A leading analyst has said that JD Wetherspoon’s full year results due on Friday should highlight strong like-for-like sales over the summer, reflecting custom trading down and a strong events calendar. However, Douglas Jack at Numis said that like-for-like profits should have fallen for the fifth consecutive year, after factoring in higher costs (and competition from supermarkets). He said: “Like-for-like sales may make the headlines, but margin guidance should drive the forecasts. “Like-for-like sales rose 3% in 2012E, but we expect management to indicate the underlying rate was 2% (1-2% 2013E target), with the jump to 6.1% in Q4 largely due to the Diamond Jubilee and Euro 2012. Wetherspoon should also have benefited from the Olympics and Paralympics in early 2013E. “EBIT margins fell 120bps to 8.5% in H2, despite the LFL sales growing 3.9%, largely a result of higher cost pressures, including extra repairs and staffing. “Margins could fall to below 8.5% in 2013E (H2 2012E margins were 8.5% despite LFL sales rising 3.9%), based on forecasts of 1-2% LFL sales and only a slight slowdown in cost inflation (wages 2.0-2.5%; energy c.4%; drink 2-3% inflation; beer duty RPI +2%; food inflation: 2-3%). Our and consensus forecast expect margins to bounce to 8.9%; but at 8.5%, PBT could be downgraded (5%) to 2009 levels. “Given this, it is wrong to rate JDW based on LFL sales alone. The combination of increasing costs and having a price sensitive customer base has resulted in LFL profits falling for the last five years. One should only focus on LFL sales and become bullish on the shares if either cost pressures or price elasticity are likely to fall materially.”