The trading statement from pubs group J D Wetherspoon PLC (LON:JDW) was a cocktail of good, bad and indifferent news.
On the plus side, in the first 12 weeks of the second quarter of the firm’s financial year, like-for-like (LFL) sales were up 3.2% year-on-year; on the minus side, that dragged the LFL growth rate for the 25 weeks to 15 January a little lower down to 3.4%.
In November, the group had reported LFL sales growth of 3.5% in the first 13 weeks of its trading year.
LFL sales growth may have slowed but chairman and founder Tim Martin, after getting the routine diatribe about the European Union out of the way, said current sales are currently a bit better than expected.
“We currently anticipate a slightly improved trading outcome for the current financial year, compared with our expectations at the last update,” Martin said.
Also on the plus side, the company expects the operating margin, before any exceptional items, for the half year ending 22 January will be around 8.0%, versus 6.3% in the same period of last year.
On the down side, net debt at the end of this financial year is currently expected to be around £50mln higher than the level at the last financial year end, partly as a result of the purchase of an increased number of freehold reversions.
Martin reiterated that the company expects significantly higher costs in the second half of the financial year.
“On an annualised basis, these are expected to rise by about 4% for wages, by £7mln for business rates and by £2mln for the Apprenticeship Levy, in addition to cost increases at around the level of inflation in other areas. As previously announced, the company intends to increase the level of capital investment in existing pubs from £34mln in 2015/6 to around £60mln in the current year,” Martin said.
"In view of these additional costs and our expectation that like-for-like sales will be lower in the next six months, the Company remains cautious about the second half of the year,” Martin added.
Spoon’s shares were little changed on the announcement.
Greg Johnson at Shore Capital said he saw scope for a modest increase to the broker’s forecast of £83mln profit before tax for the current year to reflect slightly higher margins.
“Our cash flow based analysis suggests that the current price is already implying an increase in operating margins back towards 9%. Although we see scope for further margin increases going forward such an increase remains optimistic,” Johnson suggested, sticking to his ‘hold’ recommendation.