Tim Martin is ‘deteriorating’ Wetherspoon’s margins with cheap beer, according to this analyst

Tim Martin, the vocal Brexiteer head of pub group JD Wetherspoon, has hit out at the “technocratic elite” in Westminster in a lengthy statement, just as the company announced its pre-tax profits fell by more than £4 this year.

Profit before tax fell 4.5% to £102.5 million in the year to 28 July, according to the group’s annual results posted last week.

However, revenues did increase by 7% to £1.8 billion in the same period.

Profits fell more sharply at 19% in the six months to the end of January. The group has faced a higher wage bill, and has also invested in refurbishing and opening a number of pubs throughout the year, which has had an impact on its profit margins. The company owns roughly 900 sites around the UK, and plans to open a further 15 by July 2020. Once real estate actions are factored in, profits more tax show a rise of 7.2% to £95.4 million.

The news comes after a week of discounts announced by the pub chain. Martin announced Wetherspoon is slashing the price of a pint of beer by 20p in more that 600 pubs, claiming that tariffs imposed by the European Union inflate the cost of booze in the on and off-trade.

Greene King’s Ruddles for £1.69, while 160 will offer a pint for £1.59 and 36 will sell a pint for £1.39.

It is worth pointing out the beer is produced in the UK, and so is not subject to import tariffs.

The news drew criticism from figures in the UK’s brewing industry, and prompted the chief executive of the Society of Independent Brewers Association (SIBA), to write an open letter to Martin urging him to reconsider.

Calder said “many in the brewing community feel that selling a pint of beer for as low as £1.39 and creating the impression beer will remain that cheap is dangerous.”

Wetherspoon pubs will also cut the price of all food and drink by 7.5% on Thursday 19 September, in a stunt aimed at highlighting the benefit of a VAT reduction in the hospitality industry, according to a spokesperson for the chain. The group paid £357.9 million in VAT this year, and generated a total of £764.4 million in taxes.

Steve Miley, senior market analyst at Ask Traders, said although the pub company gets plenty of people through the door, “it’s luring them with such cheap prices that its margins have deteriorated.”

However, Miley adds that Wetherspoon’s is still performing well compared to other pub groups.

But despite sales holding up at the start of the year, the rate of sales growth has slowed, “putting more pressure on the company’s already-thin margins.”

Miley said if Martin’s pub group focuses on driving more sales and hoovering up market share, the discounts could pay off, so long as other cost pressures faced by the industry at large ease up.

“We’re seeing little sign of that in today’s result, with operating costs rising in the second half compared to the first.”

The pub sector is, of course, suddenly back in favour in the wake of Hong Kong billionaire Li Ka Shing’s bid for Greene King, though that likely had as much to do with weakness in the pound as it did with the sector’s immediate growth prospects.

JD Wetherspoon’s shares, trading at 20.5 times earnings based on today’s results, are more highly valued than many of its sector peers, making the company itself no cheap meal.

In a statement, Martin said Wetherspoon is performing “well”, but blamed “continuing political problems, stemming from the transfer of democratic power to a technocratic elite” for the downturn in operating profits.

“We currently anticipate a reasonable outcome (pre IFRS16) for the current financial year, subject to our future sales performance.”

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