JD Wetherspoon – LfLs up 6.3%, margin drops to 7.7%: JD Wetherspoon has reported that like-for-like sale rose by 6.3% in the 13 weeks to 26 October with total sales up by 11.3%. The company stated: “Sales were good through August and September, but like-for-like growth decreased in October. The operating margin in the period was 7.7%, compared with 8.3% in the same period last year. In October, the company increased pay for hourly paid staff by 5%, while utility costs increased by about 4%. In addition, during the period, there have been several cost increases from suppliers. The company has opened two new pubs since the start of the financial year. We have 15 pubs under development and, in line with our last update, intend to open around 30-40 pubs in the current financial year. The company has agreed on an additional five-year bank facility with Handelsbanken, increasing our overall facilities to £740 million. In recent budgets, the chancellor has announced heavily publicised and welcome cuts in beer duty. In contrast, in an initiative which achieved little recognition, changes were announced in 2012 to the VAT treatment of pub slot or ‘gaming’ machines. As a result, pubs were no longer to be allowed to set off all VAT charged by suppliers against VAT charged to customers. This legislation has been interpreted by the tax authorities so that a proportion of VAT inputs for pub businesses is disallowed. For example, if gaming machine income is 4% of a pub’s sales, 4% of the pub’s input VAT, in respect of certain categories of supplies (even if unrelated to gaming machines), is disallowed. This new ‘tax’ cost Wetherspoon an additional £3.6m during February 2013-July 2014. These sorts of tax increase penalise pubs, which are closing in great numbers, yet not supermarkets, which already benefit from a zero VAT rate on food, whereas pubs pay 20%. Supermarkets also pay far lower business rates per pint or meal than do pubs. Indeed, this government has presided over thousands of pub closures – perhaps more than any government in history. The pub industry recognises that governments need to balance the books, yet it is imperative for the future of pubs that political parties commit themselves to a sensible rebalancing of the tax system, so that there is fairness and equality between pubs and supermarkets – a rebalancing will produce more revenue for the government and more jobs in the economy. Stealth taxes, including the new treatment for gaming machines, are confusing and unfair for publicans and are very harmful to the industry. The biggest financial dangers to the pub industry continue to be the VAT and business rates disparity between supermarkets and pubs and the continuing imposition of stealth taxes, such as the late-night levy and the reduced allowances for gaming machine income. As a result of the slowdown in sales growth in October, combined with the cost increases referred to above, the Company is currently anticipating an operating margin in the range of 7.2-7.8% for the current financial year. The company is aiming for a satisfactory outcome for the current financial year.”