Wetherspoon preview

While pubs saw increasing sales coming out of covid, but soon energy costs ate into the gains. Can Wetherspoons overcome the margin compression? And is the price of a pint going up even more?
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The signs were there

Wetherspoons issued a trading update for its full-year results back in mid-July. There, the firm warned that the sales recovery hadn't been as robust as expected, with LFL sales in the final quarter of the fiscal year up just 1.1%. Despite inflation, spirits and beer sales as a general market have been up mid-single digits. But, the difference might be explained by people choosing to stay home instead of paying at the pub.

That might be bolstered by the differences in sales trends reported by Wetherspoons. Its primary source of revenue, draught beer, fell 8.0% compared to 2019. Meanwhile, spirits and cocktails rose 4.4% and 18.6%, respectively. These trends are expected to be confirmed when the company reports its full earnings next Friday.

Looking ahead

The good news for investors is hardly new, however. The company has already announced it has fixed prices for its energy costs until the end of next year and has locked in low-interest loans until 2031. That gives management the confidence to say that it expects costs to grow below the inflation rate next year.

The issue is that Wetherspoons will have to enter new energy supply contracts, which will pressure margins. Going to the pub less is one of the more likely things Britons will do to face off against the cost of living crisis. So traders are likely keen to hear what executives say about customer trend projections.

The consensus among analysts is for Wetherspoons to report a substantial increase in sales to £1.69B, but earnings to come in negative at -10.2p.

JDW stock at a record low

Wetherspoons hit a record low at 400p on Thursday, stopped by the 161.8% Fibonacci of the 1450p-800p leg and the base channel. A pinbar has formed on the bounce, which along with the MACD showing divergence, suggests a potential short-term upward move toward the next round resistance at 500p.

The 138.2% equivalent at 550p is also significant ceiling. It's where the Fibonacci meets the swing of Sept 13, which is the 50SMA.

If price fails to break its down-sloping channel, further declines are likely with 375p, 350, and 300p as possible support.

Key takeaways

Wetherspoons sales recovery has not been as robust as expected due to higher pint prices. Next Friday, sales of draught beer are expected to confirm the trend. The company has announced that it has fixed prices for energy costs until the end of next year but is facing increased costs due to new energy contracts.

Despite locking in low-interest loans, traders are interested in hearing what executives say about how the cost of living will impact customer trends.