JD Wetherspoon profit drops 28% despite £2.2bn sales

JD Wetherspoon's pre-tax profit fell 28% to £58.6m in the year to July 26, even as sales rose 5.2% to £2.2bn, with chairman Tim Martin blaming wage, repair and business rates increases of £86m.

Operating profit dropped to £120.2m from £146.4m. The pub chain's own breakdown put the extra cost at £46m in wages, £31m in repairs and £9m in business rates, more than offsetting the revenue gain from higher footfall and menu prices.

Martin repeats the tax complaint

Pubs and restaurants pay around 40% of their receipts as taxes of one sort or another.

"Pubs and restaurants pay around 40% of their receipts as taxes of one sort or another," Martin said in the results statement, pointing to VAT as the main gap between pubs and supermarkets, which pay no VAT on most food sales.

Wetherspoon operates close to 800 pubs. It opened 8 managed sites and closed 15 during the year, and plans to open 15 to 20 more, split between managed and franchised formats, in the current financial year.

Like-for-like sales had been running at around 4% growth through the final quarter, a pace the company says has continued into the new financial year, though that has not been enough to offset the scale of the cost increases.

Debt holds below last year's guidance

Net debt came in close to £720m, below the £740m-£760m range flagged in April, which the company presented as the more reassuring part of the results. Wetherspoon has used the figure in recent years as a signal that expansion is not being funded by rising leverage.

The results land in the same week as weaker numbers from Dishoom, whose pre-tax profit also fell despite record turnover, and follow months of warnings from operators including Stonegate about the combined weight of wages, rates and energy costs on British pubs.

Wetherspoon's full standing among investors will depend on whether the current year's like-for-like growth can be sustained once comparisons turn harder in the new year. For now, the chain is betting that steady footfall and a slower pace of new cost increases will do more for the bottom line than further price rises on its menu.