected to fall 25% in the first seven months of the current financial year.
