JD Wetherspoon has returned to profitability for the first time since the start of the pandemic three years ago but its shares finished yesterday's trading more than 6% lower amid concerns that its sales growth is slowing.
Like-for-like sales during the 12 months to the end of July rose by 12.7% and total sales by 10.6% to £1.92 billion. Growth continued during the nine weeks to October 1 but eased to just shy of 10%.
"We retain our concerns over long-term compression in margins given changing sales mix exacerbated by inflationary environment which limits the recovery potential," analysts at Libeirum said.
A 16.7% increase in food sales was a major factor behind the rise in revenue, while bar sales were up 9%.
READ MORE: Wetherspoons back in profit as popular Glasgow pub re-opens
Set up in 1984 by chairman Tim Martin, Wetherspoons runs more than 820 pubs across the UK and Ireland including the Sir John Moore in Glasgow's Argyle Street. The venue officially re-opened yesterday after being closed for two months as part of a £1.4m overhaul and expansion.
The group posted a pre-tax profit of £42.6m for the year versus a loss of £30m in the previous 12 months. In its last full year prior to the pandemic it made a pre-tax profit of £102m.
The company's operating margin was 5.6%, an improvement on the "wafer-thin" 1.5% the previous year. However, chief executive John Hutson remained cautious about the coming months.
“While sales may have returned to something resembling normality, the pressure on margin and profit remains evident,” he said.
“Wetherspoon’s has been able to pass on some of the inflationary costs without diminishing its appeal, but equally, it will be mindful that this particular strategy needs to be reined in where possible in order to maintain its no-nonsense and no-frills value offering.”
READ MORE: Wetherspoon denies pub sales are 'money-raising' exercise
The hospitality sector has been under tremendous pressure since the Covid pandemic which forced restaurants, bars, and other public venues into temporary hibernation for weeks at a time. Once health restrictions started to ease the industry came under an inflationary assault as energy, food and wage costs shot through the roof.
In a bid to regain control of inflation the Bank of England raised interest rates for 14 consecutive months, from 0.1% in December 2021 to 5.25% currently. There are concerns that this could push the UK economy into a recession, with BoE Deputy Governor Ben Broadbent noting earlier this week that there are clear signs of an economic slowdown.
Shares in Wetherspoons closed yesterday's trading 44.5p lower at 652p, a decline of 6.4%.
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