JD Wetherspoon LON:JDW has outperformed other chains in past recessions due to its fairly unique value proposition and ability to attract consumers downtrading from ‘posher’ pubs. However, this recession may be more difficult given today’s strong customer preference for premiumisation. Consumers’ habits are changing, and this could mean tougher times for a stock which was once a go to defensive play in UK recessions.
Wetherspoon typically appeals to an older demographic, one that continues to be relatively wary of health issues and one that has safety top of their mind.
In its latest set of results, JD Wetherspoon reported Q4 like-for-like sales at 0.4% lower than 2019 levels. That comes as the recovery for draught ales, lagers and ciders was slower than anticipated, where sales were 8% lower than 2019. Spirits, cocktails, food and hotel rooms were higher than 2019 levels, as sites in city centres performed better than suburban locations.“The UK pub industry is facing a wave of closure after the end of government’s aid schemes, primarily driven by lease-and-tenanted pubs; energy price rises could be the final nail in their coffin,” said Alex Smith, Global Sector Lead for retail and leisure companies at Third Bridge. “Our experts see the biggest price increases coming through on Wetherspoon’s food, while the chain plays safe on their entry-point drink products.”
The group spent £128m buying out 48 pubs that it previously leased, bringing the proportion of freehold pubs to 68.3% of the estate.
We ran the numbers through the AI analysis engine at Deshe Analytics, which came up with an underperform rating. Analysis of the latest set of figures points to poor execution and strategy. Capital expenditure and revenues are looking particularly worrying. The price to book on the stock is also down a tear jerking 35%. Overall the indicators are telling us to stay well away from this one.
Losses for JD Weatherspoon higher than expected
Losses for the full year are expected in the region of £30m, higher than previously thought. That comes as staff costs are ‘far higher’ and the group invested more in repairs and marketing. In the next financial year, costs are expected to increase less than the current rate of inflation.
“The booming rebound in pub sales Wetherspoon’s was hoping for hasn’t quite panned out, with sales just about in touching distance of pre-pandemic levels,” noted Matt Britzman, equity analyst with Hargreaves Lansdown. “It looks like the older demographic’s still cautious to get out and about and that comes through in the numbers. Lagers and ales were replaced by spirits and cocktails as sales in lively city locations, with music on the weekends, performed much better than quieter, suburban, pubs.”
Hefty investment in labour, repairs, and marketing to try and reinvigorate the customer base mean costs are racing higher for the company. That’s expected to push the bottom line into negative territory at the full year mark, which is disappointing for investors – but ultimately those costs are a necessary evil.
The difficulty now, for the entire pub sector, is that drinking and eating at home looks to be sticking around longer than first thought. That trend’s likely to continue, as the cost-of-living crisis looks poised to accelerate the tightening of purse strings.