After the first hour of trading today (3 October), the JD Wetherspoon (LSE:JDW) share price was down around 4% after the pub chain published its preliminary results for the 52 weeks ended 27 July (FY25).
Existing shareholders are likely to be disappointed by this reaction given that the group announced a 4.5% increase in its reported earnings per share (EPS), compared to FY24. And its boss isn’t happy either.
What did he say?
Commenting on the results, Tim Martin pointed out that they would have been a lot better if it hadn’t been for the April increase in employer’s National Insurance. He estimates the cost to be £60m.
He then explains that there’s been a £7m hit from subsidies for the renewable energy industry that have been passed on to electricity users.
Next, he complains about the extended producer responsibility tax, which is a levy on packaging to cover the costs of recycling. The hit to the group’s bottom line in FY25 was £2.4m.
Finally, he points out the tax advantages that supermarkets enjoy. They don’t have to charge VAT on food whereas pubs do.
Martin says the group and its customers contributed £838m in taxes during the financial year. This is equivalent to around 1% of the government’s total revenue. If there were 1,000 companies like JD Wetherspoon, nobody else would have to pay any tax.
A healthy top line but…
However, from a revenue perspective, the business appears to be doing okay. Like-for-like sales (LFL) in FY25 were 5.1% higher than in FY24. Indeed, when the numbers are finalised in November, Martin says he expects a “reasonable outcome” for FY25. And this trend appears to be continuing. During the nine weeks to 28 September, LFL sales were 3.2% higher. For 36 consecutive months, the group’s outperformed the hospitality industry’s most popular tracker.
But for the reasons outlined earlier, group earnings aren’t growing as quickly as its sales. On a statutory basis, earnings per share (EPS) increased 4.5%. But this was helped by a share buyback programme that’s led to an 8.6% reduction (year-on-year) in the number of shares in issue.
| Measure | FY24 | FY25 | Change (%) |
|---|---|---|---|
| Underlying earnings (£m) | 58,503 | 58,517 | +0.3 |
| Average number of shares in issue (m) | 125,029 | 119,775 | -4.2 |
| Earnings per share (pence) | 46.8 | 48.9 | +4.5 |
With various one-off items removed, EPS increased by 48.1% to 60p. Therefore, the group’s shares currently trade on a modest 10.7 times adjusted FY25 earnings. It’s a matter of personal preference whether statutory (reported) or adjusted figures are used when evaluating companies. Based on today’s reaction, investors appear to be focusing on the unadjusted numbers.
Final thoughts
I always enjoy reading Martin’s comments. Sometimes, it’s almost as if he’s looking for reasons not to invest in the group! But I remain a fan of ‘Spoons’. With its emphasis on soft drinks and food, it appears to be well positioned to buck the apparent generational trend away from drinking alcohol. Indeed, many of its competitors are loss-making and the number of pubs in the country is in long-term decline. As these disappear, it’s likely to benefit.
However, I don’t want to invest. Industry conditions are becoming increasingly difficult and — despite its financial firepower — even JD Wetherspoon can’t grow when costs are rising so quickly. Since the last full-year before the pandemic, sales per pub are up 29% but energy costs have risen 57.8% and wages are 34.5% higher.
On this basis, the stock’s not for me.
