JD Wetherspoon chief executive John Hutson and chief financial officer Ben Whitley spoke to the media following the company’s half-year results announcement this morning. They discussed a record period for freehold conversions, the company’s strategy on both openings and closures and how the company has now bought back half of the shares in circulation since it floated. They also spoke about plans for further accommodation growth, the performance of the Lloyds brand, the rollout of the company’s Order & Pay app and its experimentation with food to go.
Sales
The company recorded its highest ever level of average weekly sales during the period – up to £40,500 – from £38,400 at the same point last year. Whitely said the figure had risen 20% over the past five years.
Like-for-likes
Hutson said: “We are guiding towards slightly lower like-for-like sales in the second half and that’s partly because like-for-likes in the second half of last year were about 1% higher than the first. But, a broader point is that with inflation at 1% to 2% there’s no real reason why our like-for-likes should be much further ahead than that. We are guiding in that 1% - 2% range for the remainder of this year and going into next.”
Costs and business rates
Whitley said the company had seen “modest” increases in bar and food costs and that the impact of the National Living Wage had also been muted because of JDW’s actions in raising wages before the legislation came into effect.
Hutson said c500 of the just over 800 pubs the company operates in England & Wales would have been eligible for the proposed £1,000 discount on business rates that was announced in this week’s Budget.
However, he said the company had been advised that due to EU rules around how much state aid individual companies it was unlikely the company would benefit.
He said: “Even if we were eligible for the relief, it would have amounted to £500,000 off an increase of over £7m, so it would have been a fraction anyway.
Share buybacks
JDW spent £25m on share buybacks in H1 – compared to £14m in the same period last year, however share buyback activity ramped up in the second half of last year, culminating in £54m spent.
The company successfully applied for a whitewash last year, which allows chairman Tim Martin to own up to 35% of the shares. He currently owns c31%.
Whitely said the group had bought back and cancelled approximately half of the shares in circulation since it floated 25 years ago.
He said the latest tranche of buybacks had been at an average of just over £9 per share but over time the average price paid by the company had been £4 per share.
Freehold conversions
The company spent £50m on freehold conversions in the first half of this year – compared to £16m last year. It is higher than the company has ever spent in a full financial year – with the £36m spent in FY16 the closest. Wetherspoon’s estate is now 54% freehold.
Hutson said the group had a pipeline for further freehold conversions but there was no target for a percentage of the estate.
He said: “It is opportunistic – if our property agents and landlords seem willing to do a deal at a good price, we’ll do a deal but the minute they think Wetherspoon’s are going to buy it no matter what, the price will go up.”
He said much of the company’s approach to freehold had been driven by dissatisfaction with the rental landscape.
He said: “A lot of the issue is leaseholds. In London you could have a rent of £200,000 and Drake & Morgan or someone open on the same street, paying £500,000 and that becomes the benchmark.”
Capex
As previously indicated, the company is increasing its level of capex in its existing estate – from £34m in 2015/16 to £60m this year.
Hutson said: “It enables us to increase the number of projects we do in any one year. An example of that is the glass racks we are installing above all our bars. That a reaction to the trend of moving towards stemmed glasses. That relatively minor but important change is going to cost between £7m and £8m.”
Closures
The company closed 22 pubs in the half and opened two. Of the 1000 pubs put on the market over the past two years, 83 have been sold, closed or are under contract.
Whitley said that of the 83 c10 were currently closed and not under offer.
On plans for further closures, Hutson said: “There’s no plans at present. Some of what we do in the future depends on the results of what we have done so far. The majority of pubs we have sold have been or are being re-opened as pubs. Of those the majority have been in towns where we already exist. We will have to monitor how our remaining pubs in those areas are holding up.
“It is very early to say how that process is going but so far mostly it’s worked well and we have ended up in a better position.”
Openings
On plans for further openings, Hutson said: “There aren’t many well-populated areas that we don’t have a presence in but we’re still opening 10-15 and they will be locations where we are not currently located. There are still plenty of places where we could open up in and generate good returns. The thing we are probably not doing so much of is opening where we are already trading in a small to medium-sized town.”
Accommodation
JDW currently operates 48 hotels, with around 1,000 rooms across the estate. While like-for-like room sales were up 14.8% year-on-year the revenue stream still only accounts for 1% of totals sales.
Hutson said occupancy rates were generally on a par with premier Inn.
He said: “In terms of new acquisitions we are not particularly looking at hotels. Very often in the towns we open in the town centre hotel has been available at a reasonable price – probably because of pressure from the likes of Premier Inn and Travelodge. In those cases we have taken the site and run the exiting rooms but we have not gone looking for them.
“We are a bit more minded to convert some of the space we have in the existing estate to accommodation. One of the ones we did this year was the Yarborough Hotel in Grimsby. That opened about 20 years ago but at the time we voided off all the upper parts. Now we have re-opened the 30 rooms.
“There are a few other opportunities across the estate to do something similar.”
On the marketing strategy for the hotels, Hutson said: “We are with hotels.com, booking.com and talking to Expedia. But our attitude to hotel rooms is the same as our attitude to pubs. We would really rather not persuade someone to come and stay in our hotel rooms in the same way we don’t want to persuade them to come and drink in our pubs. We would much prefer they rely on the recommendation of a friend.”
Other revenue streams
Whitley said: “Filling the quieter part of the day is key. We talk quite a bit about breakfast but extending food sales later into the evening have also driven sales. Not just in the 10pm to 11pm bracket but also people tend to eat more in the 9pm to 10pm slot.
Fruit machine like-for-like sales fell 2.1% during the half. Hutson said : “In some ways it will follow its own path. Fruit machine sales are down, for sure, and they have been drifting down as the years have gone by. There’s no plans to force the issue. Where we have fruit machines they are still profitable so we are certainly not going to cut off our nose to spite our face.”
Order & Pay app
The company has not completed its rollout of its Order & Pay app, which was trialled last autumn. The device is now also available for Android users.
Hutson said it had been particularly popular among student crowds in its Lloyds bars.
Lloyds
Hutson said the 100-strong Lloyds estate was performing in line with the rest of the portfolio.
He said the group would look at opportunities to expand the brand where appropriate opportunities arose but it was not a key focus.
He said: “Lloyds is really a code for Wetherspoon’s with music so they do perform very much in the same way as the rest of the estate. The menu and the style is the same.”
Food to go
Asked whether the company would ever consider a move into delivery, Hutson said “never say never”.
He said: “We believe people go to pubs because of the atmosphere. The bulk of our energy and attention goes on driving organic growth through getting people to and keeping them in our pubs.
“We have a few pubs where we do off sales, such as people going to collect breakfast, and we do takeaway coffees but it’s not a real focus at the moment.
“We also sell bottles to take away across the estate. We have a great range of craft beer in our pubs and in some areas we are the only place you can get hold of certain beers.”
