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January, with its abstinent associations, has never been a glass-half-full kind of month for publicans. This year, tax uncertainties add to the gloom. And it is landing particularly hard on JD Wetherspoon, whose cheap and cheerful positioning once made for a standout stock but now leaves it looking exposed.
Shares in the pub chain lost 9 per cent of their value last week after founder and chair Sir Tim Martin said profit would fall slightly in the fiscal year ending in June. Energy prices, wages, repairs and business rates play a part. But shares in rival Young & Co jumped on Thursday as the premium pub operator reported holiday season sales up 11 per cent — a shade better than at Wetherspoons — and said industry headwinds were manageable. Young’s shares were helped, too, by its plan to move up to London’s main board from its junior market.
Wetherspoons has seen highs and lows. Its bars are a mainstay of many UK towns, helped by its reputation for low-priced drink and food. Unencumbered by the heavy debts that weighed on many rivals, its annualised 14 per cent total return to shareholders in the 15 years up to the pandemic soared above rivals. On the same basis Young’s, its closest listed peer, returned 9 per cent a year. But since January 2020, Wetherspoons shareholders have fared worse than those of Young’s, Mitchells & Butlers, Marston’s and the FTSE 250.
The pub equivalent of piling high and selling cheap leaves little cushioning when costs rise. Operating profit for Wetherspoons, whose 800-odd pubs are dotted across the British Isles, hovers around 7 per cent of revenue. Young’s, with an estate focused in London and the more affluent English south, manages 15 per cent. The former has hiked beer prices in the past six years by half the rate of its peers, say Peel Hunt analysts, and its prices are now roughly a third below. Customers may be appreciative but will also notice if prices rise.
Sir Tim regularly uses Wetherspoons’ annual report to point out perceived tax inequities, including uneven VAT levies and fuzzy sums for business rates. He argues these have resulted in supermarkets undercutting pubs over the past quarter-century, to the point where at-home drinking and cooking habits take trade away from pubs. That may be only part of the story: customers have other reasons to stay in, including home internet and entertainment choices that didn’t exist at the turn of the century.
Neither social trends nor tax policy change quickly enough to improve the near-term picture for Wetherspoons. Chancellor Rachel Reeves is yet to announce details of promised help in the form of relief from what promises to be an unexpectedly sharp leap in business rates. Perhaps she is timing the news for the end of Dry January. Investors in pubs, like everyone in the winter months, need something sunnier to look forward to.
