Pubs chain JD Wetherspoon reported a “disappointing” downturn in sales over the past six weeks and blamed a harsh tax regime for a cutback in its expansion plans.
The group said the tough tax laws have made trading conditions much harder and it is cautious about prospects for the second half after like-for-like sales fell by 0.7 per cent in the six weeks to March 4.
Chairman Tim Martin, who founded Wetherspoons with the opening of a single pub in 1979, said the last six weeks have seen a slowdown across pubs, restaurants and shops.
“It’s down to people’s perception of the economy,” he said. “They remember what happened to the banks, they have been reading about problems with the economy and they’re feeling insecure about broader economic trends.”
Asked whether he expects to see a pick-up in the summer brought about by the Diamond Jubilee and the London Olympics, he said: “We’re hopeful of a pick-up, but it’s partly dependent on what happens with the euro.”
Mr Martin believes the euro “is bound to collapse” and the uncertainty over its future is weakening the economy.
But he doesn’t believe the economy will fail if the euro fails.
“The overall economy has survived world wars, civil wars, famine and depression, it will go on,” he said.
The company, which has around 50 pubs in Yorkshire, said it will cut new openings to 40 pubs this year from a target of 50 previously and it will review its longer-term plans for expansion over the next few months.
Mr Martin said the group’s Yorkshire pubs have held up despite the downturn.
“We’re doing well in Yorkshire, in both city centres such as Leeds, Sheffield and York, and in smaller towns such as Dewsbury and Brighouse. We’ve seen a good performance across Yorkshire, in both cities and towns.”
Mr Martin said the company is re-evaluating its strategy in the wake of increases to excise duty, business rates and carbon tax.
He did not rule out the prospect of the pubs firm scrapping expansion plans altogether.
“Anything’s possible. We will probably cut back significantly if the tax keeps on rising,” he said.
UK pubs pay the second-highest rate of excise duty in Europe.
Under the duty escalator, which was introduced by the last Labour Government in 2008, taxes on alcohol must rise by a minimum of two per cent above inflation each year.
Analysts said Wetherspoons could use the cash saved from opening fewer pubs to buy back shares.
“If the excise duty rises again, Wetherspoons may cut its expansion rate further, but downside from this would be limited by greater capacity to buy back shares,” said Numis analyst Wyn Ellis.
Wetherspoons has traditionally been known for its value-for-money focus, with offers such as a beer and burger for under £5 proving popular with cash-strapped customers.
But rising costs have led the company to increase prices on both food and drink and some of the company’s value-conscious customers are opting to take advantage of cheap supermarket offers on alcohol and drink at home instead.
“They don’t like price rises from us or anyone else in the pub trade,” said Mr Martin.
Wetherspoons reported an 11.1 per cent increase in pre-tax profits to £35.8m in the six months to January 22.
The consensus forecast for Wetherspoons’ full year pre-tax profits stands at £68.6m, but Mr Martin said Wetherspoons could struggle to achieve that.
“There’s always a danger with five months to go. Sales this calendar year have been slow and costs have been high so it’s not the ideal start,” he said.