Wetherspoon's share price plummets on warning that profits will come at lower end of expectations after labour costs start to bite

Catherine Neilan
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Pub Chain Lowers Price Of Beer To 99p A Pint
Wetherspoon's boss Tim Martin has long warned about the impact this would have on the business (Source: Getty)

JD Wetherspoon's share price tumbled more than nine per cent this morning, after warning that full year profits will be towards the lower end of expectations, as increases in labour costs eat into the bottom line.

The figures

Like-for-like sales at the pub group rose 3.3 per cent in the 12 weeks to 17 January, while total sales climbed 6.3 per cent.

In the year to date (25 weeks to 17 January 2016), like-for-like sales increased by 2.8 per cent, while total sales were up by 6.1 per cent.

It opened five new pubs since the start of the financial year and has sold two. A further 10 to 15 pubs are expected to be opened in the current financial year.

However Wetherspoon's is expecting the operating margin before exceptional items to be around 6.3 per cent for the first half, 1.1 per cent lower than last year.

"The margin reflects the increases in the starting rates for hourly paid staff in October 2014 and August 2015, which totalled approximately 13 per cent," the company said.

JD Wetherspoon JD Wetherspoon | mobile image

Why it's interesting

Wetherspoon's boss Tim Martin has railed against the rising costs his business faces for several months now. This comes on top of the VAT issue - which he claims gives supermarkets an undue advantage.

However, the group is in growth, as seen by the pub openings, and trading is still strong at a time when consumer spending is still modest.

What Wetherspoon's said:

Chairman Tim Martin said: "Like-for-like sales have improved in the second quarter so far. However, as indicated in our November trading update, increased labour costs will be an important factor in the outcome for this financial year.

"Our current view is profits for this year are likely to be towards the lower end of analysts' expectations."

In short

Wetherspoon's has given plenty of warning about the impact of increased cost of wages, but investors are clearly still concerned.

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