The JD Wetherspoon (LSE:JDW) share price was pushed higher in early trading today (23 July), after investors appeared impressed with the pub group’s pre-close trading update. Within the first hour of trading, the shares were up 3.5%.
I think it’s fair to say that, sometimes, the group’s stock exchange announcements can be a little gloomy. But this morning’s was more upbeat. Compared to the same period a year ago, like-for-like sales during the 12 weeks to 20 July were 5.1% higher. Year-to-date, they were also up 5.1%. The announcement even contained a pun: “Chicken, also, has put in a clucking good performance…”.
Otherwise, there were very few numbers for investors to digest. Although importantly, the group says its full-year profit’s likely to be in line with market expectations.
A tough industry
At the moment, it’s difficult being in the pubs business. Like most in the sector, the group employs a large number of part-time and lower-paid staff. It’s estimated that the Chancellor’s tax and minimum wage changes will cost the group around £60m in extra labour costs each year.
And ‘Spoons has long argued that it’s unfair that pubs have to charge 20% VAT on everything they sell, yet supermarkets pay no tax on food. It claims they use this advantage to discount the price at which they sell alcohol. Wetherspoons would like to see a VAT rate of 12.5% for the hospitality sector. To highlight the campaign, the group holds an annual Tax Equality Day (this year, it’s on 18 September) when it cuts its prices by 7.5%.
But despite these challenges, the group’s successfully squeezing more from each of its premises. In FY24, revenue per pub was approximately 23% higher than just before the pandemic. But due to supply-chain inflation, earnings per share have yet to return to their pre-Covid levels.
| Financial year | Pubs | Sales (£m) | Adjusted earnings per share (pence) | Free cash flow (£m) |
|---|---|---|---|---|
| 2015 | 951 | 1,514 | 47.0 | 110 |
| 2016 | 926 | 1,595 | 48.3 | 90 |
| 2017 | 895 | 1,660 | 69.2 | 108 |
| 2018 | 883 | 1,694 | 79.2 | 93 |
| 2019 | 879 | 1,819 | 75.5 | 97 |
| 2020 | 872 | 1,262 | (35.5) | (59) |
| 2021 | 861 | 773 | (119.2) | (83) |
| 2022 | 852 | 1,740 | (19.6) | 22 |
| 2023 | 825 | 1,295 | 26.4 | 271 |
| 2024 | 800 | 2,036 | 46.8 | 33 |
In 2024, 412 pubs closed their doors in England and Wales, bringing the total number still operating below 39,000 for the first time. Rising costs, more drinking at home and less alcohol consumption in general are blamed.
A reasonable valuation
But the group’s recent share price performance doesn’t appear to reflect this. Since July 2024, it’s increased 8%. And it’s nearly doubled since its five-year low of September 2022.
The stock’s currently changing hands for a reasonable 16.5 times its forecast earnings for FY25. Looking ahead to FY27, its multiple falls to a very attractive 12.7.
Having said that, the average 12-month share price target of analysts is pretty much the same as where the group’s share price is currently at.
My view
Despite the challenges facing the industry, JD Wetherspoon appears to be bucking the trend.
Its revenue and earnings are growing in a market where many are struggling. As more of its rivals close, ‘Spoons is likely to benefit. The food and drink it sells is competitively priced and consumers seem to enjoy visiting its pubs where, due to the absence of music, they can hear what one another’s saying.
In my opinion, this morning’s update confirms that the business is going in the right direction. On this basis, I think it’s a stock that investors could consider adding to their portfolios.
