Wetherspoon shares tumble as market braces for profit warning storm from UK plc

Sir Tim Martin, chairman of the chain, which runs around 800 pubs across the UK and Ireland, including the likes of the Caley Picture House in Edinburgh and Dunfermline’s Guildhall & Linen Exchange, said these cost increases “may result in profits that are slightly below” market expectations.

He said the business is facing £60 million in extra costs each year due to increases in national insurance contributions and wages. Wetherspoons is also facing an extra £7m in energy costs and £2.4m of costs from the extended producer responsibility packaging tax.

“These cost increases will undoubtedly add to underlying inflation in the UK economy although Wetherspoon, as always, will endeavour to keep price increases to a minimum,” Martin added.

Shares slid about 12 per cent in Friday morning trading.

Chris Beauchamp, chief market analyst UK at investing and trading platform IG, noted: “The Bank of England might have tried to establish some limited optimism [on Thursday], but things are already going south very rapidly, and that’s before the first inflation readings come through. Spoons is unlikely to be the only profit warning coming down the line from UK plc.”

Wetherspoons reported that profits slumped by almost a third over the past half-year. Pre-tax profits slid by 31.9 per cent to £22.4m for the 26 weeks to January 25.

It said this was particularly linked to higher wage costs, as well as £10m of repairs and £9m in business rates costs.

However, revenues grew by 5.7 per cent to £1.09 billion for the half-year, compared with a year earlier, with like-for-like sales up 4.8 per cent.

The group said that, more recently, like-for-like sales grew 2.6 per cent over the seven weeks to March 15. It also revealed that it opened six venues over the past half-year but shut or sold off six.

The hospitality giant is expecting to have opened around 15 managed pubs by the end of the current financial year.

Russ Mould, investment director at AJ Bell, said: “Wetherspoons hedges energy costs, which provides some insulation from the current price volatility in oil and gas, but it is unlikely to be entirely spared from the knock-on effects on suppliers and on consumer confidence.

“The management team are in a tricky spot - increase prices by too much and they undermine their value credentials and potentially alienate a portion of their customer base. They may take the view that absorbing some pain in the short term is a price worth paying to protect the brand.

“An outlook which is effectively a mild profit warning suggests that may be the approach which Wetherspoons takes.

“However, the backdrop remains unpredictable, and it is hard to say just how much it can shield its patrons from price increases, particularly as it needs to take account of a large debt pile.”

The secret of JD Wetherspoon's success: Let's raise a glass to the great British institution that is Spoons