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Profit margins suffer at JD Wetherspoon

Profit margins are under pressure at pub group JD Wetherspoon as costs - especially staff costs - continue to rise
September 15, 2014

Sales growth at pub group JD Wetherspoon (JDW) has been robust - like-for-like sales rose 5.5 per cent year on year - but that came at the expense of profit margins. The operating margin fell to 8.2 per cent from last year's 8.7 per cent, mainly reflecting higher staff costs. Wetherspoon actually grew its headcount by 3,000, taking the total to over 34,000 employees. Similar pressure is anticipated this year, and management has guided that margins will fall between 7.7 per cent and 8.1 per cent.

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Finance director Kirk Davis explained that demand for casual dining drove growth. Like-for-like food sales rose 12 per cent while underlying bar sales rose just 2.7 per cent. As such the group is keen to reinvest in the core estate, especially on upgrading kitchens and hotel rooms. Last year £56m was reinvested and management plans to spend up to £58m this year. New openings should boost future growth, too: 46 new pubs opened last year and another 30-40 are due this year.

Broker Investec Securities expects adjusted pre-tax profit of £85.6m for 2015, giving EPS of 52.6p (from £79.4m and 47p in 2014).

JD WETHERSPOON (JDW)
ORD PRICE:773pMARKET VALUE:£951m
TOUCH:770-775p12-MONTH HIGH:905pLOW: 675p
DIVIDEND YIELD:1.6%PE RATIO:23
NET ASSET VALUE:185pNET DEBT:258%

Year to 27 JulTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20101.0060.529.312.0
20111.0761.435.412.0
20121.2058.935.612.0
20131.2857.137.812.0
20141.4178.433.912.0
% change+10+37-10-

Ex-div: 23 Oct

Payment: 27 Nov