JD Wetherspoon lags behind high street rivals

Undercut on price and undercut on profit seems a fitting if tough epithet for JD Wetherspoon (JDW) after today's trading update revealed flat sales.

The high street retailer delivered a modest pre-Christmas upturn of 0.9 per cent in the twelve weeks to January 16, 2005, but only managed a 0.3 per cent yearly like-for-like increase for the 25 weeks to this second quarter cut-off. Overall company sales were up 3.8 per cent for the same period.

JDW's maverick boss Tim Martin made PR mileage out of the company's easing of its more aggressive discounting practises during the weeks up to Christmas. However, prices were once again cut during January, drawing negative comment from City analysts and continuing the pressure on JDW share prices.

Analyst Douglas Jack of Panmure Gordon held JDW shares on 'sell'. He noted: "Having announced a profit warning after September's price cuts, the company raised prices in early November and cut prices in the January sale."

This explained why second quarter margins were only in line with first quarter margins and suggested the company is still far to reliant on discounting as its primary point of difference.

A second financial analyst was more forthright on JDW's pricing policies.

"Wetherspoon made a lot of noise about reducing discounting before Christmas but if you look at the posters in the windows this January expect to see prices being cut again," he said. "Because the company is eroding its margins it continues to struggle and despite signs of recovery elsewhere in the high street this discounting might still adversely affect the whole sector."

JDW's finance director Jim Clarke refuted allegations that the company is on the wrong path. "This is a modest improvement and one of the key things is that volumes are up, our pubs are busier than they were a year ago, and our prices are pretty stable. This is in line with what we have said we would achieve."

JDW disposed of 20 pubs last year, with plans underway for 15 more disposals this year. Six pubs were opened and there are plans for up to fifteen more additions to the estate during 2005.