JD Wetherspoon PLC (LSE:JDW) shares have rebounded in recent weeks following a sharp decline in the wake of its half-year results.
In the March results, the pub group reported a rise in sales and earnings and reintroduced its interim dividend, but warned of the impact of rising labour costs and what it described as unfair tax treatment.
Deutsche Bank cut its rating on to 'sell' as it sees the pub group heading into a “new era” of rising costs that it will struggle to absorb.
The bank’s leisure analyst Tim Barrett described the Labour-inspired tax and staff cost hikes as “an exogenous event comparable to the smoking ban and the global financial crisis” for the sector.
From next month, employers face higher National Insurance contributions, while the National Living Wage is set to rise by 7%. The minimum wage for under-21s will jump by 16%.
After falling from above 800p early last year to a March low below 550p, the shares have fizzed more than 140p higher, with Michael Hewson of the MCH Market Insights newsletter noting that the post-results drop seems to have appeared over the top to investors.
The company reported like-for-like sales growth of 5% in the seven weeks to 16 March. For the half year, revenue rose 3.9% to just over £1.02 billion, while pre-tax profit came in at £32.9 million, down slightly from £36 million the previous year.
Food sales increased 5.4% and bar sales rose 4.3% over the half year.
Hewson acknowledged that cost pressures remain a challenge, with recent changes to National Insurance and minimum wage policy adding £60 million to annual costs, or around £1,500 per pub per week.