Weather boon for Wetherspoon but margins ease

18th Jan 2012 07:11

Margins are under a bit of pressure at JD Wetherspoon, the ever-expanding pubs group, and the company has (once again) pinned the blame on the government.In a trading statement covering the 12 weeks to the middle of January Wetherspoon revealed it expects the operating margin for the half year ending 22 January 2012 to be slightly below that achieved in the first quarter of the group's financial year, with the potential for further decline in the second half due to continuing cost increases. As previously stated (at length), the company sees its main challenges in the current financial year to be "the continuing cost pressures resulting from government legislation, including further increases to excise duty, business rates and carbon tax."Warming to a familiar theme, the company statement noted that "pubs pay VAT [value added tax] on food, whereas supermarkets do not, and also pay far higher rates of VAT than similar businesses in Ireland and France, for example."The company, which is currently selling a "Veto" ale in its outlets in support of Prime Minister's David Cameron's opposition to changes to the treaty on Eurozone rules, laid into the government, saying "the government needs to reduce VAT for pubs and restaurants as a priority."In the view of Tim Martin, the outspoken founder and Chairman of JD Wetherspoon, the current government has done nothing to reverse increased costs piled on by the Labour government. Despite his support for Cameron over the euro issue, Martin was quoted in the London Evening Standard earlier this year questioning the chances of receiving a sympathetic ear from Prime Minister Cameron and Chancellor of the Exchequer George Osborne, given that neither looks the sort to spend a lot of time down the pub.On a calmer note, the company said that "notwithstanding these issues" it is aiming for a reasonable outcome in the current financial year.That statement came after the company saw like-for-like (LFL) sales increase by 3.6% year-on-year in the group's second quarter. That represents a quickening of growth from the 1.1% LFL growth achieved in the first quarter, but the performance is flattered by the fact that in December 2010, thirsty revellers were prevented from getting to the pub in many parts of Britain by severe weather conditions. Sales growth for the period before and after December was roughly in line with the first quarter.Total sales, including new pubs, for the first twelve weeks of the second quarter increased by 9.9%, compared to 7.3% in the first quarter. In the year to date (25 weeks to 15 January 2012), like-for-like sales increased by 2.3% and total sales increased by 8.5%.The company has opened 18 new pubs and closed 2 pubs since the start of this financial year. A number of sites are under development and, in line with previous estimates, the group intends to open around 50 pubs in the current financial year.The shares were down by 9.9p at 406.8p shortly after the trading update. jh