Shares in JD Wetherspoon (LSE:JDW) fell after the company’s full-year results last week. But the FTSE 250 firm’s still showing why it’s the gold standard in the hospitality industry.
It’s easy to see why the latest update was disappointing, but I think there’s a lot to like about the business from a long-term perspective. So I see the falling share price as my chance to buy.
Sales growth
In the nine weeks leading up to 27 July, JD Wetherspoon’s sales grew 5.1% on a like-for-like basis. That’s in line with the rest of the year, but it’s below the 7.6% the firm achieved in 2024.
Obviously, that’s a step in the wrong direction, but it’s worth putting that result in context. Things have been difficult in the hospitality industry recently and the firm has outperformed its rivals.
According to the CGA RSM Hospitality Business Tracker, like-for-like sales growth across the pub sector has been barely above 1% between May and July. Compared with that, 5.1% is outstanding.
JD Wetherspoon’s commitment to low prices is proving popular with customers and I expect that to continue. But the firm’s real strength is in how it maintains this in the face of rising costs.
Margins
Despite higher staff costs since April, JD Wetherspoon’s operating margins were 6.9%. That’s in line with 2024 and the (joint) highest since the Covid-19 pandemic.
A big part of this is the way the firm’s managed its borrowings. While the company’s net debt increased during the 2025 fiscal year, restructuring reduced its cost of debt from 7.05% to 6.57%.
As a result, JD Wetherspoon saved around £18m in interest. And that’s a big reason the business was able to hold down prices while still generating higher profits.
Continued investments in freeholds also help reduce lease liabilities and reinforce the company’s competitive position. That’s a big part of why I’m looking to keep buying the stock.
Risks
CEO Tim Martin flagged the potential for higher energy costs as the main risk to the company’s ability to generate good returns in the next 12 months. And investors should take this seriously.
On the face of it, relatively narrow margins mean JD Wetherspoon is in a worse position than its rivals when it comes to dealing with higher costs. I think however, this is a mistake.
For one thing, the company’s prices are so far below its competitors that it probably has scope to pass on higher costs without compromising its position. But that’s not the only reason. If the firm holds down prices by cutting costs elsewhere in its business, I think this is likely to generate even higher sales growth. And greater volume should help offset the pressure on margins.
I’m a buyer
The hospitality industry as a whole is under pressure from rising costs. But JD Wetherspoon has outperformed its rivals by some margin recently and I don’t believe this is an accident.
I think the FTSE 250 firm’s strategy can generate above-average sales growth for some time. That’s why I’m seeing the recent drop in the share price as an opportunity to add to my investment.
