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Wetherspoon in new profits warning amid rising staff costs

Published 20/01/2016

Wetherspoon said its wage bill makes up around 25%, or 75p, of every pint sold in its pubs
Wetherspoon said its wage bill makes up around 25%, or 75p, of every pint sold in its pubs

Pub giant JD Wetherspoon has warned over profits for the second time in two months after being hit by rising staff costs.

The group saw its shares tumble by 9% after chairman Tim Martin said full-year profits were now set to come in at the lower end of City expectations despite a rise in trade over the festive season.

Wetherspoon - which claims its wage bill makes up around 25%, or 75p, of every pint sold in its pubs - said staff costs were likely to knock around 1.1% off its underlying operating margin for the six months to January 24.

It said this follows moves to hike the starting rates for hourly-paid staff in October 2014 and August 2015, which saw their wages rise by around 13% overall.

The latest profit alert comes after Wetherspoon warned in November that staff costs could see annual profits drop slightly on the previous year.

But Wetherspoon said it saw improved trading in its Christmas quarter, with like-for-like sales up 3.3% in the 12 weeks to January 17.

So far in the first 25 weeks of its half-year, sales in established pubs are up 2.8%.

Mr Martin said: "Like-for-like sales have improved in the second quarter so far.

"However, as indicated in our November trading update, increased labour costs will be an important factor in the outcome for this financial year.

"Our current view is profits for this year are likely to be towards the lower end of analysts' expectations."

Mr Martin has been an outspoken critic of the living wage, which will be phased in from next April and means staff must be paid at least £7.20 an hour for over-25s, rising to £9 by 2020.

He claimed in the summer it would add ''considerable uncertainty'' to the under-pressure sector, and put pubs at an even greater disadvantage compared with supermarkets, as the industry already shoulders significant staff costs.

Wetherspoon's gloomy news on profits mean analysts will cut their forecasts from a current range of £69 million to £78 million.

Greg Johnson, analyst at Shore Capital, said: "W e had expected first half margins to be lower than the full year as a consequence of staffing costs, however the magnitude of the decline is worse than our expectations."

Mr Martin warned that prices overall in the pub industry would have to rise to offset higher wage bills, with the imminent introduction of the national living wage adding to the hit.

But he said Wetherspoon has yet to decide on its prices.

"Inevitably in the pub industry, prices will go up," he said. "But we're the most reluctant company to put them up."

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