LONDON (Reuters) - Pub group JD Wetherspoon (JDW.L) said on Friday the smoking ban had started to affect sales, and warned investors that rising staff and interest costs would eat into profit, knocking its shares 6 percent.
Chief Executive John Hutson told Reuters he was comfortable with forecasts for 2007/08 but said costs would not fall as previously expected because staff costs and interest payments would eat into the benefit of cheaper utility bills.
Wetherspoon, which has about 670 pubs, posted a pretax profit of 62 million pounds for the 52 weeks to July 29, just below analysts’ average forecast of 63 million pounds and up 7 percent on a like-for-like basis on 2005/06 which was a 53-week year for the company.
Wetherspoon said like-for-like sales growth of 5.6 percent in its 2006/07 year slowed to 1.1 percent in August.
Hutson said the true impact of the smoking ban, which started in early July, had begun to show itself.
“We think August is more reflective of where trading is likely to be at. If we can maintain what we have achieved in August for the year as a whole, it will be a reasonably good result,” he said.
The news drew a cautious response from analysts.
“The full-year impact of the smoking bans leads us to be cautious with regards to the full-year outturn”, said analysts at Altium.
Analysts on average expect the firm to earn pretax profit of 65.8 million pounds in 2007/08, according to Reuters Estimates. At 3:00 p.m., Wetherspoon shares were down 6.3 percent at 560.5 pence.
Unlike rival operators with large estates of country pubs such as Punch PUB.L, Enterprise Inn ETI.L and Greene King GNK.L, Wetherspoon’s pubs are concentrated on high streets and in town centres.
Hutson said unseasonal weather in June and July, which caused the worst flooding in Britain in decades, had helped its trading, driving customers in off the street and keeping them away from the rain-sodden beer gardens of its rivals.
Wetherspoon said it would continue to return cash to shareholders despite stepping up its expansion plans.
“Everything is in the air regarding things like special dividend so at this stage we see a continuation of what we have been doing over the last few years,” said Hutson.
“Any cash we generate will go into three areas — dividends, building new pubs and buying back our shares,” he said.
The firm paid a final dividend of 8 pence, making the full-year total 12 pence, up from 4.7 pence a year ago.
Hutson said food sales had risen sharply since the smoking ban and helped compensate for a slowdown in beer sales. Location helps, and Wetherspoon town centre pubs now sell around 250,000 breakfasts a week.
“In July bar sales grew by 1.3 percent and food by 24.8 percent and then in August bar sales declined on a like-for-like basis by 3.2 percent and food sales grew by 12.5 percent.”
Hutson said plans to glean more cash from Wetherspoon’s property had taken a back seat since the recent rollercoaster plunges in the credit market. “Given the recent turmoil, the pressure from shareholders and analysts has abated. At the moment we are just concentrating on the day-to-day operations.”
Wetherspoon said finance director Jim Clarke, whose departure was announced in June, is to join estate agent Countrywide in the same role.