Pubs group JD Wetherspoon has got off to a better start to the calendar year than many expected, but that has not made it any more optimistic about prospects for the full year.
For the 13 weeks to April 22nd, like-for-like (LFL) sales increased by 2.0%, confounding expectations in some quarters of zero growth or even a half point fall.
Total company sales over the same period increased by 8.4%. In the year to date (39 weeks to April 22nd), LFL sales increased by 2.0%, and overall company sales increased by 8.4%. In its interim results, the group said LFL sales were up 2.1% in the first half of its financial year, so the fiscal third quarter represents a slight slow-down in growth.
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Analysts following the stock had expressed concern at Wetherspoon's eroding margins, and the group revealed that the operating margin (before exceptional items) in the 13-week period had declined to 8.1% from 9.3% in the first half of the financial year. Year to date the operating margin has been 8.9%, a bit worse than the 9.1% predicted by broker Panmure Gordon.
The group said it expects to see the operating margin improve in the final quarter of its financial year, though the margin in the second half of the year will not be as high as it was in the first quarter.
As previously stated, the main challenges for the company in the current financial year will be the continuing cost pressures resulting from government legislation, including recent increases in excise duty, business rates and carbon tax. "We continue to be slightly more cautious about the potential outcome for the current financial year," the group said.
As ever, there was a section of the trading statement devoted to the tax man's perceived favourable treatment of supermarkets versus pubs.
The government has announced a change in allowances for fruit and slot machine taxation which has resulted in increased costs for Wetherspoon of £2m per annum. Not a lot of supermarkets operate slot machines so accusations of favouritism in this regard do not really wash, but as regards the introduction of a 'late-night levy', which will also cost Wetherspoon some £2m a year, the pubs group has a point.
The effect of the three tax increases in the next financial year - the other being the increase in excise duty - will see an additional £11m of Wetherspoon money heading to the Inland Revenue.
"The total tax bill for Wetherspoon in the current financial year, including VAT, excise duty, corporation and other taxes will be approximately half a billion pounds, about a £50-million increase, compared with the previous financial year. We have also created approximately 3,000 jobs in the same period, but all of the economic benefits of our expansion are currently being levied by the government as taxes - an unsustainable situation," the group claimed.
The group statement drew attention to the social effects of the tax policy, claiming that what it calls the disparity with supermarkets has greater economic effect in less affluent parts of the UK. "The result is that the majority of prominent pub and catering companies are investing in the southern part of the UK and in major town and city centres elsewhere, contributing to serious economic problems for many high streets in Britain and Northern Ireland," Wetherspoon claimed.
JH
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