Source - Alliance News

JD Wetherspoon PLC on Wednesday cautioned that its loss for the financial year ending July 31 will be chunkier than expected, as labour costs increase.

JD Wetherspoon shares were down 5.5% to 595.60 pence each in London on Wednesday morning, the worst performing FTSE 250 stock in early trading.

The Watford, England-based pub chain warned its loss for the year will be larger than expected, at £30 million on an IFRS 16 basis. IFRS 16 is an accounting rule related to leases based on International Financial Reporting Standards. In financial 20201, Wetherspoon suffered a pretax loss of £167.2 million, widened from £44.7 million the year prior.

The company said sales have crawled closer to pre-virus levels so far in its financial fourth quarter. Sales of cocktails, spirits and food are on the up so far in its fourth quarter, though sales of typical pub-drink stalwarts such as draught ales, lagers and ciders were below pre-virus levels.

In the first 11 weeks of the fourth quarter ending July 31, like-for-like sales were 0.4% below pre-virus levels. This represented an improvement from the previous quarter, when sales were 4.0% lower.

Sales of spirits, cocktails and food were all higher compared to pre-Covid levels, up 4.4%, 19% and 2.1%, respectively.

‘Sales in major city centres, apart from London have been stronger than suburban locations or smaller towns,’ the company explained. Latest quarter sales in central Cardiff were up 15%, Newcastle was up 14% and Nottingham 9.5%.

‘But sales of draught ales, lagers and ciders, historically the largest contributors to pub sales, were 8.0% below 2019,’ Wetherspoon added. In addition, repair costs are estimated to be at £99 million in the current financial year, up from £76.9 million in the 2019 financial year.

‘Many people predicted a boom in pub sales when lockdowns and restrictions ended, due to pent-up demand, but recovery for many companies has been slower and more laborious than was anticipated,’ the company cautioned.

‘Although sales now match 2019, labour costs are far higher,’ it added, though it expects costs for financial 2023 to rise at a slower pace than the current inflation rate.

‘The company remains cautiously optimistic about future prospects,’ said Founder & Chair Tim Martin.

Commented Alex Smith at research firm Third Bridge: ‘JD Wetherspoon has outperformed other chains in past recessions due to its fairly unique value proposition and ability to attract consumers down-trading from ’posher’ pubs. However, this recession may be more difficult given today’s strong customer preference for ’premiumisation’.

‘Wetherspoon typically appeals to an older demographic, one that continues to be relatively wary of health issues and one that has safety top of their mind.’

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