Recent rainy conditions may have proved a particular boost for JD Wetherspoon in its most recent results, chairman Tim Martin has told M&C Report.
Wetherspoons this morning reported a 6.1% rise in like-for-like sales in the 11 weeks to 8 July, helped by “strong trading” during the Jubilee and Euro 2012. Total sales for the managed pub operator in the period increased 11.9%.
Martin said ”pretty well 100%” of its sites were showing the football. “It’s hard to isolate the Jubilee effect from the holiday effect. It seemed to be quite good,” he added.
“Another factor is perhaps the fact there’s been a lot of rain. The location of our pubs may have been slightly better for us and that may have been worth a percentage or two.”
Martin said the company had not made a decision on revising its long term openings target in the light of excessive tax and regulation in the sector. Wetherspoons said it maintained its objective of opening approximately 20 to 30 pubs in the next financial year. Since the start of the financial year, the company has opened 40 new pubs and closed three.
Martin urged the pub industry not to get distracted by issues such as minimum pricing as it lobbies the Government.
“We should concentrate on [calling for] no more legislation and tax parity with supermarkets and excise duty parity, and don’t get sidetracked.”
On the issue of the campaign to reduce VAT for the sector, Martin said: “I think Vince [Cable, business secretary] and George [Osborne, Chancellor) are slow learners.
“I think we need to keep feeding them the message and eventually they will understand. It will create more jobs if they encourage people to use pubs. They are a bit slow witted but they will get around to it.”
In the year to date (50 weeks to 8 July 2012), Wetherspoons’ like-for-like sales increased by 3%, with overall sales up 9.2%.
The company anticipates reporting an operating margin (before exceptionals) for the second half of this financial year of c8.5%, and expects its corporation tax rate (before exceptionals) for this financial year to be around 28% to 28.5%.
Wetherspoons bought back 5.6m shares at a total cost of £22.7m in the current financial year and said there had been “no significant changes” in its overall financial position since the IMS statement update on 2 May.
The company said: “As previously stated, the main challenges for the Company, in this financial year of 53 trading weeks, have been the continuing cost pressures resulting from government legislation, including increases in excise duty, business rates and carbon tax.
“We expect to achieve a reasonable outcome for the current financial year.”
Leading sector analyst Douglas Jack at Numis said: “We are upgrading our 2012E forecasts by 4%, but are leaving 2013E unchanged due to ongoing margin pressure. Our stance is Hold, with share buy backs limiting the downside.”
He estimated that the company’s margins fell 67bps, having fallen 70bps in Q4.
“LFL sales rose 3% in the first 50 weeks, ahead of our previous full forecast assumption of 1.5%. In Q4, LFL sales accelerated to 6.1% (Q1-3: 2.0%) slightly aided by LFL comparatives easing in Q4 to 1.6% versus 2.4% in Q1-3. Q4’s pick up in trading is largely attributed to the Diamond Jubilee and Euro 2012, one-off events.
“Margins fell 120bps in H2 and 67bps in the first 50 weeks due to the higher costs (+3-4%), food (+4-5%) and labour (+2%) outweighing the benefit of LFL sales increases. We estimate full year margins should be 8.87%, down from 9.54%.
“Fourty sites have opened and three closed in the first 50 weeks, in line with previous guidance. c.25 units are expected to open in 2013E, with the slowdown creating c.£27m of extra firepower to buy back shares, by our estimates.
“In our view, a slowdown in LFL sales is likely in 2013E, resulting in margins falling from Q4’s level of 8.9% (our 2013E forecast is 8.8%). This could result in 2013E margin downgrades, but increasing firepower for the company to buy back shares should limit the equity downside.”
