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Wetherspoon shares fall 4% as it warns on rising staff costs

Discussion in 'Market News' started by Lily, Nov 4, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Company’s margins come under pressure despite Rugby World Cup boost

    JD Wetherspoon has warned that increased staff costs were likely to lead to a fall in its full year profits compared to last year.

    Tim Martin, the outspoken chairman of the 900-strong pubs group, said in its first quarter trading update:

    As we indicated in September it is difficult to quantify exactly the factors which will influence our trading performance in the early stages of a financial year.

    Increased labour costs are clearly an important factor for all pub and restaurant companies and may result in our annual profits being slightly lower that the last financial year.

    Wetherspoon released a weak first quarter trading update, with the only silver lining being an improved like for like trading number, if only from the contribution from the Rugby World Cup. Operating margins declined to 6.2% in the first quarter, a 150 basis point decline from the same period in 2015, as a result of higher wage costs.

    Many will be caught by surprise by the [margin] decline .... The direction may have been expected, but the quantum of the decline will surprise many, especially given the 7.4% margin at the full year 2015 results and no indication from management of this level of margin weakness. There will be more pain to come in April with further wage increases (albeit smaller ones) and, with the ever- increasing competitive market backdrop, there is more downside risk to numbers

    Over the next five years, Enterprise management will be embarking upon one of the most ambitious corporate repositioning strategies we have seen in the pub sector over the past two decades, moving from one to three different business units. The plan is not without execution risk.

    However, we believe that the estate will be of better quality after the restructuring and that shareholders’ interests will be significantly enhanced by the clearer understanding of where value lies within the portfolio. We have moved away from an net asset value-based target price to one based on a sum-of-the-pubs analysis, which is more representative of the new group structure.

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