The latest profit warning from JD Wetherspoon has dealt a significant blow to investors, with shares plummeting by more than nine per cent to 686p at market open. The pub chain's profits are now expected to fall short of market expectations, weighed down by a perfect storm of rising operational costs and slowing sales growth.
According to Wetherspoon's latest update, the company's profits for the current year will be £24m lower than forecasted due to a 4.8% decline in final-quarter sales, compared with the same period last year. This slowdown is particularly concerning, given that the pub chain typically experiences a boost from World Cup-related trade.
The sharp increase in operational costs is a major contributing factor to Wetherspoon's profit warning, driven by higher expenses for food, labour, repairs, energy, and business rates, which rose by 12.5% over the past year. The company's net debt is projected to remain stable at £720m by the end of the year.
The recent business rates adjustments have added significant pressure to an already challenging sector, with Wetherspoon's chairman, Tim Martin, advocating for reform and a cut to value-added tax (VAT) to align the sector's tax burden more closely with supermarkets. The pub chain has been active in managing its property portfolio, selling nine pubs and acquiring eight sites in the year to date.
With Wetherspoon's profits under pressure, analysts are highlighting the company's vulnerability to price hikes in operational costs due to its business model, which relies on high volume and relatively slender margins. The company operates 793 managed pubs and 23 franchised sites across the UK, with a property portfolio valued at approximately £2.3bn.