JD Wetherspoon is still a company that it is worth holding onto. Chairman Tim Martin may be focused on Brexit and its impact on his company but this is still a business that can put out some numbers that will keep investors coming back for more.
The owner of pubs and restaurants has set a somewhat cautious tone as for as the outlook for the second half of its financial year is concerned. It is still a retail facing business, and as we know now, and as The Armchair Trader predicted in Q4, the UK retail sector is in for a rocky ride in 2018. The company focuses on cheap drinks and good value food, but could become the victim of a price war from its competitors if it is not careful
Wetherspoon says it anticipates higher costs and lower like-for-like sales growth This is not good news for its earnings outlook – analysts are only expecting very small levels of pre-tax growth over coming years.
Russ Mould, Investment Director at AJ Bell, is very focused on the potential for a price war at the bar:
“We’ve already seen this happen in the restaurant industry with offers galore and so one can safely assume parts of the pubs industry would also slash their prices in a similar fashion if life gets harder,” he says. “Wetherspoon has been in that situation in the past and it has always found a way to survive, even if it meant a short-term price war to keep punters walking through the doors.”
A price war would add further pressure to margins but Martin is not a man known to be that focused on margins. He says he just wants people to visit his pubs.
The market was not too sanguine about the Wetherspoon results – after a short spike in early trading Wetherspoon shares dropped down to the 1260-65 range. But those worried about the impact of Brexit and Martin’s doom mongering need to look at a piece of Wetherspoon history, specifically how the company performed during the recession.
During the last recession in the UK, its share price rallied from about 175 up to about 530. While it has obviously been a major beneficiary of low rates in the UK which have fueled high street spending, and investors who bought Wetherspoon in 2012 have more than doubled their money, its success during a recession demonstrates that even when the rest of the high street is going belly up, the British will still be able to scrape together a few coins for a pint, and they always have.