Marston’s PLC (LON:MARS) shares fell after the brewer and landlord sold £60mln worth of pubs in the past three and a half months and revealed the expected impact of the government’s new minimum wage from April.
Serving up a trading update on Cheeky Pint Friday, the FTSE 250 group said it grew total like-for-like sales 1% in the 16 weeks to 18 January but said the new minimum wage would increase costs by around £2-3mln in the second half of the year.
Growth in sales of beer and drinks in its pubs offset weaker food sales in what is the first quarter of Marston's trading year, while LFL sales during the Christmas fortnight were up 4.5% to make up for trading that was “subdued” by cold and damp weather in early December.
“Trading in the key Christmas fortnight was good and has remained solid since which is encouraging," said chief executive Ralph Findlay.
He said the FTSE 250 company was “well ahead” in its plan to reduce debt by £200mln by 2020 after £60mln of disposals were completed or exchanged since the end of September and he was increasing the target for the full year to £85-90mln, having started at £40mln.
Findlay said Marston’s brewing arm, which makes beers under various brands ranging from its traditional Brakspear’s Oxford Gold to newer pints such as 61 Deep, Shipyard American IPA and Revisionist craft lager, continued to increase market share in both the on and the off trade in the period, even though volumes were down.
He felt it was a “creditable performance in a challenging market” and toasted the likely impact on consumer confidence post-election despite impact of the higher than expected minimum wage.
“Overall the economic environment for the consumer looks encouraging with low unemployment and healthy wage growth providing us with increasing confidence that the market will grow in 2020,” he said.
Marston's shares fell 7% to 109.07p.
Analyst Mark Brumby at Langton Capital said pub prices were likely to have to rise, with the gross impact of the new minimum wage to be doubled in the next full year, though the company will have longer to mitigate the impact.
He said the best estimates at this stage would be that "by taking a little price, tighter labour scheduling and efficiencies, MARS may be able to mitigate up to a half of the gross impact in FY21. But it’s not as though the company hasn’t been doing much of this already and, as cost savings etc are finite, it is likely that price rises could feature more prominently than they have in the recent past.
"Here MARS will need to be measured and cautious. It will not be alone. For some operators, for example the casual diners, this may be a very serious problem."
Broker Peel Hunt said it was cutting its forecasts for adjusted profit before tax by an average of 4% to reflect the wage hikes and additional disposal activity.
"This combined with faster debt reduction still equates to 28% equity value creation (down from 32%) over the next two years, including dividends."
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