JD Wetherspoon sales slow and margins tighten in second quarter

21st Jan 2015 07:46

Sales have continued to slow and margins tighten at JD Wetherspoon in December and January, with the pubs group reporting like-for-like sales growth more than halved in recent weeks compared to the first quarter.With one week to go before the end of the first half, LFL sales increased by 2.8% in the first 12 weeks of the second quarter to 18 January, down from the 6.3% growth in the first quarter.Total sales growth of 6.8% in recent weeks was likewise almost half the 11.3% in the first quarter, with 11 new pubs opened so far this financial year and with 10 sites under development.Management also warned that they expected first-half operating margins before including any exceptional items to be around 7.3%, 0.9% lower than the same period last year and towards the bottom end of its previous guidance, due to increases in staff pay and utility and supplier costs."In addition, gross margins are under pressure as a result, we believe, of increased price competition from supermarkets," the company added.Blaming the government's continued taxation imbalance between the pub industry and supermarket alcohol sales, chairman Tim Martin said the pub industry as a whole was suffering."Wetherspoon has had significantly better sales growth in the last couple of years than our main competitors, reflecting a pattern that has continued since our flotation."Even Wetherspoon, however, has seen flat bar sales in the last two months, when food sales have continued to rise."Inevitably, bar sales in the industry as a whole, especially where pubs have not benefited from Wetherspoon's level of investment, will have fared less well."LFL sales slowed to approximately 2% in December and have slowed further in the last fortnight, meaning LFL sales in the year to date are up by 4.6% and total sales increased by 9.1%.Analysts at Shore Capital called it a "mellow trading update", which follows on from a subdued update from rival Greene King recently suggesting that the improving economy is yet to feed through into the sector."Our current PBT estimate of £82m (EPS: 52p) is predicated on operating margins in the middle of this range at 7.5%. Each 10bps on the full year operating margin is worth circa £1.5m suggesting downside towards £77m should these trends persist."