Could the return of an old favorite change the JD Wetherspoon share price?

The JD Wetherspoon (LSE:JDW), the company’s share price has fallen by approximately 10% since the beginning of the year. However, for the first time since 2019, the company intends to pay a dividend.

On Friday (October 4), investors had a lot more to say about the yearly results. Growing sales while reducing company costs has a huge impact on its financial results.

Results

Comparable sales for the year ended July 2024 increased 7.6%. Overall the results were good: bar revenues increased by 8.9%, food by 5.6% and fruit machine turnover increased by 10.8%.

However, during this period JD Wetherspoon reduced its number of pubs from 825 to 800, meaning it now owns 72% of its premises. As a result, overall sales growth was 5.7%.

Importantly, a smaller number of pubs means lower costs – and this translates into a large increase in profitability. Operating profit increased by 30% and earnings per share increased from 26.4p to 46.8p.

This means that operating income has returned to pre-pandemic levels. And while net debt has increased slightly, it is only 2.58 times cash earnings – the lowest in over a decade.

Dividends

None of this should come as much of a surprise to shareholders. Throughout the year, he recorded an increase in sales while looking for ways to reduce expenses.

The story that investors may not have expected, however, is the dividend news. For the first time since 2019, JD Wetherspoon will start returning cash to shareholders again.

The company continues where it left off, with a distribution of 19p per share. However, investors should remember that this was the full payout in 2019, while it is only the return for the second half of 2024.

At today’s prices, this gives a dividend yield of 1.64%. It may not seem like much, but I think it’s one of the clearest signals that management believes the company is on the right track.

Risk

I believe that the company’s results for this year were very impressive. However, in his remarks to shareholders, CEO Tim Martin highlighted some significant risks to the company.

One is to shorten pub licensing hours and the other is to change the size of premises. None of these are inevitable, but each would be a challenge for the business as well as the wider industry.

I take the risk of changes in regulations seriously. However, I believe that Wetherspoon’s competitive position means that it can respond to these challenges better than its competitors.

Even if market share continues to decline from pubs, I think the company’s low prices should make it relatively resilient. That’s why cost reduction – which the company continues to do – is so important.

Lower prices

Increasing revenues while reducing costs is a powerful step for any company. Despite this, the company’s shares are still down about 10% since the beginning of the year.

There will always be challenges, but I consider this stock to be a good investment for my Stocks and Shares ISA at a price-to-earnings (P/E) ratio of 15. The latest results don’t change that.