Wetherspoons falls after weak growth

Pub and food operator JD Wetherspoon has reported slightly lower-than-expected pre-tax profit growth of 3.2% to £36 million in the first half of its financial year.

Broking group Numis Securities predicted Wetherspoons' pre-tax profits, before exceptional items, to hit £37 million and subsequently had a target price of 925p attached to the pub chain.

Despite the disappointing growth figures, sales in the six months to 26 January rose 9.1% to £683.2 million and there was a strong start to the second half of the year with sales up 6.7% over six weeks.

Like-for-like bar sales increased by 3.6%, food sales by 10.5% but fruit/slot machine sales decreased by 9.5%.

The results were an improvement on the previous year when the pub and food operator’s profits fell 2.7% to £34.8million, as a result of higher taxes and increased labour costs.

Irish debut

Wetherspoons pubs differ to other chains in that they tend to have more space, later opening times, and less music. Wetherspoon, which has over 900 pubs and will debut in Ireland later this year, is aiming for between 40 and 50 new openings in the UK, a rate it expects to achieve over the next decade or so, as it continues it focus on growing sales over margins, Reuters reported.

It is also renowned for its high operating standards and stable management team. Chief executive John Hutson has been with the company in various roles since 1991.

The biggest threat to pub chain is the sale of cheap alcohol in supermarkets.

Martin commented: "Supermarkets pay no VAT in respect of their food sales, whereas pubs pay 20%, enabling supermarkets to subsidise their alcoholic drinks prices," he said.

"Unfortunately, possibly without realising the consequences of its actions, the government recently introduced both a 'late-night levy' and additional fruit/slot machine taxes, which further reduce the competitive position of pubs in relation to supermarkets."

"It seems to be widely acknowledged by economists, politicians and others that the tax disparity with supermarkets is unfair and that pubs create more jobs and more taxes per pint or per meal than do supermarkets and that it does not make social or economic sense for the tax régime to favour supermarkets."

All eyes will be on the UK Budget announcement on 19 March incase chancellor of the exchequer George Osborne makes changes to beer duty and the minimum wage, which will impact the Wetherspoons business model.

Despite declaring an interim dividend of 4.0p, Wetherspoons' share price was down by over 2% to 810.5p in early morning trading.