Shares in JD Wetherspoon PLC (LSE:JDW) have shown resilience in recent weeks, staging a notable rebound following a sharp decline that occurred after the release of its interim financial results.
The pub group’s March report highlighted an increase in both sales and earnings, alongside the reinstatement of its interim dividend. However, the company also cautioned about the anticipated impact of escalating labour costs and expressed concerns regarding what it termed “unfair tax treatment.”
Despite this performance, Deutsche Bank subsequently downgraded its rating on JD Wetherspoon to ‘sell’, suggesting the pub group is entering a “new era” characterized by rising costs that may prove challenging to fully absorb. The bank’s leisure analyst, Tim Barrett, described the projected increases in tax and staff costs as “an exogenous event comparable to the smoking ban and the global financial crisis” for the broader leisure sector.
Upcoming legislative changes, including higher National Insurance contributions for employers and a significant 7% rise in the National Living Wage (with an even steeper 16% jump for under-21s’ minimum wage), are expected to further amplify cost pressures for the company.
Following a decline from over 800 pence in early 2024 to a low of below 550 pence in March, JD Wetherspoon’s shares have since experienced a recovery of more than 140 pence. Michael Hewson of MCH Market Insights noted that the post-results sell-off appears to have been viewed as an overreaction by investors.
In its half-year results, JD Wetherspoon reported a 3.9% increase in revenue to just over £1.02 billion, while pre-tax profit reached £32.9 million, a slight decrease from the £36 million reported in the previous year. Like-for-like sales grew by 5% in the seven weeks leading up to March 16th, with food sales increasing by 5.4% and bar sales rising by 4.3% over the half-year period.
While acknowledging the positive sales momentum, Hewson also highlighted the persistent challenge of cost pressures. Recent policy changes regarding National Insurance and the minimum wage are estimated to add approximately £60 million to the company’s annual costs, equating to around £1,500 per pub per week.
