Wetherspoon shares dive 28 per cent on profits alert

The chairman of the bar chain JD Wetherspoon, Tim Martin, has told the City to expect its full-year profits to be as much as 10 per cent down on forecasts, but he added that rival pub companies are in a far worse situation.

The announcement provoked much confusion in the City, as it initially failed to spell out whether the expected 10 per cent drop was on the previous year's results, or on this year's expectations. Analysts had expected Wetherspoon to turn in a profit of £63m, up from £53m last year. The statement had to be replaced, confirming the group expects this year's forecast to be lower.

But the clarification did nothing to stave off the already plummeting share price, which closed 28 per cent down at 181.5p, or help those of its rivals, such as Punch Taverns, Greene King and Six Continents, who all ended the day sharply lower.

Mr Martin said slowing bar sales and higher labour costs were hampering sales growth, but he is confident Wetherspoon is doing well ahead of its peers. "We have the strongest trading performance in the pub world," Mr Martin said. "Our like-for-likes are 3 per cent, while, based on public statements we have seen from others, we believe the rest of the market is seeing minus 3 per cent like-for-likes."

The news of disappointing sales in the four weeks to 24 November comes only weeks after Wetherspoon revealed relatively strong trading performance for the first quarter of its financial year.

The chain of pubs reported like-for-like sales for the three months to the end of October of 5.3 per cent. But in the four weeks to 24 November, like-for-likes slowed to 3 per cent.

Food sales have been racing ahead, increasing 14 per cent in the past four weeks, but this is not enough to buoy profits as margins in food products are as much as 5 per cent lower than drinks. Special offers on drinks are also taking effect on profit margins, as is the group's growing wage bill.

Should these sales levels continue at the same levels, Mr Martin said year-end profits in July would be 10 per cent down on forecasts.

Mr Martin also said the group would only be able to open between 50 and 60 new pubs this financial year, compared with its usual 80, because of contract renegotiations on about 25 properties. He said his rival companies had stopped plans to buy new sites, leading him to negotiate down the prices of new pub properties already in the pipeline.

Mr Martin said he did not understand why the City was reacting so strongly to its news, saying its figures are not too far away "from an excellent performance". "The stock market hasn't liked the news much, but if you have to give such updates, you do introduce a little volatility. But there is a lot of trouble in the pubs market and companies are facing difficulties. People are getting nervous."

Analysts said Wetherspoon was still the leading stock in its sector, despite signs the boom in consumer spending is slowing and trading conditions for all pub groups are tough. They are waiting to see how Wetherspoon fares in the forthcoming Christmas period, which is likely to prove significant in determining its fortunes. Analysts will want updating in the new year before revising any forecasts.