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LONDON (Alliance News) - JD Wetherspoon PLC Friday reported a drop in pretax profit in its recently-ended financial year, despite growth in revenue, as it took a hit to its profit margin due to higher staff and utilities costs, and as it warned about the financial pressure pubs will feel due to the soon-to-be imposed UK living wage.
The pub company reported a 2% fall in pretax profit in the year ended July 26 to GBP77.8 million from GBP79.4 million the year before, although revenue rose 7.4% to GBP1.51 billion from GBP1.41 billion.
Operating margin before exceptional items decreased to 7.4% from 8.3% which Wetherspoons said was due to lower gross margin and increases in staff costs, utilities and depreciation, which put pressure on profit.
Chairman Tim Martin said in a statement that the UK government's recently-announced introduction of the national living wage will put financial pressure on pubs, as the cost of wages increases. Wetherspoons had already increased its minimum hourly rate for staff by 5% in October last year and then by a further 8% at the end of July, before the announcement of the national living wage, which is due to be implemented next year.
"We believe there to be two main economic issues with regard to the new living/minimum wage. The first is that pub wages are about 30% of sales. Therefore a pint purchased in a pub at the national average price of about GBP3.50 will represent about 85 pence in respect of wages. In contrast, a pint bought in a supermarket, at an estimated price of GBP1, will only represent about 10 pence of supermarket wages, since their wage percentage and selling prices are both far lower those of pubs," Martin said.
"By pushing up the cost of wages by a large factor, the government is inevitably putting financial pressure on pubs, many of which have already closed. This financial pressure will be felt most strongly in areas which are less affluent, since the price differential in those areas between pubs and supermarkets is far more important to customers," Martin added.
Wetherspoons will pay a total dividend for the full year of 12.0 pence, which is flat year-on-year.
The company added that in the six weeks to September 6, like-for-like sales increased 1.4% while total sales grew 5.2%.
"As previously stated on July 15, a number of factors likely to influence our trading performance this financial year are difficult to quantify at this early stage. Positive aspects include an increase in pub numbers, a better economy and slightly lower interest rates; less favourable aspects include heightened competition from supermarkets and restaurant groups and increased staff, repairs, bar and food costs. We continue to anticipate a trading performance similar to, or slightly above, that achieved in the last financial year," Martin said.
Shares in Wetherspoons were trading up 1.2% at 728.50 pence Friday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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