The English smoking ban yesterday clouded figures from pub chain JD Wetherspoon, which shed 17% and dragged the rest of the sector down with it.
The company met forecasts with a 13% fall in pre-tax profit to £289.5m in the 26 weeks to January 27, on turnover up 0.4% to £440m. However, it acknowledged this was attributable to opening new pubs, and like-for-like sales were down 2%.
Wetherspoon's main problem is that while food sales soared 9.7% in the first half of its financial year compared to 2007, for the company this is lower-margin business than the bar and slot-machine takings, which were each down 6%.
On average, each of its pubs is now taking £29,500 a week compared to £30,600 for the full 2007 financial year, and the firm professed to have a "cautious outlook" for 2007.
Chief executive John Hutson put the blame firmly on the smoking ban: "We think that sales will recover as customers adjust to the new regime and we recruit new customers."
Even in Scotland, where Wetherspoon runs 39 pubs, Hutson reported that an initial "uptick" in sales nine months after the smoking ban was introduced has "come back a bit".
To add to its woes, the company has reported rising costs for wages, energy, food and drink, with recent increases in beef prices hitting the company particularly hard, but it is unable to pass on the costs at a time when it is struggling to keep customers.
Finance director Keith Down said in the past the company had used its rising food sales as leverage to renegotiate deals with suppliers and so keep costs down.
He indicated the com- pany would follow price moves in the wider market but suggested that it would exercise caution so as not to deter customers.
"We are keeping our powder dry. If these cost pressures continue, anyone running a pub or restaurant will have to pass these costs on to the customer, but it is counter-intuitive to do so when times are tough."
Landsbanki analyst Kate Pettem said: "We are concerned about rising food costs. Food sales are a real emphasis for the pub sector as an offset to lost drinks profits."
A 10% increase in Wetherspoon's interim dividend to 4.4p was not enough to save the company from a sell-off. Wetherspoon shares fell 51.75p to 260p, cutting its market capital by £70.8m to £370.6m.
However, the rest of the sector was also affected, with larger FTSE-100 rivals Enterprise Inns and Punch Taverns down 3% and 2% respectively.
In the FTSE-250, All Bar One and Harvester owner Mitchells & Butlers was down 4%, despite being the subject of takeover speculation.
Wetherspoon said it would scale back its 2008 pub opening plans to 23 from the 25 to 30 it predicted in February. This year it is due to open outlets in Peterhead, Glasgow airport, and Musselburgh, although this may slip into 2009.
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