JD Wetherspoon reveals profit blow amid surging costs by £45 million - see expert reaction
Pub group JD Wetherspoon has warned over a hit to its profits after revealing costs surged by £45 million in its first half with experts saying it must 'walk a tightrope'
The chain, which runs several pubs across the West Midlands and around 800 bars across the UK, said it was being hit by higher-than-expected costs in the first 25 weeks of its financial year, including rising bills for wages and business rates.
It said profits in the first half were "likely to be lower" year on year, with the annual trading result also set to come in "slightly" below the previous year if sales continued on the same path.
The alert comes despite a pick up in like-for-like sales growth over the festive quarter, to 6.1 per cent in the 12 weeks to January 18, up from 4.7 per cent in the previous three months.Over the key Christmas period, comparable sales jumped 8.8 per cent in the three weeks to January 4.
JD Wetherspoon runs well-known pubs across Shropshire and the Black Country including Montgomery's Tower in Shrewsbury, The William Withering in Wellington, The Full Moon in Dudley and The Royal Tiger in Wednesfield.
Its Hippodrome venue, in Market Drayton north Shropshire, was hit by a fire after Christmas but was back trading again two days later while in Wolverhampton it has been planning to convert space above its Moon Under the Water pub into a 96-bedroom hotel.
Founder and chairman Sir Tim Martin said: "Costs have been higher than anticipated, with energy, wages, repairs and business rates increasing by £45 million in the first 25 weeks.
"Profits in the first half are likely to be lower than the comparable period in the previous financial year. If the current sales momentum continues, the company currently anticipates a full year trading outcome slightly below that achieved in 2024/25."
It comes amid hopes in the pub sector of an imminent support package from the Government to help lessen the blow from rising business rates.
Pubs are broadly set to face increases to their business rates payments due to higher property valuations in tax calculation following the autumn Budget.
The Labour Government is now expected to announce more financial support measures for the industry following criticism over the upcoming increase in rates.
'There's the potential for some respite'
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “JD Wetherspoon’s cautious tone as it entered the festive trading season looks to have been misplaced.
“Revellers were out in force over the key Christmas period where like-for-like sales were up by 8.8 per cent.
“That drove an acceleration in growth to 6.1 per cent for the second quarter as whole.
“But a cocktail of rising expenses including increased wages and business rates have led to £45 million of additional costs in the first half.
“If sales momentum remains unchanged, management now expects a small dip in trading performance this year.
“It’s not entirely clear which line in the income statement weaker trading performance refers to.
“Despite consensus forecasts for operating profit already looking for a small fall, today’s share price reaction suggests investors were hoping for better.
“There’s the potential for some respite if rumours of a U-turn on the business rate changes for the sector materialise.
“Looking further ahead, the pub chain’s still confident enough to invest in a modest expansion with 15 pubs expected to open this financial year.
“There’s also at least 26 franchised units expected to be serving by the year-end including the first Spanish ‘Spoons’ at Alicante airport, an ideal pitstop for holidaymakers en-route to Benidorm.
“It’s a small step for now, but perhaps a sign that the incessant rise in costs for the UK hospitality industry is prompting boardrooms to consider deploying capital elsewhere.”
'Wetherspoon must walk a tightrope'
Dan Coatsworth, head of markets at AJ Bell, said: “Value has always been a key part of Wetherspoon’s appeal, and the business has always had a focus on volumes rather than margins.
“While this has been a successful approach over the long term it does leave the company exposed when costs go up.
“Despite robust sales growth over Christmas, the company warns profit will be lower in 2026 than in 2025.
“As a large-scale employer of people on relatively lower wages, Wetherspoon is exposed to increases in the national living wage and employer national insurance contributions.
“Maintenance and energy costs continue to tick higher.
“While Wetherspoon can probably pass some extra costs to customers, it must walk a tightrope as it looks to keep prices keen enough to keep its clientele coming through the doors.
“Wetherspoon is looking to expand after a period of retrenchment, but investors will be keeping a close eye on the debt pile – which has nudged higher – to see if this has any impact on its roll-out plans.”
