ii view: Wetherspoon's pandemic hangover means record loss

A tough year gone but cautiously optimistic for the year ahead. Buy, sell, or hold?

Full-year results to 25 July 2021

• Revenue down 39% to £773 million
• Loss before tax of £155 million, down from a loss of £34 million
• No dividend payment
• Net debt of £846 million, up from £812 million in January

Chairman Tim Martin said:

"Pubs have been at the forefront of business closures during the pandemic, at great cost to the industry - but at even greater cost to the Treasury.

"In spite of these obstacles, Wetherspoon is cautiously optimistic about the outcome for the financial year, on the basis that there is no further resort to lockdowns or onerous restrictions.

ii round-up:

Pub operator JD Wetherspoon (LSE:JDW) today reported its biggest ever loss of £155 million as the pandemic disrupted trading and closed its outlets for an average of 19 weeks in the financial year to 25 July. 

Total sales fell 39% to £773 million, with no dividend payment again declared. But recent trading compared to the pre-pandemic 2019 showed signs of improving. Like-for-like sales for the first nine weeks of the new financial year fell 8.7%, with broker Morgan Stanley calculating that sales in August had fallen by 10.5%.  

Wetherspoon shares rose by more than 2% in afternoon UK trading, leaving them up by around 55% since Covid induced market lows back in March 2020. Shares for rival and owner of chains including All Bar One, Mitchells & Butlers (LSE:MAB), are up closer to 90% in that time. Shares for smaller rival Fuller Smith & Turner (LSE:FSTA) have risen by around 20%.

Wetherspoon opened five pubs during the year and sold or closed 16. Total employee numbers averaged 39,025 in the year, which increased to 42,003 for the week ending 20 September 2021.

The pub and hotel operator flagged that while it had received a reasonable number of applications for vacancies, some areas of the country, especially staycation areas in the West Country and elsewhere, had found it hard to attract staff.

Broker Morgan Stanley now forecasts sales for the current full-year 2022 of £1.75 billion, or 96% of the pre-pandemic 2019 total achieved. Forecast adjusted profit (EBIT) of £132 million is flat on the 2019 outcome. 

Its next trading update is scheduled for 10 November.

ii view:

Founded in 1979 in North London, today Wetherspoons operates 861 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% ten years ago. 

For investors, pandemic uncertainty remains. The flu filled winter months are now ahead and concerns regarding the Delta variant persist. The dividend is still suspended and net debt of over £800 million compares to a stock market value of £1.37 billion.

More favourably, pandemic restrictions have now been lifted and its pubs are trading again largely as normal. An estimated price-to-net asset value below the three-year average suggests the shares are not expensive, while an uncertainty economic outlook could also see its value offering further elevated by consumers going forward. In all, the risk-reward balance looks to be moving in the right direction.

Positives: 

• Value customer offering
• Majority freeholds

Negatives:

• Covid clouded outlook
• Suspended dividend payment

The average rating of stock market analysts:

Buy