Wetherspoons warns on rising costs

JD Wetherspoon, the managed pub operator, has warned that despite an "encouraging" performance from its newly-opened pubs, rising supply costs and higher interest charges will hit first half profits.

However Wetherspoon said it expected a "reasonable outcome" for the current financial year "as a whole", helped by investment in new and existing pubs. And the City warmed to the group's news, sending its shares nearly six per cent higher in early trading to 468p.

Updating the market for the first 12 weeks of the second quarter - up to January 26, 2011 - the group said like-for-like sales rose by three per cent, versus 1.6 per cent growth in the first quarter.

Total sales for the same period increased by 8.1 per cent, compared to 7.3 per cent in the first quarter. In the year to date - 25 weeks to January 16, 2011 - like-for-like sales increased by 2.3 per cent and total company sales, including recently opened pubs, rose by 7.7 per cent.

"Heavy snow invariably has a strongly adverse effect on sales, but the effects on the like for like numbers were minimal in the period under review since the effects of snow before Christmas were off-set by snow in January a year ago," the group said.

"We expect the operating margin for the half year ending January 23, 2011, to be similar to the first quarter of this financial year," it added.

Sales, profit and cashflow continued to be "resilient", the group concluded, "and the performance of our recently opened pubs remains encouraging". The group said it had opened 12 pubs in the first half and planned to have unveiled 50 news pubs by its year end.

"As previously stated, higher interest charges, following the refinancing in March 2010, will adversely affect profits in the first half of the financial year. In addition, there are clear indications of increases in the cost of supplies across a wide range of goods, including food and bar purchases, as well as utilities and excise duties," it added.