Margins at pub group JD Wetherspoon came under pressure last year as the business faced increased costs across the board, including higher taxes, labour, utilities and the cost of food and drink supplies. So despite growing revenues 7.6 per cent, operating margins fell to 9.4 per cent in the six-month period (from 10 per cent in 2009), which meant operating profits only edged up slightly to £49.6m. However, pre-tax profits slumped 11 per cent due to a sharp rise in interest charges, up from £12.6m to £17.4m, following a debt refinancing.
Net debt rose slightly as the company continues to invest in the estate, opening 14 new pubs in the period and refurbishing the existing pub portfolio. This still looks sensible as trading trends remain positive with like-for-like sales up 2.8 per cent and total sales 7.9 per cent ahead since the half-year-end. However, ongoing margin pressure suggests that City forecasts may nudge down given the cautious outlook. Broker Investec Securities is forecasting full-year pre-tax profits of £66.6m and EPS of 32.9p (£71m and 36.9p in 2010).