March 15, 2019 / 7:26 AM / a year ago

JD Wetherspoon flags higher costs, wages bite

(Reuters) - JD Wetherspoon Plc expects costs in the second half to be as high as in the first, Chairman Tim Martin said on Friday, after rising wages hit the budget British pub chain’s profit.

The company, like most restaurant chains in the country, has been battling high costs due to a minimum wage increase, higher property prices and power bills as well as a move away from pub drinking by younger Britons.

“These costs will continue to the second half of the year. I think it will be more or less in line with the trends of the first half,” said Martin, a fervent Brexit supporter who founded the company in 1979.

“Partly, we’re not trying to increase profits really as a major priority,” he added, reiterating an earlier stance that the company would not immediately seek to recoup the higher costs through price increases.

Wetherspoon, popularly called Spoons, said in November it would review raising pricing during the year. It has traditionally undercut many of its peers on pricing and attracted younger Britons and college students.

The FTSE 250 group, which relies heavily on alcohol sales at its restaurants, said on Friday labor costs increased by about 33 million pounds, accounting for the biggest chunk of overall costs.

The company said it expects higher costs related to wages, interest, repairs, utilities and depreciation in the second half, but forecast results for the current financial year to remain unchanged.

Analyst on average expect pre-tax profit of 102.84 million pounds on revenue of 1.78 billion pounds, according to Refinitiv Eikon data.

Richard Hunter, head of markets at Interactive Investor, flagged concerns about the pub sector as a whole, citing its wafer-thin margins that are vulnerable to cost inflation.

Like-for-like sales rose 9.6 percent in the six weeks to March 10, helped by good weather this year compared with freezing weather last year. Total sales increased 10.9 percent.

The owner and operator of more than 900 pubs in UK and Ireland said like-for-like sales rose 6.3 percent in the 26 weeks to Jan. 27.

Pretax profit fell 18.9 percent to 50.3 million pounds ($66.7 million), a year earlier.

Shares of the company were up 1 percent at 1,3054 pence in choppy trading.

Reporting by Samantha Machado in Bengaluru; Editing by Saumyadeb Chakrabarty and Emelia Sithole-Matarise

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