JD Wetherspoon’s upcoming half-year financial results will be closely scrutinised for the impact of surging energy costs, a challenge exacerbated by the ongoing conflict in Iran.
The pub chain, which is due to publish its interim figures on Friday, had already issued a warning in January that both its half-year and annual profits would be lower year-on-year due to higher-than-anticipated operational expenses.
The company previously disclosed a significant £45 million cost hit during its first half, attributing this financial strain to escalating bills for energy, staff wages, and business rates.
Industry experts now suggest that the geopolitical tensions arising from the Iran war could inflict further financial pressure on the group, with rocketing wholesale oil and gas prices expected to drive energy costs even higher.
Dan Coatsworth, head of markets at AJ Bell, said: “Wetherspoons has always prioritised sales over margins and keeping its prices as cheap and cheerful is a key part of the chain’s appeal, but its commitment could be tested heading into first-half results on 20 March.
“The stock had mounted a recovery in recent weeks before events in the Middle East intervened, but its skinny margins combined with a large estate of pubs to light and heat leaves it heavily exposed to rising energy prices.”
He added: “With value such a key part of Wetherspoons’ appeal, it must balance the need to pass on these increased costs while keeping its pints, coffee and food cheap enough to get punters through the doors.
“Investors will be looking for updates on how the company is navigating this challenge and the impact it might have on profit guidance for the current year.”
Wetherspoon’s recent profit alert comes despite a pick up in like-for-like sales growth over the festive quarter, to 6.1% in the 12 weeks to January 18, up from 4.7% in the previous three months.
Over the key Christmas period, comparable sales jumped 8.8% in the three weeks to January 4.
The sector was given a slight reprieve when the government announced later in January that pubs and music venues would be given a 15% discount on their business rates bills from April and will not see increases for two years.
But pubs are still facing rising energy and wage costs and the prospect of consumer caution amid the Iran war.
Derren Nathan, head of equity analysis at Hargreaves Lansdown, said: “Recent data suggests pub sales in the wider market have continued to grow, led by higher prices rather than footfall.
“But rising fuel and energy prices in the wake of the war with Iran could cause a further squeeze on the group’s margins and its customers’ spending power, so some caution is to be expected.”
