PUBS group JD Wetherspoon said it continued to grow festive sales despite December’s heavy snowfall, but warned of a “testing” year ahead.
Pubs and restaurants are braced for a tough 2011 as tax rises and inflation meet weak consumer confidence.
“There are clear indications of increases in the cost of supplies across a wide range of goods, including food and bar purchases, as well as utilities and excise duties,” said the group.
Wetherspoon, the first of the UK’s big pubs groups to report on Christmas trading, said like-for-like sales in the 12 weeks to January 16 increased by three per cent.
The group said December’s heavy snowfall had a “strongly adverse effect”. But the overall effect on its numbers during the period was minimal because the country was also hit by blizzards a year earlier.
“We’re certainly not in a position to complain about the snow,” said chief executive John Hutson. “We had snow on the ground before Christmas which obviously was a bit of a drag on pubs but after Christmas we’ve had fairly mild weather.
“Maybe one of the reasons (for sales growth) is we are in the main in towns and cities and therefore if buses and trains are running they (customers) have a bit more chance to get to our pubs than an out-of-town pub with a car park.”
Wetherspoon added to its estate of almost 800 pubs during the period and yesterday reiterated plans to add 50 pubs a year for the next five years.
“Sales, profit and cashflow continue to be resilient and the performance of our recently-opened pubs remains encouraging,” said chairman and founder Tim Martin, who established the business in 1979 with a single pub.
Mr Hutson, who yesterday sold 9,000 of his shares in the company for about £42,000, said Wetherspoon has as yet seen little impact from the recent VAT sales tax rise, from 17.5 per cent to 20 per cent.
“It’s very early days,” he said. “Until last week we were running a bit of a January sale.”
The increase has added about 5-6p to a pint of beer at its pubs, said Mr Hutson, who is wary of further tax increases.
“We’ve just passed on the VAT increase,” he said. “In March we’ve got another duty increase. That’s going to be another big hit for the pub industry.”
“All these tax increases which the pub companies have to try and pass on to the customer are there hitting customers at the same time as tax increases are hitting customers the other way.
“What that means is that we expect the remainder of this financial year to be fairly testing.”
The beer and pub industry has been lobbying Government for a freeze on duty, instead of the planned increase of two per cent on top of inflation.
Mr Hutson said the impact of more people drinking at home will mean lower VAT receipts for the Government. This could lead to more pub closures, he added, increasing unemployment.
The British Beer & Pub Association estimates 40 pubs a week are closing,
“We don’t expect the Government to reduce duty. We’re not naive,” he said. “But we do think the Government could help the industry by not adding any more duty and letting the industry catch their breath.”
The group added higher interest charges following its refinancing last March will hit profits this year. But Wetherspoon insisted despite mounting challenges posed by the economy, it can continue to grow.
“In spite of these effects of a harsher economic climate, the company is confident of a reasonable outcome for the year as a whole, helped by investment in new and existing pubs,” it said.
Since August the group opened 12 pubs and closed two. Of these, two were in central Sheffield and one in Otley. It also plans to open a pub in Pudsey in March. “Yorkshire is definitely an area where we’re continuing to expand,” said Mr Hutson.
Shares in the group rose 5.2 per cent to 464.7p yesterday.
“We believe that JD Wetherspoon remains one of the lowest rated stocks in the pub sector – with a conservative balance sheet and strong cash flow able to support an attractive investment story with the group having ambitions to increase its estate b y a third over the five years to 2014,” said analysts at Shore Capital, issuing a buy recommendation.
“The group has delivered generally solid sales growth against the backdrop of a harsh economy and adverse weather,” said Ed Woolfitt, head of trading at Galvan Research. “With plans for 50 new outlets this year and confidence expressed in a ‘reasonable’ outcome for the full year, we believe there is every reason to snap up the shares.”
However, Nigel Parson, at Evolution Securities stockbrokers, warned Wetherspoon’s sales trend is “unsustainable”.
“The stock has gently underperformed since April 2009 and is not expensive but there’s nothing here to turn more positive,” he said.