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Wetherspoon turns cautious as wage hikes beckon

Written by Business World, on 16th Mar 2018. Posted in World

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No-frills pubs group J D Wetherspoon said on Friday it expected staffing costs to rise in coming months, when a higher British minimum wage kicks in and, in a nod to fragile consumer demand, said growth in sales was likely to slow.

The cautious forecast for the second half of its trading year, which ends in July, overshadowed a 6.1% increase in like-for-like sales in the six months to Jan. 28, and its shares were down 2.3% at 1120 GMT.

The Watford-based firm, which cut the number of sites it operates by nine to 885 over the reporting period, has withstood a sector downturn relatively well.

UK pubs and restaurants have been hit by higher import costs as the pound has weakened following the 2016 Brexit vote, and rising inflation along with stagnant wages means many consumers have cut back on non-essential spending.

British retail sales barely rose in January, according to official data.

Wetherspoon's prices undercut many of its peers and it has leveraged technology with a mobile application that allows customers to order drinks from their table rather than having to go to the bar.

But on Thursday it said sales growth had cooled to 3.8% in the six weeks to March 11, and expectations of increased costs in the second half meant its outlook was cautious.

It also said net borrowings had risen by 60.1 million pounds to 756.4 million in the first six months, and it planned to keep to its level of net debt at about 3.5 times' core profit for the foreseeable future, higher than the 0 to 2 times it viewed as a "sensible long-term benchmark."

"The ratio would rise for a temporary period, if there were, for example, a sudden deterioration in trading," it said in a statement.

Better than expected year-to-date sales meant its full-year outlook was unchanged, however.

In February, a Bank of England survey found British workers were in line for their highest pay rises since 2008 this year, with the biggest gains in consumer services, where large numbers of staff are paid close to the minimum wage.

The minimum wage for those aged 25 and over is due to rise by 4.4% in April to 7.83 pounds an hour, while pay for some younger workers will rise by over 5%.

Wetherspoon had reported strong comparable sales for the Christmas period, when rival Marston's blamed bad weather for a revenue shortfall. (Reuters)

Source: www.businessworld.ie

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