Wetherspoon to expand hotel business as profits dip

Pub group JD Wetherspoon1 (LON:JDW2) is expanding its fledgling hotel business in a challenge to budget rivals. The chain, known until now for its pubs, plans to add about 12 hotels to the existing 41 around the UK, it said as it reported record sales but lower profits. Wetherspoon has been adding hotels to its pubs to make the most of properties it already owns.

Chief executive John Hutson said the company’s hotel concept was fairly simple, with guests able to eat in the attached pub.

“You’re paying pretty competitive prices at a level with Travelodge and Whitbread3‘s (LON:WTB4) Premier Inn, but what you’re getting is a cut above,” he said. Wetherspoon announced record sales of 1.5bn in the 52 weeks to July 26, up 7.4%, and a 3.3% rise in like-for-like sales. But pre-tax profit before one-off items fell 2% to 77.8mln and by about a quarter to 58.7mln after exceptionals.

The company kept the full-year dividend at 12p. In the six weeks to September 6, like-for-like sales increased by 1.4%, with total sales increasing by 5.2%.

Cost increases

Hutson said underlying pre-tax profit fell as sales failed to offset gross margin pressure caused by higher wage and utility costs. He said the group expected like-for-like sales in the year ahead to increase by up to 2%.

Wetherspoon, which owns 951 pubs, expects to open about 15-20 pubs this year rather than the 30 it opened in 2014/15. Hutson said the economy had slowly improved compared to three or four years ago, but the consumer spending environment was still tough. In the six weeks to September 6, like-for-like sales increased by 1.4%, with total sales increasing 5.2%.

Like-for-likes rose 6.3% in the first quarter and 2.9% in the fourth quarter. He said: “We’re having to work hard to get our sales up.”

Hutson added that the company had no specific plans to increase prices, although it does charge more for some drinks such as craft beers from micro-breweries.

“The best way to absorb extra costs is by increasing sales,” he said. Shares in Wetherspoon lost early gains to stand 3p down at 717p in midday trading.

Broker Numis Securities said price discounting was not generating enough volume growth to compensate for damage being done to margins. Numis, which has a ‘reduce’ recommendation on the stock, said: “We are holding our forecasts, which remain heavily dependent on the company’s pricing strategy.”

Financial pressure

Chairman Tim Martin said government plans to hike the national minimum wage were “inevitably putting financial pressure on pubs, many of which have already closed”. Martin said the wage hike would add to challenges faced by the industry including cheap competition from supermarkets and “excessive” taxes.

“As we have previously stated, we believe pubs are taxed excessively and that the government would create more jobs and receive higher levels of overall revenue if it were to create tax equality among supermarkets, pubs and restaurants,” he said.

Martin also fired a shot across the bows of some rivals, claiming they had “not campaigned themselves in any meaningful way for VAT equality between pubs and supermarkets.”

Martin said: “As previously stated on July 15, a number of factors likely to influence our trading performance this financial year are difficult to quantify at this early stage.

“Positive aspects include an increase in pub numbers, a better economy and slightly lower interest rates; less favourable aspects include heightened competition from supermarkets and restaurant groups and increased staff, repairs, bar and food costs.

“We continue to anticipate a trading performance similar to, or slightly above, that achieved in the last financial year.”

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References

  1. ^ JD Wetherspoon (www.proactiveinvestors.co.uk)
  2. ^ LON:JDW (www.proactiveinvestors.co.uk)
  3. ^ Whitbread (www.proactiveinvestors.co.uk)
  4. ^ LON:WTB (www.proactiveinvestors.co.uk)
  5. ^ Facebook (www.proactiveinvestors.co.uk)
  6. ^ Twitter (www.proactiveinvestors.co.uk)
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