25 May 2012

Wetherspoon looking strong

18/01/2012 Ben Jaglom

Pub heavyweight JD Wetherspoon (JDW) issued a robust trading update for its second quarter, announcing a 3.6 per cent rise in like for likes.

The fully-listed venture declared a 3.6 per cent rise in like for like sales for the twelve weeks to 15 January, as compared to the 1.1 per cent reported in the previous quarter (to 23 October). Total sales grew by 9.9 per cent (7.3 per cent in prior quarter). However operating margins are expected to be 'slightly below' that achieved in the prior quarter. Wetherspoon reiterated its intention to open 50 pubs for the current year.

Looking ahead the company remarked there were 'continuing cost pressures' as a result of government legislation that included increases on excise duty, business rates and carbon tax. Wetherspoon also bemoaned the fact that 'pubs pay VAT on food whereas supermarkets do not' arguing that to 'maximise job creation' the government should 'reduce VAT for pubs and restaurants as a priority'.

Analysts at Shore Capital are forecasting pre-tax profits of £70 million (EPS: 37.9p) for the year to July 2012.

Growth Company Investor rated shares in Wetherspoon as a hold last July at 444.8p, with the shares currently trading at 408.7p. A company that is experiencing pressure on its margins amidst the increased economic downturn the fully-listed group look set to face a challenging 2012 as the macro economic difficulties mount with opportunities for further organic growth looking limited.

With its traditionally lower-income or bargain-hunting customers already having to reduce discretionary spending we would advise reducing holdings. Reduce.

Tags: British pub sector, Companies on the full list, Like for like growth, Pubs in the UK

Sector: Travel & Leisure

Companies: JD Wetherspoon

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