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JD Wetherspoon - Strong growth in full year profit and cash flow

JD Wetherspoon has reported full year revenue of £1.9bn, with like-for-like-sales (LFL) growth of 12.7%.

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JD Wetherspoon has reported full year revenue of £1.9bn, with like-for-like-sales (LFL) growth of 12.7%. There was positive performance across all product categories. In the first nine weeks of the current financial year, LFL sales growth slowed to 9.9%.

Underlying operating profit increased by 92.4% to £106m. That's a margin uplift from 1.5% to 5.6%, although still short of the 7.2% seen before the pandemic hit.

Free cash flow was up from £22m to £271m, including proceeds of about £169m from the sale of financial instruments. This was the main driver of a £250m reduction in underlying net debt to £642m.

No dividend was declared.

The shares were down by 4.0% following the announcement.

View the latest JD Wetherspoon share price and how to deal

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 826 pubs are moving in the right direction so far this year.

Profitability has not recovered to the same extent, no surprise given the relentless assault on input costs. There are some glimmers of hope on that front though which should help the company to maintain its value offering. Prices were up around 4% last year and last we heard, it's hoping to keep price rises below inflation.The budget credentials are intact for now, but there's no guarantee prices will remain in check.

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.

The move to shrink the estate by 26 sites, as it seeks to increase their average size and the distance between them looks positive, and should help increase average footfall and profitability.

A return to cash generation has enabled further upgrades to the estate, and a decent reduction in net debt levels. We think debt repayment will remain the priority for some time. There's not been any guidance as to when dividends may return but 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.

JD Wetherspoon key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 6th October 2023