Shares fall as Wetherspoon toasts staff with pay rises and turn investors bitter

Investors turned bitter on J D Wetherspoon yesterday, pushing its shares down 4 per cent as the pub chain said its profit margins would fall following hikes in bar-staff wages and utility bills.

Tim Martin, its founder and chief executive, said: “It’s not a bad set of results, with record sales. August and September were extraordinarily good but Indian summers do not last for ever in this country and October was tougher.”

Wetherspoon raised hourly pay for its staff by 5 per cent in October and said utility costs had gone up by 4 per cent on an annualised basis.

“That 5 per cent is above the industry average and well above the national average increase,” Mr Martin said. “It puts a little bit of a squeeze on margins, but we think it is the right thing to do.

“We need to attract and retain staff to maintain a competitive edge, so we are trying to increase pay over the next few years.”

He added: “We’re not a Microsoft or a Google when it comes to our employees, but it’s good business sense to improve pay and conditions. It makes commercial sense. I hope our investors will understand that.”

But the immediate reaction suggested they did not. Its shares fell 34p to 798p as analysts chopped around £5m from their profit forecasts for the year to next July.

Wetherspoon said operating margins for the three months to 26 October had fallen from 8.3 per cent to 7.7 per cent; and it expects full-year margins to come in at between 7.2 per cent and 7.8 per cent.

Sales were up 6.3 per cent in pubs which have been open at least a year, and including new pubs they rose by 11.3 per cent in the 13 weeks.

Mr Martin said Wetherspoon has 15 pubs under development and still expects to open 30 to 40 outlets through the current financial year. The biggest danger to the industry, in his view, remains the disparity in VAT and business rates charged on pubs and supermarkets.

Broker Peel Hunt cut its forecasts for 2015 and 2016 profits with the former down from £86.6m before tax to £81.2m. Wetherspoon made £79.4m last year.