JD Wetherspoon shares sink 9% on fourth profit warning in seven months

JD Wetherspoon shares tumbled 9% after the pub chain warned full-year profits will miss market expectations, its fourth profit warning in seven months.

"Profits for the year are likely to be below market expectations, with marginally lower sales than anticipated in the final quarter, combined with higher costs in the areas of food, labour, repairs, energy and business rates," Chairman Tim Martin said.

Like-for-like sales rose 4% in the 12 weeks to July 19, taking year-to-date growth to 4.2%. That was ahead of the 3.4% growth reported at the third-quarter update in May, though the year-to-date figure eased from 4.3%. The company ended the year with 793 managed pubs after opening eight and selling nine, while its franchised estate expanded to 23 sites.

Net debt is expected at about £720 million, an improvement from the £740 million to £760 million range previously forecast and broadly in line with last year's level. The company repurchased 6.4 million shares at an average price of £6.52 during the year and bought the freehold reversions of four pubs for £12.2 million.

The warning shows the pressure on Wetherspoon's value-led pricing model as input costs rise across the hospitality sector. The shares traded at 680 pence in early trading, their lowest level since the start of the year and down about 7% year to date. Preliminary results are due Oct. 2.

Greg Johnson, an analyst at Shore Capital, said the World Cup may have contributed to third-quarter like-for-like sales coming in slightly below expectations. "Compared to peers, we continue to be surprised by management's comments on costs, which suggest an inability to pass on cost inflation through its value-led pricing model," he wrote. "Either way, it is a headache for investors."

Wetherspoon's £70 million pre-tax profit target was already well below last year's £80 million. Rival pub chains including Fuller's and Young's reported a surge in takings from the World Cup, but Wetherspoon's less sports-focused venues saw a smaller benefit, Duncan Ferris, an analyst at Freetrade, said.

Martin has long called for reform to business rates and a cut to value-added tax, arguing that pubs face a higher tax burden than supermarkets. The April increase in business rates, following changes in last year's Autumn Budget, added to the cost pressures facing the sector.

The profit warning from one of the UK's largest pub operators could weigh on other hospitality stocks, including Mitchells & Butlers and Greene King, as investors reassess margin expectations across the sector. The repeated warnings show that cost inflation in food, energy and wages continues to pressure profitability despite resilient sales growth. Investors will watch the Oct. 2 preliminary results for any update on cost trends and dividend policy.

This article is for informational purposes only and does not constitute investment advice.