Wetherspoons – cost pressures may be easing

J D Wetherspoon has today announced a pre-close trading update ahead of the publication of its full-year results:

• Like-for-like sales were up 11.5% in the first 10 weeks of the fourth quarter versus last year and up 12.9% year-to-date
• The group expects full year profits to be in line with market expectations
• The outlook for the full year strikes a tone of cautious optimism with a ‘slightly reduced expectation for cost increases’

 Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, commented:

“This is a solid performance from Wetherspoons set against an exceptionally challenging trading backdrop. Like-for-like sales have proved robust and, despite cost of living pressures on consumers; and there are signs that cost inflation may have peaked, which should help underpin profits in the coming year.

Wetherspoon’s commitment to low prices is keeping customers loyal, as evidenced by the robust like-for-like sales growth. These value credentials are critical, and should mean the group is better placed than many of its peers to weather a downturn in consumer spending.

Profitability, however, remains well below pre-pandemic levels. Wetherspoon’s business model is heavily exposed to the rise in labour, energy and food costs and this has put pressure on profit margins. While labour costs show no sign of reducing yet, there is better news for energy prices, with increases here less than expected. This may help to ease the pressure on Wetherspoon’s profit margins in the year ahead.

Overall, the economic environment remains very challenging for Wetherspoons and its peers. Higher interest rates and inflation are strangling the economy, and leading to significantly higher costs. But Wetherspoons is holding its own and signs that cost pressures may be easing are hugely welcome.”