Wetherspoons delivers gloomy outlook with labour costs set to rise £60m

(Sharecast News) - Pub owner JD Wetherspoon reinstated its interim dividend on Friday after a solid increase in first-half underlying sales, but warned of the impact of rising labour costs on the business, which will hit each of its pubs by £1,500 per week. Chair Tim Martin said that increases in national insurance contributions and minimum wages, announced in the last Budget, would increase company costs by £60m a year.

"Since labour costs are around 35% of the pub industry's sales, compared to around 11% for supermarkets, increases of this nature inevitably have a disproportionate impact on pubs, exacerbating the already-wide price differential for customers between the on and off-trade," Martin said.

"The combination of much higher VAT rates for pubs than supermarkets, combined with increased labour costs will weigh heavily on the pub industry."

Looking forward, the chair said Wetherspoons expects a "reasonable outcome" for the full financial year.

Like-for-like sales increased by 4.8% in the six months to 26 January, with LFL bar and food sales rising 4.3% and 5.4% respectively. Revenues were up 3.9% at £1.03bn.

Adjusted pre-tax profit, however, fell 8.6% to £32.9m, as the operating margin fell to 6.3% from 6.83% the year before due to higher labour and utility costs.

The board declared an interim dividend of 4.0p per share, compared with no payout in the first half of last year.