JD Wetherspoon’s sales take a tumble due to cold weather

PUBS group JD Wetherspoon yesterday reported a decline in second-quarter like-for-like sales as a prolonged outbreak of snow across Britain kept drinkers at home.

The company, which has 744 pubs, said sales at pubs open for more than a year fell by 0.3 per cent in the 12 weeks to 17 January, with the last two weeks being affected by the adverse weather conditions. Total sales increased by 5.3 per cent.

For the 10 weeks to 3 January, comparable sales were up by 1.2 per cent.

Wetherspoon said it remained confident of its prospects for the current financial year.

Market expectations for JD Wetherspoon’s full-year pre-tax profit currently range between £61m and £76m, with the consensus at £71m.

Shares in Wetherspoon, which have nearly doubled in value over the last eighteen months, closed virtually flat yesterday at 463p.

The company has been among the best performers in the sector throughout the recession as cut-price meals such as ham, egg and chips for £2.99 and a pint of Greene King IPA beer for 99p proved attractive to cash-strapped consumers.

That has helped it grow sales despite the industry seeing a record amount of closures, with over 50 shutting down each week, according to figures from the British Beer & Pub Association.

Earlier this week, chief executive John Hutson said he considered one per cent like-for-like sales growth to be a realistic target for the second half.

Don’t let snow cloud judgement
JD WETHERSPOON was named after an eponymous schoolmaster that taught the pub group’s founder and chairman Tim Martin. If yesterday’s second quarter update was anything to go by, it looks like the firm could teach the rest of the pub industry a thing or two.

Although like-for-like sales in the twelve weeks to 17 January were down by 0.3 per cent, the terrible weather in early January took its toll. If you strip out the first two weeks of 2010 – when like-for-likes were down by eight per cent – then sales were actually up 1.2 per cent.

Some were disappointed that operating margin is still around the 10 per cent mark, with the firm using the money saved on energy bills to do up some older outlets. But this is sensible, as some of its pubs are looking tatty.

And investors worried about the refinancing of its £435m debt pile by December needn’t be. It has increased its target for new pub openings from 40 to 50 for this financial year, a bold move that suggests talks with banks are going well.

Sales from these new pubs should start to push up revenues in the latter part of this year. Coupled with an improved margin when the repair works are over, shareholders can expect earnings upgrades. With that in mind, the shares – which trade at 13 times expected earnings in 2010 – look cheap.