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Wetherspoon Cautious as Smoking Ban, Costs Bite

British pub group JD Wetherspoon warned on Friday that the smoking ban had started to take its toll and rising staff and interest costs would eat into profits, knocking its shares 6%.

Wetherspoon, which has around 670 pubs, posted a 5.6% rise in annual like-for-like sales to July 29, with profit before tax up 7% on a like-for-like basis to 62 million pounds ($126 million), a touch below analysts' average forcast of 63 million.

Chief Executive John Hutson told Reuters he was comfortable with analysts' forecasts for the new financial year but said costs would be steady, rather than declining as it previously expected as staff costs, and interest repayments would eat into the benefit of cheaper utility bills.

On average the firm is expected to earn pretax profit of 65.8 million pounds in the new financial year, according to a Reuters Estimates poll of 18 analysts.

Hutson said the true impact of the smoking ban was beginning to show itself as the like-for-like sales rise in August dropped to 1.1%.

"We think August is more reflective of where trading is likely to be at. If we can maintain what we have achieved in August for the year as a whole, it will be a reasonably good result."

The news drew a cautious response from analysts. "The full-year impact of the smoking bans leads us to be cautious with regards to the full-year outturn", said analysts at Altium.

Glorious Food

Unlike rival operators with large estates of country pubs such as Punch, Enterprise Inn and Greene King, Wetherspoon's pubs are concentrated on high streets and in town centres.

Hutson said unseasonal weather in June and July, which caused the worst flooding in Britain in decades, had helped its trading, driving customers in off the street and keeping them away from the rain-sodden beer gardens of its rivals.

"The weather has helped us because we operate pubs in town centres and suburbs... Probably most of the change, for us at least, is the implementation and settling in of the smoking ban."

Wetherspoon said it would continue to return cash to shareholders despite stepping up its expansion plans. "Everything is in the air regarding things like special dividend so at this stage we see a continuation of what we have been doing over the last few years," said Hutson.

"Any cash we generate will go into three areas dividends, building new pubs and buying back our shares." he added.

The firm paid a final dividend of 8 pence, taking the full-year total to 12p compared with 4.7p the year before.

Hutson said food sales since the smoking ban had risen sharply and helped compensate dropping in beer sales and the company now sells around quarter of a million breakfasts a year.

"In July bar sales grew by 1.3% and food by 24.8% and then in August bar sales declined on a like-for-like basis by 3.2% and food sales grew by 12.5%."

He added that the firm's plans to glean more cash from its property had taken a back seat since the recent rollercoaster plunges in the credit market.

"Given the recent turmoil, the pressure from shareholders and analysts has abated. At the moment we are just concentrating on the day-to-day operations," said Hutson.

Shares dropped 5% to 568 pence by 1030 GMT.