The JD Wetherspoon (LSE: JDW) share price has crashed almost 14% today after the pub chain reported its first annual loss since 1984. Bluff-speaking founder Tim Martin blamed the Covid-19 lockdown. The 10pm curfew cut like-for-like sales by 15% in the first 11 weeks of the current fiscal year, with a marked slowdown towards the end of that period.
Last year’s pre-tax profit of £102m has turned into a pre-tax loss of £34m, today’s preliminary results show. Like-for-like sales fell 29.5%, with revenues down almost a third to £1.26bn. The FTSE 250 group has called time on its shareholder payouts. It didn’t pay an interim dividend in March 2020, and is not proposing a final payment, either.
Investors who piled into the JD Wetherspoon share price when the pubs reopened will need a stiff drink today. However, the stock is not a total disaster. It still trades around 20% higher than at the depths of the stock market crash. Contrarian investors will see today’s slump as a buying opportunity. This is a savvy business, that will do everything in its power to survive the pandemic. Investors can make good money from buying stocks in troubled times like these, but they must also understand the risks.
Lockdown losers
JD Wetherspoon has a fight on its hands, and there is more than the share price at stake. The company is cutting 108 jobs at its head office, plus another 450 at its six airport pubs. These are hard times, especially for the hospitality industry.
This follow yesterday’s grim news that pub and brewer Marston’s is dispensing with 2,150 furloughed staff, blaming the latest Covid restrictions and the end of job retention scheme. Last week it was the turn of Greene King, which axed up to 800 jobs and closed 79 pubs and restaurants.
Conservative Party donor Martin is furious at the government’s “ever-changing raft of ill-thought-out regulations”, which he says are “extraordinarily difficult for the public and publicans to understand and to implement”.
JD Wetherspoon share price is tempting
The curfew and introduction of table service have been particularly damaging, “depressing sales for customers who find it too much ‘faff’, at the same time as substantially increasing costs”, Martin added.
Inevitably, everything hangs on the lockdown. If the government retreats – or better still, Covid-19 retreats – today could be an excellent buying opportunity. Wetherspoons is a flexible business, but it also needs to maintain high volumes to fund its cheap beer and food business model. It has already been squeezed by an extra £29m of pandemic costs, including perished stock, protective equipment and hygiene measures.
There is another threat. Unemployment is set to rise sharply and this will hit customer spend, even if people are allowed to enjoy themselves at the pub. Maybe that will favour JD Wetherspoon, known for its cheap prices, but I suspect not. Its customers may be among those hardest hit.
The JD Wetherspoon share price is in for a tough winter. Management is likely to respond with some cunning marketing tactics, along the lines of its ‘Stay out to Help Out‘ scheme. I’m not brave enough to buy it today, but you might be.
