March 20 (Reuters) - British pub chain J D Wetherspoon on Friday warned that profits may fall below market estimates, weighed down by higher energy and tax costs, along with waning consumer spending.
UK's Wetherspoon warns profits may miss estimates as costs rise
Wetherspoon Faces Rising Costs and Profit Pressure
By Raechel Thankam Job
March 20 (Reuters) - Rising energy bills and wage taxes will erode JD Wetherspoon's full-year profit, meaning it could fall below market expectations, the British pub group warned on Friday, sending shares down nearly 14%.
Company Strategy Amid Cost Challenges
The group, popularly referred to as Spoons and known for its relatively low prices, also said it would aim to keep any price increases to customers minimal.
Impact of Global Events on Energy Prices
Adding to the challenges for Britain's hospitality sector, energy prices, which are already high, are at risk of increasing as a result of the U.S.-Israeli war on Iran, leading to increased inflation and lower consumer spending.
Energy Hedging and Unavoidable Cost Increases
Most businesses have hedged their energy costs, including Wetherspoon's, which has hedged them until 2029.
It has not been able to shelter itself from non-commodity price rises, however, including network charges and government levies, Chief Financial Officer Ben Whitley told reporters.
Reduction in Energy Use?
"The other thing we can do is try and use as little electricity and gas in our pubs as possible," Whitley said.
Financial Performance and Market Expectations
Analysts expect Wetherspoon to report pre-tax profit of 81.1 million pounds ($108.6 million) for the year through July, per LSEG data.
In the seven weeks to March 15, Wetherspoon's like-for-like sales grew 2.6%, easing from 5% growth a year ago and from 4.8% growth in the six months to January 25, but pre-tax profit for the first half slumped 37%.
Customer Sensitivity and Economic Outlook
"Our sales have been quite good, so our view is that customers are price sensitive," Chairman Tim Martin told Reuters via text message.
British householders are growing more pessimistic about the economy because of inflation risks.
Industry Perspective on Rising Costs
"Wetherspoon is doing the hard part getting people through the door with low-priced pints but higher labour and energy costs are taking their cut at the bar," said Robinhood UK lead analyst Dan Lane.
Taxation and Future Risks
Increases in wage-related taxes will increase costs by about 60 million pounds annually and higher energy prices will add around 7 million pounds, Wetherspoon said.
The industry says it also faces possible pub closures and job losses from property taxes, which the British government has sought to ease. Whitley said a revaluation of Wetherspoon's estate means business rates will still rise.
($1 = 0.7466 pounds)
(Reporting by Raechel Thankam Job in Bengaluru; Editing by Harikrishnan Nair and Barbara Lewis)
