Wage hike dents UK pubs group Wetherspoon profit outlook

(Reuters) - British pub chain JD Wetherspoon (JDW.L) warned on Wednesday that full-year profits would struggle to meet analysts' expectations, citing higher labour costs as a result of rises in minimum pay.

Stock fell 9 percent to a 2.5 year low on Wednesday, top loser on FTSE 250 midcap index (FTMC).

Wetherspoon, which has over 900 pubs offering cheap deals such as a beer and a burger and curry nights, said profits for this year would probably be towards the lower end of analysts' expectations.

Wetherspoon expects operating margin for the half year ending Jan 24 to be about 6.3 percent, down about 1.1 percent from last year, mainly due to the increases in the starting rates for hourly paid staff in October 2014 and August 2015.

"Given limited pricing power and increasing supply in the sector (especially casual dining), we believe it will be difficult for JD Wetherspoon to achieve a margin-neutral level of sales growth," analysts at Nomura wrote in a note.

Higher wages, price competition and investment in improvements to its pubs are depressing Wetherspoon's margins.

Wetherspoon spends almost a quarter of its revenue on wages.

British finance minister George Osborne last year announced a pay increase in his first post-election budget, with the current 6.50 pound ($10.20) minimum wage set to rise to a 7.20 pounds for those aged over 25 from April.

Renamed the "living wage", the rate will grow steadily to over 9 pounds an hour by 2020.

Retailers such as Costa Coffee (WTB.L), Starbucks (SBUX.O), Lidl and Morrison (MRW.L) have already announced pay hikes for thousands of staff.

(This version of the story was refiled to remove extraneous word "next" in paragraph 8)

(Reporting by Aastha Agnihotri in Bengaluru)