The JD Wetherspoon share price falls in early trading despite a 4.5% increase in EPS
After the first hour of trading today (3 October), the JD Wetherspoon (LSE:JDW) share price was down around 4% after the pub chain published its preliminary results for the 52 weeks ended 27 July (FY25).
Existing shareholders are likely to be disappointed by this reaction given that the group announced a 4.5% increase in its reported earnings per share (EPS), compared to FY24. And its boss isnât happy either.
What did he say?
Commenting on the results, Tim Martin pointed out that they would have been a lot better if it hadnât been for the April increase in employerâs National Insurance. He estimates the cost to be £60m.
He then explains that thereâs been a £7m hit from subsidies for the renewable energy industry that have been passed on to electricity users.
Next, he complains about the extended producer responsibility tax, which is a levy on packaging to cover the costs of recycling. The hit to the groupâs bottom line in FY25 was £2.4m.
Finally, he points out the tax advantages that supermarkets enjoy. They donât have to charge VAT on food whereas pubs do.
Martin says the group and its customers contributed £838m in taxes during the financial year. This is equivalent to around 1% of the governmentâs total revenue. If there were 1,000 companies like JD Wetherspoon, nobody else would have to pay any tax.
A healthy top line but…
However, from a revenue perspective, the business appears to be doing okay. Like-for-like sales (LFL) in FY25 were 5.1% higher than in FY24. Indeed, when the numbers are finalised in November, Martin says he expects a âreasonable outcomeâ for FY25. And this trend appears to be continuing. During the nine weeks to 28 September, LFL sales were 3.2% higher. For 36 consecutive months, the group’s outperformed the hospitality industryâs most popular tracker.
But for the reasons outlined earlier, group earnings arenât growing as quickly as its sales. On a statutory basis, earnings per share (EPS) increased 4.5%. But this was helped by a share buyback programme thatâs led to an 8.6% reduction (year-on-year) in the number of shares in issue.
| Measure | FY24 | FY25 | Change (%) |
|---|---|---|---|
| Underlying earnings (£m) | 58,503 | 58,517 | +0.3 |
| Average number of shares in issue (m) | 125,029 | 119,775 | -4.2 |
| Earnings per share (pence) | 46.8 | 48.9 | +4.5 |
With various one-off items removed, EPS increased by 48.1% to 60p. Therefore, the groupâs shares currently trade on a modest 10.7 times adjusted FY25 earnings. It’s a matter of personal preference whether statutory (reported) or adjusted figures are used when evaluating companies. Based on today’s reaction, investors appear to be focusing on the unadjusted numbers.
Final thoughts
I always enjoy reading Martin’s comments. Sometimes, itâs almost as if heâs looking for reasons not to invest in the group! But I remain a fan of ‘Spoons’. With its emphasis on soft drinks and food, it appears to be well positioned to buck the apparent generational trend away from drinking alcohol. Indeed, many of its competitors are loss-making and the number of pubs in the country is in long-term decline. As these disappear, it’s likely to benefit.
However, I donât want to invest. Industry conditions are becoming increasingly difficult and — despite its financial firepower — even JD Wetherspoon canât grow when costs are rising so quickly. Since the last full-year before the pandemic, sales per pub are up 29% but energy costs have risen 57.8% and wages are 34.5% higher.
On this basis, the stockâs not for me.
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James Beard has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
