(Reuters) - J D Wetherspoon reported a jump in third-quarter sales at its 900-odd pubs in Britain and Ireland, but its shares fell as much as 6 percent as analysts warned sales were not translating into higher profit due to rising costs.
Pub operator Wetherspoon, like most restaurant chains in the country, has been battling increased costs due to a minimum wage hike, higher property prices and power bills as well as a move away from pub drinking by younger Britons.
Wetherspoon’s comparable sales rose 7.6 percent during the 13 weeks to April 28, with an 8.4 percent rise in total sales in Britain and Ireland. The company reiterated it expects an unchanged trading outcome for the current financial year.
“Costs are significantly higher than last year, labor costs especially, stemming from very low unemployment. Other cost increases include business rates and repairs, the latter as a result of an aging estate of pubs,” Chairman Tim Martin told Reuters via text message.
Wetherspoon had warned in March that it expects costs in the second half to remain high, after rising wages hit the budget British pub chain’s profit. It announced a pay increase for its employees in November.
Wetherspoon’s shares were 4.5 percent lower at 1,285 pence at 0821 GMT, taking them to the bottom of London’s midcap index
“With a company that is growing so impressively on the top line ... it is unusual to not have a profit upgrade ... there isn’t an upgrade because of margin pressure which is largely from labor cost but also from repair and maintenance cost,” Liberum analyst Anna Barnfather told Reuters.
“I think the disappointment is that this strong sales growth isn’t translating into profit growth,” she added.
Barnfather expects annual pretax profit to fall to 103 million pounds ($134.19 million) from 107.2 million pounds in the year ended July, 2018.
Rival Greene King recently forecast annual pretax profit above analysts’ expectations as more Britons headed to its pubs over a warm and sunny Easter.
Growth for Wetherspoon had come from the sales of gin, craft beers from smaller brewers, and coffee and tea, which are now big sellers. Food sales were propped up by fish and chips, Martin said.
“There is a concern over mounting costs for Wetherspoon. To a lesser extent, net debt ticked up as well, even though in the more medium term it anticipates debt to fall back again,” CMC Markets analyst David Madden told Reuters.
Reporting by Noor Zainab Hussain and Karina Dsouza in Bengaluru; Editing by Shounak Dasgupta and Alexandra Hudson