Pub group JD Wetherspoon (JDW.L) has axed its dividend and told investors it’s impossible to predict how the business will fare, after the government this week told the public not to go to bars and pubs.
JD Wetherspoon said on Friday it would scrap its planned interim dividend, worth £4.2m ($4.86m). Founder and chairman Tim Martin said profits would likely be lower this year but the company couldn’t give any realistic guidance as to where they might land due to the ongoing coronavirus pandemic.
“It is obviously very difficult to predict, in these circumstances, how events will unfold in future weeks and months, but we now anticipate profits being below market expectations, so long as the current health scare continues,” Martin said in a statement.
“As a result of this uncertainty, it is impossible to provide realistic guidance on our performance in the remainder of the financial year.”
Martin said sales of beer and food had been up over 3% in the six weeks to the start of March. However, sales fell by 4.5% last week as fears about coronavirus began to rise and have “declined at a significantly higher rate” since then. It follows a call by prime minister Boris Johnson on Monday not to go to pubs and restaurants in a bid to stop the spread of Covid-19.
As well as cancelling the dividend, Martin said JD Wetherspoon would reduce most capital expenditure. He said government support schemes and the efforts to conserve cash means the pub group “has sufficient liquidity to maintain operations at a substantially lower level of sales.”
Greg Johnson, an analyst at Shore Capital, said JD Wetherspoon’s annual operating costs are around £1bn, with £700m coming from staff wages and around £70m down to rent and repair of its pubs.
Johnson estimated Wetherspoon has around £240m of cash on hand to keep the business going, equating to just a few months, but said costs could probably halved meaning “the group realistically has several months of available liquidity.
“A lot depend[s] on the government’s response to support businesses,” Johnson said in a research note on Friday.
The government has already announced a £330bn package of loan guarantees for businesses and Chancellor Rishi Sunak is due to announce a wage support package on Friday.
“As many companies and commentators have noted, the current health crisis places the hospitality industry, in particular, under great pressure,” Martin said.
“Wetherspoon, like our peers, will be working closely with all parties, including employees, banks, landlords and suppliers, in order to emerge from the situation in the best shape.”
Earlier in the week, Martin lambasted prime minister Boris Johnson for urging the public to stay away from bars and restaurants in a bid to stop the spread of Covid-19. Martin called the decision a “tactical error” that “delays the inevitable and destroys the tax base at the same time”.
The suspension of dividend and guidance came as JD Wetherspoon reported half-year results. Revenue rose 4.9% to £933m in the 26 weeks to 26 January, while pre-tax profit dropped 13.7% to £42m due to one-off costs.