ii view: struggling Wetherspoons loses older customers

Shares are down year-to-date but up by a third since pandemic market lows. We assess prospects. 

First quarter or 15-week trading update to 7 November

• Like-for-like sales down 8.9%

ii round-up:

Pub chain JD Wetherspoon (LSE:JDW) today detailed a fall in effective first-quarter sales compared to the same record period in 2019 as its older, more Covid vulnerable customers, made fewer visits. 

Like-for-like sales for the 15 weeks to 7 November fell 8.9%, given a 9.6% retreat in bar sales and an 8.1% decline in food sales. Analysts had been expecting an overall fall nearer to 7%. Traditional ale, usually consumed by older customers, fell by 30%, while cocktail sales, a favourite of the young, rose 45%. 

Wetherspoon shares fell by more than 8% in UK trading, leaving them down over 15% year-to-date and reducing their gain since pandemic market lows in March 2020 to around 35%. Shares for rival pub operators Mitchells & Butlers (LSE:MAB) and Marston's (LSE:MARS) are both up under 5% year-to-date. 

Wetherspoon previously reported its biggest ever loss in the year to late July as the pandemic disrupted trading and closed its outlets for an average of 19 weeks.

Food volumes for the 15-weeks appeared to have been hindered by some customers working from home, with breakfast sales down 22%. 

Against expectations, trade had been mostly positive in the centre of larger cities and towns and negative in the suburbs. Supply chain issues had proved few, while the flow of job applications remained reasonable, despite some labour shortage seaside resort issues suffered in the summer. 

Its next trading update is scheduled for 19 January. 

ii view:

Founded in 1979 in North London, today Wetherspoons operates over 850 pubs including 46 Lloyds branded pubs and around 60 hotels connected to its pub outlets. Headquartered in Watford, Hertfordshire, its freehold/leasehold split now comes in at 66.3%/33.7%, compared to a ratio of 43.4%/56.6% 10 years ago. 

For investors, the flu filled winter months are ahead and a trend for its older traditional customers to visit less during the still ongoing pandemic warrants consideration. The dividend is still suspended and net debt of over £800 million compares to a stock market value of £1.37 billion. An estimated price/earnings (PE) ratio for 2022 in line with the 10-year average also suggests the shares are not obviously cheap.

But its value offering is unlikely to be forgotten by consumers with energy prices elevated and inflation recently trending upwards. The fall in overall like-for-like sales is still better than the 17.8% fall reported during the last 10 weeks of its last financial year to 25 July, while supply chain and labour issues are being managed. In all, and while its recovery from the pandemic is likely to prove volatile, a strong brand and market position should offer potential for long-term improvement. 

Positives: 

• Value customer offering
• Majority freeholds

Negatives:

• Covid clouded outlook
• Suspended dividend payment

The average rating of stock market analysts:

Buy