JD Wetherspoon teetering towards ‘worst case scenario’ – broker


JD Wetherspoon Plc (LSE:JDW) gets a timely mention today on Liberum Capital’s list of “least preferred companies”, with analyst Anna Barnfather predicting that ‘Spoons will continue to take a forking as the cost of staff and stock rises.

The analyst, in a note, pointed out that the high street pub chain has the pub sector’s highest percentage cost of goods sold (at about 35%) and its lowest operating margins (around 7.3%).

‘Spoons also suffers because its business has always had a heavy reliance on what the analyst calls ‘vertical drinking’ – which literally means people standing in packed pubs, as they often would one or two deep at the bar.

Moreover, whilst retaining a ‘hold’ rating, Barnfather says the outlook is now moving closer to the worst-case scenario envisaged by Wetherspoons in January when it raised just over GBP93mln from investors.

“We believe JD Wetherspoon’s high volume/low margin model will remain under pressure as the shape of the recovery begins to play out and inflationary pressures intensify. As such, we expect trading to continue to lag the market given its large sites, high street locations and reliance on vertical drinking, while industry-wide cost pressures also bite,” the analyst said.

Liberum slashes its price target to GBP10.00, from GBP14.00, whilst on the London Stock Exchange on Friday the pub share is changing hands at GBP10.39.

Earlier this morning, Wetherspoon said it is “cautiously optimistic” about the current year as sales begin to recover following the easing of Coronavirus (COVID-19) restrictions. However labour shortages are making it difficult to find staff in some parts of the UK, particularly in the “staycation” areas in the West Country, the pub chain added.

Wetherspoon’s earnings statement for the year to 25 July 2021, when pubs were closed nationally for 19 weeks due to pandemic restrictions, revealed underlying pre-tax losses of GBP154.7mln versus losses of GBP34.1mln the prior year.

Revenues were GBP772.6mln, below consensus forecasts of GBP799mln and down 38.8% on the previous year. Like-for-like sales decreased by 38.4%.

Sales have improved in the last few weeks, with like-for-like sales in the first nine weeks of the current year 8.7% lower than the same weeks in August and September 2019, before the pandemic started. This improved in the last four weeks, when the decline in like-for-like sales shrank to 6.4% compared with pre-COVID 2019, Wetherspoon said.


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