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JD Wetherspoon - sales rebound, but not to pre-pandemic levels

Like-for-like sales in the 25 weeks to January were up 13.1%, but 0.7% lower than pre-pandemic levels.

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Like-for-like sales in the 25 weeks to January were up 13.1%, but 0.7% lower than pre-pandemic levels. The last 12 weeks of the year included the important Christmas trading period, which last year was impacted by the Omicron outbreak. LFL sales for this period were 17.8% higher year-on-year, 2% lower than the same period immediately before the pandemic.

JD Wetherspoon significantly outperformed the wider hospitality market in December, but cautioned that costs for the industry have risen steeply, particularly for labour, food, energy and maintenance.

Net debt as at 22 January was £745m unchanged from the level reported in November 2022.

The Company remains cautiously optimistic for the rest of the year.

The shares were unmoved in early trading.

View the latest J D Wetherspoon share price and how to deal

Our view

Wetherspoons has put in a solid start to the current financial year. Looking ahead we see some significant headwinds on the horizon as consumers battle with energy prices, general inflation and the recent spike in mortgage rates.

It's been fighting hard to maintain the value offering. Prices were up around 4% last year and last we heard, it's hoping to keep price rises below inflation. But cost pressures across the industry remains challenging.

Energy prices have been fixed until September 2023, but JDW has warned that if the outlook for energy prices doesn't improve, it'll add £100m a year to its cost base, which would translate to price rises of 15 to 20% for its customers.

The budget credentials are intact for now, but we don't know how well customers will tolerate potentially significant price rises further down the line. In any case, we think it's the mid-range hospitality sector that could suffer most in a downturn -JDW may just avoid the worst.

There's breathing space to put through price increases and remain competitive. Whilst its traditional customer base may be particularly sensitive to price rises, it's encouraging to see a wider range of customers in its pubs. The pivot towards a younger and more family orientated demographic looks a good one, and Wetherspoon's strong brand perception holds it in good stead. It's a place to get a reasonably priced pint, where you can hear yourself think, and it's also family friendly without breaking the bank.

Wetherspoons is looking to sell over 30 pubs as it seeks to increase their average size, as well as the distance between them. It looks a positive move, and should help increase average footfall and profitability.

Debt levels are high, and lenders have had to show some leniency. We think that debt repayment will remain the priority for some time and don't see a return to cash rewards to shareholders being on the cards anytime soon, though some analysts disagree.

Wetherspoons is proud of its progress towards sustainability, but we still have question marks over the G in ESG (environmental, social and governance). The company doesn't agree with the guidance in the UK Corporate Governance Code on the length of board member tenure, board member independence, or the relative importance of shareholder engagement.

The market valuation also has some support from the company's net asset value, which is itself arguably understated given that the property portfolio has not been revalued since 1999.

Over the long term we remain positive that Wetherspoons can, in time, return to profit growth and increase its market share. It's true that on an earnings basis the valuation is below the long-term average. But the risks to earnings in the short-term are very real.

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: 25th January 2023