Investing.com -- JD Wetherspoon (LON:JDW) on Friday reported higher revenue for the first half of its financial year, but rising costs, particularly in wages and utilities, weighed on profitability.
While revenue rose to £1.03 billion from £991 million the previous year and like-for-like sales increased by 4.8%, operating profit before separately disclosed items slipped to £64.8 million from £67.7 million.
The UK-based pub operator warned that what chairman Tim Martin described as “increases in national insurance and labour rates” that will add “approximately £1,500 per pub, per week” in costs, further pressuring margins.
Additionally, Wetherspoon has flagged an extra £60 million in annual costs due to the UK Budget, effective April 2025.
Jefferies analysts noted, “JD Wetherspoon has re-flagged the additional annual £60m cost due to the UK Budget (effective from 1 April 2025). We anticipate mitigation from increased pricing.”
Profit before tax, excluding separately disclosed items, stood at £32.9 million, down from £36.0 million last year, falling short of market expectations.
Jefferies flagged that profit before tax declined 8.6%, underperforming consensus estimates, stating, “current LFL sales sit in line with the 1H25 performance (c+5%), with 1H profitability c15% behind 1H25 (limited) consensus PBT.”
However, after accounting for one-off gains, including a £11.1 million movement in the value of interest rate swaps, pre-tax profit rose to £41.3 million from £26.1 million.
Earnings per share, before separately disclosed items, increased to 21.5p from 20.3p, aided by share buybacks, while after those items, earnings per share rose to 27.8p from 15.2p.
Wetherspoon reinstated its half-year dividend at 4p per share after withholding payouts last year.
The company, which operates more than 800 pubs across the UK also continued its expansion, opening its first franchised pub at Hull University’s student union in January, following two earlier franchise openings. Five more are expected in the second half of the year.
Capital investment reached £64.6 million, spread across new pub openings, refurbishments, and IT improvements.
Free cash flow showed an outflow of £0.5 million, attributed to increased reinvestment in existing pubs, higher tax payments, and share purchases for employees.
Net debt, excluding lease liabilities, stood at £703.5 million at the end of the period, slightly up from £694.2 million a year earlier.
The company said like-for-like sales in the seven weeks to March 16 were up 5.0%, but reiterated concerns about the tax disparity.
Slot machine sales rose 12.4%, outpacing bar and food sales growth of 4.3% and 5.4%, reflecting strong engagement in non-core revenue streams.’
Chairman Tim Martin argued that this structural imbalance continues to put pressure on the hospitality sector, making it harder for pubs to compete.
Despite resilient customer demand, Wetherspoon remains cautious about the full-year outlook.
Jefferies analysts believe Wetherspoon’s lower price position gives it some resilience against wage inflation, stating, “with a low price position relative to other operators, and increased wages affecting the whole industry, we argue that Wetherspoon’s is relatively better-placed to absorb the wage inflation.” However, analysts still expect margin pressures to persist in the near term.