JD Wetherspoon feels the burn
Pub operator, JD Wetherspoon has seen ten per cent of its market cap go up in smoke after posting considerably lower pre-tax profits for the first half and reiterating a cautious outlook for the second half.
The Watford-based group's results go against the idea that smoking is bad for one's health, as its sales continue to decline following the introduction of the smoking ban last July. The group, which operates more than 660 managed pubs across the UK, announced a 13 per cent decline in pre-tax profits for the 26 weeks to January, dropping to £28.5m from £32.8m for the same period last year. It said that the introduction of the smoking ban in England, Wales and Northern Ireland last year led to a fall in bar sales but strong growth in food sales, and that although total sales increased by 0.4 per cent during the period to £440.2m, like for-like-sales saw a 2 per cent decline. "The half year to January 2008 was a challenging period for the company, and for the pub trade generally, since it followed smoking bans in the second half of the last financial year," said chairman and founder, Tim Martin. "As anticipated, the introduction of the bans resulted in a strong growth in food sales but a decline in bar sales, which put pressure on margins and profits." The company, which is supposedly named for a teacher of Martin's who said that he'd never amount to anything, has reiterated its belief that the smoking ban is to the long term advantage of the licenced trade, but said that the outlook for the second half of the year remains cautious. "In February, we continued to generate strong growth in food sales combined with a decline in bar sales," continued Martin. "We expect second half sales trends to be broadly similar to those of the second quarter, to experience some cost pressures, and therefore have a slightly more cautious outlook for the second half of this financial year. "Bar sales are likely to recover as customers adjust to the new regime, although the exact timing of this is still uncertain." In the meantime, shares in the company have continued on a precipitous decline, dropping 29p, or ten per cent to 282p, giving it a market cap of £396m. On reporting its first half results in 2007, before the introduction of the anti-smoking legislature, Wetherspoon's shares stood at 668p.