JDW pricing strategy a key focus for analysts

The issue of JD Wetherspoon’s ability to push up prices has been called into question by several analysts following its half year financial update last week.

The pub operator reported a loss before tax of £46.2m for the 26 to weeks to 24 January, with revenue of £431.1m compared to £933m in 2020.

Analyst Liberum said it expected a gradual recovery with sufficient liquidity for investment activity in due course. “However we remain concerned over its reliance on high volume of sales/vertical drinking and are less sure of its ability to push prices significantly which is the crux of the bull case,” it said.

In a note it said that while management expects to open around 450 of its 872 pubs with outdoor areas in April, it expects initial recovery will see further pressure on its high volume and low margin model, with recovery to accelerate in FY22 as all trading restrictions ease.

Analysts at Peel Hunt also noted that there were “no price increases in sight”. In a note last month it had said that there was “a huge opportunity” for JDW to increase prices, particularly in an environment of “strained supply, pent up demand and a booming staycations market”.

Following the financial update last week it said: “The interim results are in line, but we are now forecasting lower losses in 2021E to reflect the budget and reopening programme. However, we are not going to assume much benefit from the extended VAT cut, nor do we expect any price increases.

It said that if anything, the results made it clear that the company is willing to keep prices low for a lot longer, stating that if the Chancellor makes VAT reductions permanent “the company intends to retain these lower prices indefinitely”.

While Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown described JDW as “trying to weather the ongoing storm”.

“The pandemic has taken a sledgehammer to Wetherspoon’s business model, which is focused on pulling in high volumes of punters while keeping prices low. The stop start nature of the business during the crisis has seen a yo-yo effect to some extent, but overall the picture was of a sharp decline,” she said.

“The company was able to call time on its immediate cash flow crisis in January, raising £93.7 million through another rights issue, the second time it has gone cap in hand to shareholders during the pandemic.

“As well as providing a fresh financial buffer the company had planned to use some of this cash to hoover up prime locations vacated by struggling rivals. But there was little mention of this expansionary strategy in this latest set of results JD Wetherspoon appears focused on simply weathering the ongoing storm,” she said.