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JD Wetherspoon (LSE:JDW) is a FTSE 250 stock that has struggled in recent years. It’s down 61% since the pandemic, including a 21% fall since July. Should I add this iconic pub group to my Stocks and Shares ISA? Let’s find out.
Resilience
On Friday 3 October, the company released its preliminary results for the 52 weeks to 27 July. My overall impression was that they were solid, with like-for-like sales rising 5.1% and revenue up 4.5% to £2.13bn. Pre-tax profit jumped 10% to £81.4m.
Growth came from bar sales (+5.1%), food (+5.%), and slot/fruit machines (+11%). However, room sales for hotels declined by 11.9% after the company removed third-party online booking platforms that were charging high commission rates.
Recent trading has been decent too, with like-for-like sales increasing 3.2% in the nine weeks to 28 September. This is much higher than the broader industry, suggesting that ‘Spoons is taking market share amid the ongoing cost-of-living crisis.
The company plans to open approximately 15 managed pubs in the current financial year (FY26). And Chair Tim Martin said he “currently anticipates a reasonable outcome for the financial year, although government-led cost increases in areas such as energy may have a bearing on the outcome“.
Pessimism
A “reasonable” outlook for the current year wasn’t enough to stop the stock falling 5% on Friday. And this can probably be put down to rising costs, which are coming at the business from all angles.
Firstly, increases in the minimum wage and employers’ National Insurance contributions will cost it around £60m extra per year. Then non-commodity energy costs will be another £7m hit. On top of this, the recently introduced ‘Extended Producer Responsibility’ tax on packaging will cost £2.4m.
Never one to shy away from an opinion, Tim Martin wrote: “A main lesson of the economic problems of the 1970s has been unlearnt in recent years – that is, if energy prices go up, as they did in the 1970s, inflation results, and almost everyone is poorer.”
Electricity costs in the UK are already among the highest in the world, so Martin is right to flag this. And the UK is forecast to have the highest rate of inflation among G7 countries this year.
Meanwhile, further taxes on businesses and/or consumers now seem inevitable in the upcoming November budget. So the economic outlook is dire.
Elsewhere, Martin warns about “campaigns from academics and others” that want to reduce opening hours and glass sizes for pubs. This is another potential risk.
Decision
Despite all this doom and gloom, Wetherspoons is committed to opening more locations, including franchised pubs. It opened five of these last year, bringing the total to eight, and management says they have “performed extremely well”.
I expect the firm to take more market share as smaller pubs sadly fold under the relentless pressures of inflation, overregulation, and high taxes. Pubs may be in long-term decline, but they won’t disappear, and Wetherspoons should ultimately pick up much of what’s left.
Buybacks also reduced the share count by 8.6% during the year, and there’s a small dividend (1.6% yield). The stock looks cheapish, trading at around 11 times forecast earnings.
Overall, I think there’s enough to merit further research for investors here. But personally, I see better opportunities elsewhere for my ISA.
