Shares in beer brewer and pubs operator Marston’s (MARS) sank 10% to 109.55p after the company downgraded expectations for full year profits. The company is now guiding for underlying pre-tax profit of £101m for the 12 months to 28 September 2019.
Consensus forecasts had been pitched at around the £103.5m mark.
Profits are likely to stay flat this year too with Marston's losing contribution from disposals, invests in training and ups its digital marketing in order to re-invigorate food revenues.
The pubs operator also plans to accelerate disposals of poorer performing outlets to reduce debts more aggressively.
Net debt last year was reported at just shy of £1.4bn.
Analysts at Numis have reduced their pre-tax profit estimate for the current year to end September 2020 by 10% to £100.9m.
Chief executive Ralph Findlay said, ‘our drinks businesses have performed well, achieving further growth against an exceptionally strong 2018. Wet-led pubs have led the charge continuing their positive trajectory and food pubs have achieved modest sales growth.’
Increased wage pressure in the destinations division as well as flat like-for-like revenues will result in margin contraction, given the high operational gearing with a higher proportion of fixed costs.
Taverns saw good sales progress with like-for-like up 1.9% and an impressive last 10 weeks which saw a 5.4% increase.
The beer company continued to perform well with volumes up 1%.
The company is now targeting an increase in disposals from £40m to £70m for the current financial year.
The shares have had a good run following takeover of pubs peer Greene King (GNK) given the company’s largely freehold estate, but today’s update is a reminder of the challenges over the short-term.
Longer-term the group aims to reduce gearing and produce steady cash flows to invest in the estate to keep it competitive, while paying an attractive dividend.