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Wetherspoons sales grow despite closures

The pub group reported a 2 per cent increase in sales despite ongoing pub closures
September 14, 2018

"Sacrilege!", shouted JD Wetherspoon (JDW) chairman Tim Martin on discovering that Lavazza coffee was the pub group’s top-selling drink during the year to July, and that Pepsi was the most sold drink on draught. But that’s not to say Wetherspoons didn’t sell much beer - or food for that matter. Both like-for-like bar and food sales rose by 5.1 per cent, while hotel room revenue grew 2.3 per cent and fruit and slot machine sales by 2.9 per cent. Overall, comparable sales improved by 5 per cent.

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Closing pubs is bad for Britain, said Mr Martin, not only from a social perspective but because of how much tax they contribute. Wetherspoons paid total taxes of £729m for the financial year (43 per cent of net sales), mainly in the form of value added tax (VAT). As per usual, Mr Martin was adamant that taxes for pubs, restaurants, and supermarkets should be equalised; he believes cheaper beer in shops has robbed pub groups of roughly half their beer sales over the past three decades. Wetherspoons opened six pubs last year and closed 18, bringing the final number to 883.

Wetherspoons also spent big on renovations. Capital expenditure on new and existing pubs increased by 16 per cent to £115m last year, with repair costs up 10 per cent. Mr Martin called it a "danger" to cut back on repairs for the sake of profits, adding that he aims to direct around 4 per cent of sales towards such expenses.

Some reckon Wetherspoons is highly indebted, at £726m or 253 per cent of equity, but the chairman thinks this isn't high compared with rivals or in the context of its business model: "If you trade well it’s not a problem, if you don’t then it becomes a problem," he reasoned. Net interest was covered 4.8 times by operating profit of £132m, a slight improvement on last year's 4.6 times ratio. Mr Martin said the company had taken on more debt in light of consistently low interest rates.

Analysts at Goodbody except adjusted EPS of 76.4p during the year to July 2019, compared with 77.5p in FY2018.

JD WETHERSPOON (JDW)  
ORD PRICE:1,266pMARKET VALUE:£ 1.34bn
TOUCH:1,263-1,267p12-MONTH HIGH:1,341pLOW: 1,025p
DIVIDEND YIELD:0.9%PE RATIO:20
NET ASSET VALUE:272pNET DEBT:£726m
Year to 29 JulTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141.4178.433.912.0
20151.5158.737.912.0
20161.6066.044.512.0
20171.6676.452.012.0
20181.6989.064.612.0
% change+2+17+24-
Ex-div:25 Oct   
Payment:29 Nov