As it approaches the year end, JD Wetherspoon's trading update revealed that double digit growth in like-for-like (LFL) sales has continued into the final quarter. On a year-to-date basis LFL growth now stands at 12.9%.
Over the same period the company has shrunk the size of its estate by 28 pubs generating cash proceeds of £6.5m.
Net debt, which was £738m at the last count, has reduced further to £688m.
Full year profits for this financial year are expected to be in line with market expectations, which point to pre-tax profits of £33.8m.
JD Wetherspoon sees financial performance progressing further next year, driven by a continued improvement in sales and a slightly reduced expectation for cost increases.
The shares were up 3.8% following the announcement.
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Our view
Despite the ongoing pressures facing consumers and the hospitality industry, Wetherspoon's pubs are trading above pre-pandemic levels and the Group seems well set for further progress as it moves into a new financial year. Profitability has not recovered to the same extent, no surprise given the relentless assault on input costs.
The Group's been fighting hard 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 we don't know how well customers will tolerate potentially significant price rises further down the line. There are some rays of light on the inflation front, 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 sell over 20 pubs 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 and don't see a return to cash rewards to shareholders being on the cards anytime soon, though some analysts disagree.
Wetherspoon is proud of its progress towards sustainability, but we still have question marks over the G in ESG (environmental, social and governance). The Company disagrees 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.
Over the long term we remain positive that Wetherspoon can emerge from the current economic gloom stronger than before and increase its market share. That and its improving financials have been recognised by a strong recovery in the valuation, which is now above the long-term average. This increases the likelihood of volatility in the event of either earnings disappointments or movements in the stock market.
JD Wetherspoon key facts
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