JD Wetherspoon issues third profit warning this year as costs climb

The boss of JD Wetherspoon has said the pub chain could miss profit expectations because of rising costs, in the latest sign the UK hospitality industry is buckling under the pressure of higher energy, food, labour and tax bills.The company’s chair, Tim Martin, told investors on Wednesday: “As many hospitality operators, including Wetherspoon, have reported, there have been substantial increases in costs.”It is the third profit warning this year from the company, which operates about 800 pubs across the UK and Ireland. Investors had already been expecting a drop in pre-tax profit to £73m, compared with £81m last year.Pubs, restaurants and hotels have said rising costs are making it harder to make a profit. The industry is adjusting to a rise in the minimum wage and business rates, which came into effect at the start of April.Martin has previously said increases in national insurance contributions and wages would cost the business about £60m a year.JD Wetherspoon chair Tim Martin, pictured in 2020. Photograph: Jonathan Brady/PAIt is also facing an extra £1.6m in tax this year through the extended producer responsibility packaging levy.The US-Israel war on Iran and the resulting jump in energy prices are also expected to drive up food and heating bills this year.Shares in JD Wetherspoon rose slightly by 1% in early trading on Wednesday.Russ Mould, the investment director at the broker AJ Bell, said the rise probably reflected relief that profit might fall only “slightly short of expectations” and that sales growth suggested demand was “holding up well for now”.The pub chain said its sales at established pubs grew by 3.4% in the 13 weeks to 26 April, compared with the same period last year.However, Mould added that Wetherspoon, which had an operating profit margin of 6.9% in its last financial year, was highly exposed to the energy price shock triggered by war in the Middle East.“A legacy of the pandemic is the heavy load of borrowings the company is carrying. While interest costs are expected to remain broadly unchanged year-on-year as debt ticks up, if interest rates move higher that could create another headwind for the business,” he said.Wetherspoon forecast its net debt at between £740m and £760m by the end of its financial year. The company’s market capitalisation is about £644m.Elsewhere, the drinks maker Diageo said on Wednesday it was “mindful” of geopolitical uncertainty, including the impact of the Iran war, but maintained its profit guidance for the year.The FTSE 100 company, which owns brands such as Guinness and Johnnie Walker, reported a rise in sales from customers stocking up on drinks before the Fifa World Cup. Overall its organic sales grew by 0.3%, ahead of an expected decline of 2.3% in the three months ending in April. Its shares rose nearly 5%.