Wetherspoon blames loss on ‘painstaking slow’ recovery in sales

JD Wetherspoon failed to return to profitability last year after a sluggish slow recovery in sales and rising cost inflation.

The cafe operator reported a £24.9 million loss in the 53 weeks ending July, up from a £146.5 million loss the previous year, when Covid-19 restrictions forced its stores to close a large part of the period.

Revenues were impacted by much higher labor costs as the chain raised its hourly wage above £10 for the first time, and repair bills following the reopening of pubs last year.

Even with relatively fewer restrictions this time around, trade lagged far behind pre-pandemic volumes, despite the company’s total turnover increasing by around £1bn.

Wetherspoon suggested that this may have been due to difficulties in convincing former “seasoned” customers to return, as they have become accustomed to drinking beer bought in supermarkets since the start of the pandemic.

On a comparable basis, sales were 4.3 percent lower than in 2019 due to a weak recovery in food and beverage orders, offsetting strong demand for hotel rooms and slot machines.

“Most commentators, including most tax collectors, understandably predicted a post-lockdown boom in which the public would respond to forced cabin fever by taking a celebratory tour,” the company noted.

“But the reality, on the other hand, is a sluggish slow recovery in sales, for some, but not everyone, accompanied by high cost inflation.”

The FTSE 250 company noted that trading improved over the year; sales fell 7.4 percent in the first six months from pre-Covid volumes, but only 0.6 percent lower in the fourth quarter.

Demand: On a comparable basis, Wetherspoon sales were 4.3 percent lower than 2019 due to a weak recovery in food and beverage orders

Like-for-like sales in the first nine weeks of the current fiscal year were also 10.1 percent higher than the previous year.

However, the current cost of living crisis poses a major challenge to its immediate performance, with skyrocketing utility bills and interest rate hikes weighing heavily on household incomes.

Meanwhile, Tim Martin, chief executive and founder of Wetherspoon, claimed the biggest threat to the hospitality industry as the potential for the return of Covid-related restrictions.

Pubs, bars and restaurants were some of the hardest hit by job losses during the height of the pandemic, as they were forced to close or subject to strict capacity limits.

New Zealand-born Martin further argued that supermarkets’ “huge and unwarranted” tax advantages, such as lower business rates and VAT, posed another significant risk to the hospitality industry.

He said: ‘This competitive disadvantage has had an increasingly debilitating impact on the hospitality industry and will undoubtedly lead to long-term financial weakness vis-à-vis supermarkets – which will also be detrimental to workers, the Treasury and the general economy.’

However, Martin said the company was cautiously optimistic about its outlook for the future, which had improved somewhat in recent years with measures to boost finances, such as fixing interest rates through 2031 and making two capital increases.

However, Mark Crouch, an analyst at online trading platform eToro, is less confident in the company’s prospects.

He said: “The reality is that Wetherspoons is on track to make only a fourth full year loss in its history unless there is a dramatic turnaround in its fortunes. Most of that is due to factors beyond their control and affects the entire industry.

“Although Wetherspoons is one of the stronger players, unfortunately we can see an increasing number of pubs making final orders this winter as the energy and cost of living crises really start to bite.”

After the release of this trading update, JD Wetherspoon Shares rose 10.3 percent to 482.6 pence in morning trading, though their value has more than halved in the past year.