A leading analyst has said that next Wednesday’s Q3 outlook statement from JD Wetherspoon is likely to remain cautious, consistent with expansion being cut (and shares being bought back). Douglas Jack at Numis said that potential sources of optimism are an improvement in the cost outlook and an introduction of minimum pricing, but that it was difficult to envisage “an immediate positive catalyst”. Jack said: “Like-for-like sales rose 1.5% during the first 32 weeks versus an average of 3.8% for its quoted peers. We expect upside to be limited by above-average exposure to declining high street footfall and customer sensitivity to the passing on higher taxes/costs. However, improving cash flow and share buy backs should cap the downside. “Share buy backs should limit the downside, although we estimate that only one million shares can be bought in Q4 if the company sticks to its guidance of debt increasing by £40m this year.” In Q3, the group’s like-for-like sales fell 0.7% during the first six weeks. Jack said: “The last six are unlikely to have benefited from the company having to pass on March’s 5% excise duty increase as well as ongoing food (+3%), labour (+2%) and utility (+14%) cost increases. The company put food and drink prices up by 10p/item in March, but left promotional deals (like Carling and John Smith’s at £1.99/pint) unchanged. “Margins fell by 11bps in H1, with 2.3% like-for-like sales growth being insufficient to offset cost increases. Assuming just 0.5% like-for-like sales, our consensus-in-line full year forecasts expect margins to fall by almost 40bps.” Jack said that JDW should be on track for 40 openings in 2012E, having opened 18 new sites in H1. He said: “Management has already cut next year’s expansion target to 25 new sites. Capital utilisation has switched to share buy backs with 2.8 million shares bought back at an average price of £4.12 in the last month. “We expect to hold forecasts (2012E PBT £67.2m; consensus £67.4m) that already have cautious H2 assumptions. We recently downgraded 2014E PBT by £1.5m to reflect the extra cost of Gaming Machine Duty and are now 5% below consensus for that year, expecting the upward pressure on taxation to continue.”