Pub giant JD Wetherspoon (GB:JDW) announced its trading update for the fourth quarter on Wednesday, and it makes for bleak reading.
The company stated that the losses for financial year 2022 would be higher than expected, at £30 Million.
Earlier, the company expected to break even this year, but it marks its third consecutive year of losses.
The stock sank around 7% in the wake of the announcement.
The update
The company’s like-for-like sales were down by 0.4% in the first 11 weeks of Q4: the recovery after the pandemic has been much slower than expected. The number, however, improved from the last quarter sales of -4%.
Geographically, the sales from smaller towns or suburban areas were weaker as compared to major cities.
Even though the sales have now reached back to 2019 levels, profitability is still off track. This is mainly due to high costs in labour, repair, and marketing.
Since the company has always focused on low prices, it is less able to raise prices than some competitors.
Long-term outlook
The high-cost pressures are felt everywhere in the hospitality industry.
In the long-term, Wetherspoon’s infrastructure and experience will help it rebound once inflation begins to slow down.
Douglas Jack and Ivor Jones of Peel Hunt stated: “We view the shares as being attractive on a long-term basis, however, in the short term, JDW is particularly exposed to the demographic groups that will be most affected by inflation. We are cutting our target price from 925p to 725p.”
View from the City
According to TipRanks’ analyst rating consensus, Wetherspoon stock has a Moderate Buy rating based on one Buy and one Hold from two analysts.
The average Wetherspoons price target of 875.0p implies 57.4% upside potential.
Conclusion
In the short term, Wetherspoon stock is under pressure from high costs and inflation. However, the stock remains a good long-term investment.
