JD Wetherspoon falls amid signs of slowdown, rise in interest costs

By Geoffrey Smith 

Investing.com -- Shares in JD Wetherspoon (LON:JDW) fell 8.2% on Wednesday after the British pub operator warned that business appears to be slowing, while its costs continue to rise.

The company said that costs for food, labor and repairs had been "substantially higher" than the 9.6% increase in revenue that it generated in the first 14 weeks of its 2023 financial year, a rebound that left sales fractionally above where they had been in the last year before the pandemic. 

It noted that sales had slowed in October, a month dominated by a big rise in regulated household energy prices and by political turmoil that had further damaged consumer confidence. Whereas sales had been 1.5% ahead of 2019 levels in the first nine months of the year, they had been 1.1% below 2019 in the following five weeks. 

Like many British companies, Wetherspoon was affected by the spike in volatility in U.K. interest rates after the Conservative government of Liz Truss briefly threatened to turbocharge the economy with big tax cuts and years of energy subsidies. The bond market revolt that followed forced Truss out of office within a couple of weeks, allowing bond yields to return broadly to their previous levels. 

Wetherspoon used the episode of bond market volatility to close out a bunch of interest rate swaps at a large profit, allowing it to realize nearly £170 million ($£1=$1.11450) in gains. That allowed it to accelerate an ongoing debt reduction program, bringing its net debt down to £745M as of November 6th, from £892M at the end of July.

Closing out those swaps means that Wetherspoon's ongoing interest payments will rise by around £10M this year. However, chairman Tim Martin said he expects to generate positive cash flow over the year, after a couple of years in which COVID-19-related health measures have badly hurt its operations.