It may take more than another pint to bring cheer to shareholders in pub chain JD Wetherspoon (LSE: JDW). The pub chain’s share price is down 9% today at the time I write this, meaning that over the past year it has fallen 47%.
As the bad news keeps on coming, what should be my next move as a JD Wetherspoon shareholder?
Glass half empty
The immediate cause for today’s fall was a trading update issued this morning that painted a downbeat picture of prospects for the publican.
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The first 11 weeks of its current financial quarter were better than the quarter before when it came to sales. They were still lower on a like-for-like basis than in the equivalent period before the pandemic, but only by 0.4%. That suggests that Wetherspoon has staged almost a full recovery from the sales woes of the past couple of years brought on by government restrictions.
However, sales are only one part of the story. As the company put it, “Although sales now match 2019, labour costs are far higher”. Given Wetherspoons’ focus on low selling prices, the firm may find it harder than competitors to pass on spiralling costs to customers. Not only are labour costs now higher than before, the company has also been spending more heavily than before on areas like building repairs and printing menus.
That led the company to warn on profits, saying that it expects losses for the year to come in at around £30m, worse than previously expected. The share price weakened in response to the prospect of a third consecutive year of losses.
Glass half full
Despite that, I continue to see reasons to be optimistic about the long-term outlook for the chain.
The sorts of investments the company is making to keep its properties in decent condition should help it retain current patrons and hopefully attract new ones too. At some stage I expect cost inflation in the economy generally will start to slow. Meanwhile, the company’s proven business model feels as relevant as ever to me. It pointed out in today’s update that pubs located in city centres outside of London are doing markedly better than they were before.
The cost pressures on Wetherspoon are being felt across the hospitality industry. Some smaller operators may end up going to the wall, unfortunately. In the longer term, Wetherspoons’ size and experience could help it pick up new opportunities such as buying pub sites from other players.
My move on the JD Wetherspoon share price
It is not easy to watch a company in which one owns shares issue bad news time and time again.
But despite the touch market conditions, I still think the business model is attractive and could create value over the long term. As a believer in long-term investing, I may consider acting on the falling JD Wetherspoon share price to add to my existing holding in the company.
