Whitbread‘s (LSE:WTB) share price hasn’t made any ground in 2025. By comparison, the broader FTSE 100 index has risen 14% in value since 1 January.
For a company that’s so sensitive to the weak UK economy, that might not be considered a bad result. In fact, the hotelier and pub operators was up 9% for the year until trading commenced today (16 October).
But these gains have been largely wiped out following a cool reception to the firm’s first-half update. Might Whitbread shares now be a great option for dip buyers to consider?
Sales and profits down
Reflecting the tough landscape, the Premier Inn owner’s revenues dropped to £1.5bn in the six months to August, down 2%. Underlying pre-tax profit declined 7% to £316m.
Whitbread said it experienced “broadly flat UK total accommodation sales and positive momentum in Germany“. As with the UK division, Premier Inn Germany continued to outperform the market.
But profits were hit hard by lower food and beverage sales as the company repurposes restaurant space attached to some of its hotels for higher-margin accommodation.
Sliding price
Whitbread’s results matched forecasts, so what’s caused its share price to slide? It seems investors are fearful over how reliant performance has been on one-off events like Oasis and Taylor Swift concerts over the period. The business said the “a strong events calendar in July and August, and more favourable weather” helped the UK hotel sector return to growth in the second quarter.
Red lights are flashing that suggest the recent upturn may prove short-lived. Conditions in Germany are weaker than expected, and may remain tough as Europe’s largest economy splutters. And in the UK, consumers may tighten their pursestrings amid a weakening labour market and rising inflation.
Time to buy Whitbread?
I think an argument could be made that the market has overreacted to today’s interims.
Broader industry conditions indeed remain tough. However, Whitbread has a knack of outperforming the broader competition. In the first half, its rooms generated £6.10 more on average than those offered up by other mid-market and economy operators.
Furthermore, Premier Inn’s focus on the value end of the market means it’s better placed to weather the challenging landscape. News that forward bookings in Britain and Germany are ahead of last year feeds into this viewpoint.
Yet the outlook remains highly uncertain for the reasons I’ve already described. Tough conditions may be prolonged and could scupper the gains it’s hoping to achieve by restructuring its estate. At the same time operating costs remain significant.
Even after today’s fall, Whitbread shares trade on a forward price-to-earnings (P/E) ratio of 14.8 times. That’s higher than the broader FTSE 100‘s reading of around 12.5 times, and one I feel may still not properly reflect the risks it faces.
Long-term investors may want to consider Whitbread shares for the company’s transformation strategy. But I’m personally not tempted to buy the hotelier at current prices.
