JD Wetherspoon's shares fell more than three per cent after the pub group reported half-year results slightly ahead of expectations but warned of a difficult second half to come.
The pub owner and operator said profit before tax and exceptional items jumped 42.8 per cent to £51.4m from £36m for the 26 weeks to 22 January.
Like-for-like sales were up 3.3 per cent, and revenue increased to £801.4m from £790.3m in the first half of 2016.
The full-year dividend was maintained at 4p.
In the six weeks to 5 March 2017, like-for-like sales increased by 2.7 per cent while total sales decreased by 0.2 per cent.
Shares in the FTSE 250-listed firm were down 3.37 per cent at 932.5p in morning trading.
Why it's interesting
Wetherspoon might be feeling the pinch of increasing costs this year, but the pub company managed to beat analyst expectations for the first half.
Chairman Tim Martin said the firm faces added costs of business rates, alcohol duties and the proposed sugar tax, among other cost pressures. He hit out at chancellor Philip Hammond's Budget, in which he said Hammond was "less than frank" about duty increases to alcohol and called it "a Budget for dinner parties", not pubs.
Martin cautioned that sales will likely be lower in the second half of the year as it faces these new headwinds.
What JD Wetherspoon said
Martin said the biggest danger to the pub industry is the continuing tax disparity between supermarkets and pubs, in terms of VAT and business rates.
Martin said rate relief of £1,000 is overshadowed by other costs. Wetherspoon faces costs in the next year of: £7m on business rates, £4m on electricity taxes, £7m on the excise duty and £2m on the apprenticeship levy, he said.
In view of these additional costs and our expectation that like-for-like sales will be lower in the next six months, the company remains cautious about the second half of the year.
Nevertheless, as a result of modestly better-than-expected year-to-date sales, we currently anticipate a slightly improved trading outcome for the current financial year, compared with our expectations at the last update.
What analysts said
Karl Burns, analyst at Investec, painted a rosier picture. He said:
Wetherspoon have reported strong half-year results, slightly ahead of our expectations... despite the difficult market backdrop. Current trading has remained strong and due to modestly better than expected sales year to date, management anticipate a slightly improved outcome for the year.
Wetherspoon continues to prove that, as a value operator in an increasingly inflationary environment, the group remains well placed to take market share.