Huggins sees ‘uphill battle’ for Wetherspoons stock despite H1 profit

J D Wetherspoon plc (LON: JDW) says it swung to a pre-tax profit in the first half of its fiscal 2023. Shares ended about 13% up on Friday.

Pro reacts to Wetherspoon’s financial update

Still, Charlie Huggins who manages the Quality Shares Portfolio at Wealth Club is keeping neutral at best on “JDW” as its operating profit remains significantly below the pre-pandemic levels. In a note sent to Invezz, he wrote:

Wetherspoon’s business model is heavily exposed to rise in labour, energy and food costs. Unfortunately, it doesn’t have the pricing power to fully offset these cost pressures that means pressure on margins.

The London-listed firm had £37.4 million ($45.72 million) of operating profit in the first half versus £63.5 million in the same period before the pandemic.

For the year, Wetherspoons stock is up 45% at writing.

What else was noteworthy in today’s report?

On a year-over-year basis, though, pre-tax profit climbed to £56.95 million – up sharply from a £13 million loss a year ago. Revenue also jumped over 13% to £915.95 million. Still, Huggins added:

Higher interest rates and inflation are strangling the economy and leading to higher costs. Combine this with Wetherspoon’s low margins and low-price strategy, it means they group faces an uphill battle in the current environment.

Other notable figures in the press release include a 5.0% growth in comparable sales versus fiscal 2019 and a whopping 91% increase in free cash inflow per share.

Wall Street currently has a consensus “hold” rating on the Wetherspoons stock.