JD Wetherspoon shares set to spiral on widening losses

UK pubs’ recovery from the coronavirus pandemic has been generally sluggish, which has put pressure on shares in pub chain JD Wetherspoon. The stock has suffered more than most this year, with the company predicting losses of up to £30m in its full-year results. However, analysts haven’t kicked the keg just yet.

With JD Wetherspoon [JDW.L] planning to deliver its full-year earnings for 2022 on Friday 7 October, investors hoping that the UK pub chain can show signs of a turnaround could be disappointed as it forecasts widening losses. Year-to-date, the Wetherspoons’ share price has stumbled terribly, closing at 405.60p on 29 September, down 57.8% for the year.

The company, which owns around 800 pubs across the UK, released a statement this summer in which it said that while people had predicted a post-pandemic boom in pub sales when lockdowns ended, “recovery for many companies has been slower and more laborious than was anticipated”.

The escalating cost of living has put significant pressure on consumer demand and spending. In a trading update released on 13 July, the company offered sobering forecasts, saying it anticipated losses of £30m for the year to the end of July, citing the rising costs of staff wages and repairs to properties. In response to the news, the JD Wetherspoon share price closed down 8.3% from the previous day.

Sluggish post-pandemic recovery

Ahead of its upcoming results, the company announced this week on Wednesday 28 September that it will attempt to plug its financial gap by selling 32 of its pubs across England, including 10 in London. Spokesperson Eddie Gershon explained that the closures are a “commercial decision” that the company is sometimes required to make, and that they understand some customers and staff will be “disappointed”.

At its summer trading update, Wetherspoons reported like-for-like sales in the first 11 weeks of the fourth quarter were down 0.4% compared to 2019. In the previous quarter, like-for-like sales were down by 4%, suggesting a gradual improvement over time. Despite a recovery in sales, however, staffing costs have only gotten higher.

In May, Wetherspoons founder Tim Martin announced that rising costs would lead the chain to make several changes — one of which could be hiking up drinks’ prices by up to 20p per pint.

Even before the current economic mayhem, the trajectory for Wetherspoons appeared gloomy. In March, the company posted results for the 26 weeks ended 23 January 2022, reporting revenues of £807.4m, 13.5% lower than 2020’s equivalent sales of £933m.

Analysts outlook cautious for Wetherspoons

According to figures recently published in The Times, the UK’s top 350 biggest companies are down an average 11% in 2022 – but for JD Wetherspoons, the figure is far greater. As the company’s biggest shareholder, it’s estimated Martin alone has lost £150m this year.

However, it isn’t all doom and gloom for JD Wetherspoons. The company has fixed prices on its energy contracts until the end of 2023, put in place before the recent fuel spike. It also has long-term contracts for many food and bar purchases, again a moderating shield from inflation’s bruising effects.

However, as Matt Britzman, analyst at Hargreaves Lansdown, suggested in July, one difficulty for the pub sector post-pandemic is that “drinking and eating at home looks to be sticking around longer than first thought”.

At Tipranks, four analysts are advising to ‘hold’ Wetherspoons stock. However, at the Financial Times, seven out of 14 analysts give a rating of ‘outperform’ and two recommend a ‘buy’, suggesting they haven’t completely lost hope for the chain. Four more analysts recommend to ‘hold’ and one rates the stock an ‘underperform’.