JD Wetherspoon has reported like-for-like sales growth of 9.5% in the 14 weeks to 5 November, with all product categories seeing an improvement.
Industry data for September showed that the wider market grew like-for-like sales by just 5.9%, compared to 9.4% at Wetherspoon. The group has now outperformed for thirteen months in a row.
There has been a net reduction of nine pubs in the trading estate, which now stands at 816 sites. Investment in the existing pubs is set to increase from £46.9m to £70m this year. The company guided that underlying interest costs should be broadly unchanged.
Chairman, Tim Martin, noted that inflationary pressures have eased but cautioned that energy costs remain elevated. Full-year performance is expected to be in line with market expectations.
The shares were up 1.3% following the announcement.
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Our view
JD Wetherspoon continues to stage an impressive recovery from its coronavirus inflicted woes. Its drinkers and diners showed remarkable resilience in the last financial year, and takings at the group's 816 pubs are moving in the right direction so far this year.
Profitability has not recovered to the same extent, no surprise given the relentless rise of input costs. There are some glimmers of hope on that front though. Market forecasts suggest the gap with pre-pandemic operating margins will close further this year, which combined with revenue growth means that operating profit is expected to grow by over 20%. There's no certainty this will be achieved, but improvement in performance seen so far should enable the group to maintain its value-for-money offer to customers.
On that front, seeing a wider range of customers in its pubs is encouraging. The pivot towards a younger and more family-orientated demographic looks good. The strong brand perception holds it in good stead, with the customer base enjoying a slightly higher income than the 'average pubgoer'. But neither the Company nor the punters will be immune from continuing cost pressures.
Ongoing efforts to reduce the size of the estate, as it seeks to increase their average size and the distance between them, looks positive and should help increase average footfall and profitability. However, we would like to see some more concrete guidance on the company's vision for the optimum size of its footprint. There are only so many pubs you can shut before profits start going the wrong way.
The return to cash generation has enabled further upgrades to the estate, as well as a decent reduction in net debt levels. But with capital expenditure on the increase, there may be limited scope for dividends to be reinstated in the near term. Historically payouts have been relatively low, so this shouldn't be the main driver of any investment decision.
Wetherspoon is proud of its progress towards sustainability, but we still have question marks over governance. The Company disagrees with the guidance in the UK Corporate Governance Code on the length of board member tenure, board member independence, and the approach of certain institutional investors in verifying compliance with the code. This has the potential to exclude some big-hitting investors from taking positions in the company.
Over the long term, we remain positive that Wetherspoon can gain further market share as pub closures across the industry accelerate. That and its improving financials have been recognised by a strong recovery in the valuation. This increases the likelihood of volatility in the event of either earnings disappointments or movements in the stock market. And with the UK consumer coming under growing pressure, investors have to be prepared for the possibility of either.
JD Wetherspoon key facts
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