Another link in Wetherspoon's chain

It's easy to imagine some pub tenants cheering local councillors in Lymington for saying 'no' to JD Wetherspoon's application to open one of its pubs in the Hampshire town.

Many tenants and freehouse operators nationwide have wished their own local authorities took a similar, 'no thank you' stance. Wetherspoons has identified hundreds of towns currently bereft of one of its venues, yet its buying power and subsequent pricing strategy is often cited - rightly or wrongly - as a reason nearby pubs struggle to compete.

Lymington residents appeared divided over the issue however, with some opponents citing the inappropriateness of the site chosen by the managed pub group, rather than its actual presence, while supporters clamoured for a comfortable place to eat and drink, one that didn't break their respective banks.

Whether or not Wetherspoons decides to appeal against the council's decision, the group says its development pipeline numbers 339 pubs.

"We mainly pick up sites individually, identifying second-hand pubs and suitable retail units. We are an asset to any town we open up in," says John Hutson, the group's chief executive.

This won't be everyone's view. Still, City analysts suggest Wetherspoons' expansion will be a main plank in its short-term sales growth strategy, with like-for-like advances appearing to have slowed.

Early risers

Speaking as the group announced its full-year results last week, Hutson admits that the recently launched 7am opening time was adding overheads to the business, with returns yet to exactly set the world on fire.

"We're breaking even but there was a slight impact on margins in the second half," he says, adding that if sales didn't pick up margins would be dented further.

Geof Collyer, a pub sector analyst with Deutsche Bank, believes any positive profit contribution from Wetherspoons breakfast focus is some way off. "In the meantime, it has to contend with underperforming most of its peers in terms of like-for-like sales growth for the rest of the trading day," he adds.

Hutson counters this line, pointing out that by 11am, when most pubs are just opening, Wetherspoons sites have been open for four hours and are well up to speed.

But there can be no doubt that the pressure is on to drive greater profitability from the early shift.

Overall sales for the year to July 25, 2010, were up 4.3 per cent, with like-for-like sales marginally higher at 0.1 per cent, and it was this latter figure that caused City types some concern, fuelled by increased costs relating to the refinancing of Wetherspoons' £530m banking facility and higher operating costs going forward.

The group's shares fell five per cent as it unveiled its numbers, though they later recovered the lost ground.

Dipping bar sales

Bar sales over the year dipped nearly a full one per cent, although Hutson argues this decline was to be set against strong comparables in the previous year. Food sales were marginally up, while a 12 per cent spike in machine income was put down to new suppliers and the increase in jackpot to £70 and was likely to return to "normal levels" in the current financial year.

Like-for-like profits fell two per cent, partly as a result of repairs spending up 20 per cent at £34.4m.

Reinvestment doubled year-on-year from £11m to £24.1m, Hutson says, with money going towards new carpets, fixtures and fittings, furniture and the roll-out of a new 'super till' system that automatically recognises any promotions a pub is running, much as supermarket deals are calculated at the checkout.

Analysts were encouraged by the state of current trading, with like-for-like sales up 1.5 per cent in the six weeks to September 5, 2010. Yet despite management's assertion that the business was in good shape and resilient enough to face whatever the coming months had to offer, some in the City remain concerned that the group might struggle to maintain its momentum.

But if it can keep offering punters more of what they want at the right price and keep on opening new pubs - though maybe not in the refined air of Lymington - it might yet convince the doubters.