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Rising wages hit Wetherspoon profits

The pub group said it would increase staff wages by 50-60p per hour, but would not immediately look for ways to mitigate the added cost
November 7, 2018

JD Wetherspoon (JDW) has bowed to pressure from workers’ industrial action and agreed to a pay increase for its staff. Each employee will receive an extra 50-60p per hour from this week, with management blaming record low unemployment for putting upward pressure on wages. But chairman Tim Martin said that the pub group won’t look to recoup any of the added wage costs through price increases or any other means of mitigation right away, although will consider it later in the year. This means that profits are now expected to be below last year’s figures.

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Wetherspoons, among others in the hospitality sector, will also have to contend with a further 4.9 per cent increase in the national living wage (equating to an extra 39p) from April next year, as announced in the recent Budget. Management is also conscious that comparatives will now get tougher, making it even harder to continue to beat previous years’ results.

Analysts at Numis said it was “telling” of the state of the wider eating and drinking-out market that a company with the best like-for-like sales in the sector will struggle to grow profits this year. Wetherspoons reported a 6.2 per cent increase in sales during the 13 weeks to 28 October, or 5.5 per cent on a like-for-like basis. Numis analysts expect that the pub group will have to cover £35m of added costs from wage growth, in addition to £6m additional interest charge, £4m from business rates and rents, as well as £22m of other costs. Each 1 percentage point increase in the wage bill has a 5 per cent earnings per share (EPS) impact, while each similar movement in comparable sales has a 10 per cent impact.