JD Wetherspoon: are rising sales enough to offset higher costs for the FTSE 250 pub chain?

The UK’s low-cost pub chain is still Stephen Wright’s top FTSE 250 stock to buy, even with the prospect of higher costs on the way.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Group of young friends toasting each other with beers in a pub

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

This morning (22 January), FTSE 250 pub chain JD Wetherspoon (LSE:JDW) issued a trading update for the 12 weeks up to 19 January. And the stock’s down slightly in response.

Created with Highcharts 11.4.3J D Wetherspoon Plc PriceZoom1M3M6MYTD1Y5Y10YALL22 Jan 202022 Jan 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520212021202220222023202320242024www.fool.co.uk

Overall, the report was mixed, with like-for-like sales up 4.6%. But the real focus for investors at the moment is on the company’s ability to manage its costs.

Sales

The latest update from JD Wetherspoon follows a few other reports from pub chains over the last couple of weeks. These include Mitchells & Butlers (MAB) and Fuller, Smith & Turner.

Should you invest £1,000 in Airbnb right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Airbnb made the list?

See the 6 stocks

Like-for-like sales increased 3.9% at MAB and 5.9% at Fuller’s. So the Wetherspoon’s update is roughly in the middle of the field. 

In the context of inflation levels at around 3.5%, those results are steadier than spectacular. But the real focus for investors is on the company’s ability to control/offset higher staffing costs.

After the government Budget, chairman Tim Martin estimated that the impact of higher National Living Wage and Employers’ National Insurance would be around £60m. And that’s a lot for this business to swallow.

Higher costs

Investors might be worried that Wetherspoon’s low customer prices limit its ability to offset higher staff costs. But that’s not the approach the Martin took in his comments. 

Instead, he chose to focus on the impact on the pub sector as a whole compared to supermarkets. With higher staffing expenses, hospitality venues stand to see a bigger impact from increased costs. 

To me, this shows two things. The first is the firm doesn’t have much to worry about in terms of competition from other pub chains – if prices go up across the industry, it will still be below its rivals.

The other is that, while Wetherspoon’s might have lower costs than other pubs, it’s at a disadvantage compared to supermarkets. And that’s a much bigger risk for investors to be aware of. 

Outlook

Wetherspoon’s hasn’t offered guidance for profitability over the full year. It’s going to wait and see how the impact of higher costs manifests itself – but beyond this, I see reasons for optimism. 

I think offering better value than competitors is likely to have a durable appeal with customers. And the company’s ability to do this is well-protected, giving it a strong competitive position.

Investors however can’t overlook the fact that Wetherspoon’s operates in a discretionary sector. The tax disadvantage compared to supermarkets is a long-term challenge for the business.

In my view though, the pressure on the industry as a whole might well mean that stronger operators get stronger as weaker competitors come under pressure. And that could be good for the firm.

I’m a buyer

The challenge of higher staffing costs does bring with it a positive. A higher National Living Wage might mean people have more money to spend – and this could be positive for the company.

Martin’s update wasn’t particularly optimistic – but then again, it almost never is. I think JD Wetherspoon’s a durable business and I’m looking to add to my investment at today’s prices.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in J D Wetherspoon Plc. The Motley Fool UK has recommended Fuller, Smith & Turner P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »