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Investors had high hopes for the JD Wetherspoon (LSE: JDW) share price ahead of today's (March 22) 2024 interim report. But with shares down nearly 10% in early trading, they have clearly tanked.
I was wondering if adding the FTSE 250 pub chain to my self-invested personal pension scheme (SIPP), and I'm curious to know if this is a warning or a buying opportunity.
Company results are funny things. Everything comes with a positive spin. Wetherspoons began by stating that the “Recovery from the effects of the pandemic continues”with 2023 comparable sales up 15.3% compared to fiscal year 2019, which it uses as a pre-pandemic benchmark. That compares with a 17.4% drop in 2022.
The stock has deflated
Today's results cover the first half of FY24 and show total sales rose 8.2% to £991m, compared to the same period in 2023. It says since December 2015 it has reduced the number of pubs commercials from 955 to 814, but total sales have nonetheless increased by a third during that time. Sales per pub have increased by an impressive 50%.
This could continue as it opens new locations and expands old ones, for example by adding beer gardens. All of which sounds like good news to me, so why are stocks falling? Especially as the rest of the FTSE is flying for the second day in a row.
While the current growth numbers look good, they are not great. First half margins increased from 4.1% to 6.8%, but are still quite small. Worryingly, comparable sales growth has slowed recently, rising just 5.8% in the seven weeks to March 17.
A long, hot summer could add some much-needed fizz. In addition, there is Euro 2024 to attract bettors. Plus, as inflation eases and the first interest rate cut looms, drinkers may have a little more money in their pockets. Falling inflation will also reduce input costs, while wage growth is also slowing.
Wetherspoon estimates it has the potential to open 1,000 pubs across the UK. While that's almost 23% more than today, it effectively sets a limit on its expansion, which may limit prospects for future growth.
I think I'll abstain
I have two other concerns. After rising 33% in the last year, the stock looks expensive and currently trades at 31.6 times earnings. I feel like I've missed my opportunity to buy. Secondly, there are no dividends yet and the company bluntly states: “The board has not recommended the payment of an interim dividend.”
It last paid dividends in 2019, when investors got 12 pence per share. This is the fourth consecutive year in which shareholders got nothing. I was targeting this stock for growth rather than income. But its refusal to reward shareholders is worrying, even if the board were to complete a £34.1m share buyback in 2023.
Today's results were not bad. They just didn't give investors much to get excited about. At the moment I can see most of the FTSE rallying in the hope that interest rates will fall and we will soon be out of the woods. I will be taking my next stock pick from them and parking my interest in JD Wetherspoon.
