Investors had high hopes for the J D Wetherspoon (LSE: JDW) share price ahead of today’s (22 March) 2024 interim report. But with the stock crashing almost 10% in early trading, they’ve clearly been dashed.
I’d been wondering whether to add the FTSE 250 pub chain to my self-invested personal pension (SIPP) plan, and I’m curious to know whether this is a warning shot or a buying opportunity.
Company results are funny things. Everything comes with a positive spin. Wetherspoons kicked off by stating that the “recovery from the effects of the pandemic continued”, with 2023 like-for-like sales up 15.3% compared to FY19, which it uses as a pre-pandemic benchmark. That compares to a drop of 17.4% in 2022.
The stock has gone flat
Today’s results cover the first half of FY24, and show total sales up 8.2% to £991m, compared to the same period in 2023. It states that since December 2015 it has slashed the number of trading pubs from 955 to 814, but total sales have nonetheless increased by a third in that time. Sales per pub have increased by an impressive 50%.
This could continue as it opens new locations and expands old ones, say, by adding beer gardens. All of which sounds like good news to me, so why is the stock falling? Especially since the rest of the FTSE is flying for the second day in a row.
While today’s growth figures look good, they’re not great. First-half margins rose from 4.1% to 6.8%, but they’re still pretty slim. Worryingly, like-for-like sales growth has slowed lately, rising just 5.8% in the seven weeks to March 17.
A long hot summer could add a bit of much-needed fizz. Plus there’s Euro 2024 to bring the punters in. Also, as inflation eases and the first interest rate cut looms, drinkers may have a little bit more money in their pockets. Falling inflation will also cut input costs, while wage growth is slowing too.
Wetherspoon reckons it has the potential for 1,000 pubs across the UK. While that’s almost 23% more than today, it does effectively set a ceiling on its expansion, which may limit future growth prospects.
I think I’ll abstain
I have two other concerns. After rising 33% in the last year, the shares look expensive, currently trading at 31.6 times earnings. I sense I’ve missed my chance to buy. Second, there’s still no dividend with the company baldly stating: “The board has not recommended the payment of an interim dividend.”
The last time it paid a dividend was in 2019, when investors got 12p a share. So this is the fourth year in a row when shareholders get nothing. I was targeting this stock for growth rather than income. But its refusal to reward shareholders is worrying, even if the board did complete a £34.1m share buyback in 2023.
Today’s results weren’t bad. They just didn’t give investors much to get excited about. Right now, I can see most of the FTSE rocketing on hopes that interest rates will fall and we will soon be out of the woods. I’ll take my next stock pick from them, and park my interest in J D Wetherspoon.
