JD Wetherspoon PLC (LON:JDW) is anticipating that its full-year profits will be “below market expectations” and has scrapped its interim dividend as the coronavirus outbreak drives drinkers away from its pubs.
In an outlook accompanying its half-year results, the FTSE 250 pubs group said in the early part of this week, following government advice to avoid pubs and bars, sales had “declined at a significantly higher rate” than earlier in the year.
READ: Wetherspoons reports higher sales in first weeks of 2020, says no confirmed coronavirus infections among staff
As a result of the uncertainty, Wetherpoon added that it was “impossible to provide realistic guidance” on its performance for the rest of the financial year as the outbreak placed the wider hospitality industry “under great pressure”.
The company’s chairman Tim Martin said the firm has decided to delay most of its capital products as part of efforts to reduce expenditure, including the cancellation of the interim dividend.
Combined with government proposals for business rate relief and credit guarantee facilities, Martin said the company had “sufficient liquidity to maintain operations at a substantially lower level of sales”.
For the 26 weeks ended 26 January, the company reported a pre-tax profit of £57.9mln, up from £50.3mln a year ago, while revenues rose to £933mln from £889.6mln.
Like-for-like (LFL) sales, meanwhile, increased by 5%, although LFL bar and food sales saw a slowdown in growth, to 4.2% from 5.9% and to 5.6% from 7.1% respectively.
In a note on Friday, analysts at Peel Hunt, which rate Wetherspoon at ‘hold’ with a 1,550p target price, estimated that the company’s cash burn will be around £80mln per year if the entire estate is closed, before additional cost-saving initiatives and government support on staff salaries.
“The normality of everyday life and the previous takeover froth in the sector around companies such as Greene King and EI Group seems an increasingly distant memory. For companies such as Wetherspoons, the next few months could be critical in establishing the company’s future shape”, said Richard Hunter, head of markets at Interactive Investor.
“This should not be existential, since the group is confident that its overall financial health is sufficient to withstand the imminent difficulties, but from an investment perspective, the outlook is unclear”, he added.
Investors, however, seemed unphased by the company’s forecasts as the shares surged 26.3% higher to 706.5p on the numbers in mid-morning trading on Friday.
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