For the year ended 28 July, the FTSE 250 pub chain reported a pre-tax profit of £102.5mln, down 4.5% year-on-year, despite revenues rising 7.4% to £1.8bn.
The fall in profits was a result of increased costs during the year, with operating expenses rising to around £1.68bn from £1.56bn previously.
‘Spoons has previously cited rising staff wages as a key factor eating into its profits as it looks to recruit and retain workers amid an increasingly tight jobs market.
Like-for-like sales (LFLs), meanwhile, had risen 6.8% in the year, while the full-year dividend was maintained at 12p per share.
Sales growth had also continued into the current year, with ‘Spoons reporting that for the six weeks to 8 September LFLs had risen 5.9%.
Meanwhile, the company’s chairman Tim Martin once again delivered a barrage of criticism over the current Brexit impasse, blasting “pro-EU Oxbridge MPs” for “frustrating the [2016 Brexit] referendum result”.
Martin also bemoaned the likes of House of Commons speaker John Bercow, Labour politicians Keir Starmer, Hilary Benn and Emily Thornberry, and former Tory rebels Dominic Grieve, Jo Johnson, Philip Hammond, David Gauke, David Lidington and Rory Stewart for their role in “enmeshing parliament in a legal and administrative spider’s web”.
However, despite what he said were the “continuing political problems, stemming from the transfer of democratic power to a technocratic elite”, Martin said Wetherspoons itself was continuing to perform well and anticipated a “reasonable outcome” for its current year, subject to future sales performance.
Broker ups target price
In a note, analysts at Peel Hunt hiked their target price for Wetherspoons to 1,450p from 1,300p and retained a ‘hold’ rating, saying that the company could raise its drinks prices as its discount on beer compared to the wider market hit 25%.
Such a move could have a “large” effect on profits, Peel Hunt said, citing 2017 when higher pricing helped drive the group’s earnings up 43%.
However, given the “stage in the political cycle”, Peel Hunt said a price hike was unlikely while Tim Martin remained focused on “highlighting the cost/pricing benefits of Brexit to the company’s customers”.
Meanwhile, analysts at Liberum said the group’s results had come in “towards the bottom end” of consensus and reiterated their ‘hold’ rating and 1,370p target price on the stock.
The broker added that Wetherspoon’s operating margins, which fell to 7.3% from 7.8% in the year, were the lowest in the sector, making the chain “vulnerable” to inflation in food and labour costs.
Company’s shares “no cheap meal”, says analyst
Fiona Cincotta, financial markets analyst at Cityindex, said that while the pub chain was “faring a lot better” than most of its peers in the sector, the shares were currently trading at around 20.5 times earnings, meaning the firm was more highly valued than many of its competitors and “no cheap meal” for investors.
She added that slowing sales growth would serve to put pressure on the company’s “already-thin margins”, although a focus on sales and increasing market share could help alleviate the burden.
In late-morning trading on Friday, Wetherspoon’s shares were down 0.5% at 1,543p.
–Adds details on operating costs, broker changes and analyst comment and updates share price–