JD Wetherspoon Faces Challenges As First-Half Profits Declining

Wetherspoons

Wetherspoons saw profitability drop due to higher rates of pay for employees.

JD Wetherspoon, one of the biggest pub chains operating in the UK and Ireland, has reported increased staffing costs due to their higher pay has impacted the chain’s first half earnings, and this comes in advance of the increase in the minimum wage.

The company stated that profits, not including tax, had declined by nearly 4 per cent to £36 million during the 26 weeks leading up to January 24. The decline comes despite revenues rising by 6.2 per cent and like-for-like sales also rising by 2.9 per cent.

Wetherspoons, which is made up of approximately 954 establishments and is the employer to 37,000 staff members, has said that the impact on profit margins by 1.1 per cent in comparison to the previous year was caused by “higher rates of pay for pub staff”.

However, there is a pending 50 pence rise in minimum wage for pub staff that are over the age of 25 which will take the total rate to £7.20 per hour.

The company’s founder, Tim Martin, also expressed frustration towards the current rate of tax for pubs in comparison to supermarkets stating that the, “continuing tax disparity” is the “biggest danger to the pub industry” and also mentioned that he was to raise the issue to the Chancellor, George Osborne in a bid to lift higher taxes on the industry. In his statement he also commented on the current EU referendum and said that he supported the Brexit.

Presently, tax laws require that any sales made on food by pubs are charged VAT and also charged 15 pence per pint on business rates, whereas supermarkets are charged no VAT on food sales and only up to 2 pence per pint.

Martin said:

“There is a growing realisation among politicians, the media and the public that pubs are overtaxed and that a level tax playing field will create more jobs and taxes for the country.”

Although there have been negative impacts so far on profits and with the coming rise in the minimum wage for its staff the founder still forecasts a fair performance of the pub chain for 2016:

 “Sales comparisons in the second half of the financial year will be slightly more favourable, although further wage increases are due in April.”

However, analysts at Numis hold the view that the first half report displays a “tough first half” and that the current challenges Wetherspoons is dealing with will continue in to the year:

“The company is not able to put prices up or make productivity improvements to offset all the higher costs, and further cost pressures are inevitable, in our view.”

The company’s share price remained flat on Friday.

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