Greggs has recipe to beat credit crunch

Published on Thursday 31 July 2008 20:39

GREGGS is weathering the economic downturn as consumers hit by the credit crunch continue to snap up its pasties and sausage rolls.

The no-frills bakery chain, which has about 170 stores north of the Border, said like-for-like sales had risen 5.8 per cent in the past six weeks, an increase on the 5.1 per cent rise during the first six months of the year.

Serving up his last set of results before retirement, chief executive Sir Michael Darrington said the firm had been "resilient" in the face of weakening high street spending.

He admitted that the business faced significant pressures from rising energy and ingredient costs, but suggested it "might be benefiting" from shoppers buying a cheaper lunch.

"There is no doubt that the business climate has become more challenging since March," he said. "However, we are well placed to cope with this environment because of our focus on supplying the mainstream market with wholesome, tasty products and the wide variety of locations in which we trade."

Darrington, who joined Greggs in 1983 and oversaw its stock-market listing a year later, is handing the reins to Ken McMeikan, a retail veteran who hails from Stranraer and has worked for supermarket giants Tesco and Sainsbury's. Darrington will remain on the board as a non-executive director.

Greggs interim results, covering the six months to 14 June, revealed a 7.7 per cent rise in sales to 276 million.

Pre-tax profits, stripping out property and one-off gains, eased 4.3 per cent to 14.1m.

The company spent 6.7m buying back shares during the period.

Newcastle-based Greggs operates 1,382 stores in the UK – 163 of them under the Bakers Oven brand. It also has ten shops in Belgium. During the first half, the group opened 26 stores and closed 12, and is confident of meeting its target of adding a net 40 outlets over the full year.

Darrington is also confident that the firm can meet a full-year profit forecast of 48.8m.

"There is a great deal of uncertainty around, but we're comfortable with the forecasts in the market for the full year," he added.

Greggs said that sales progress slowed during March and April as a result of poor weather and a sluggish Easter, but trading had improved markedly since May.

The group raised its interim dividend by 6.5 per cent to 49p a share.

Clive Black, an analyst at Shore Capital, said: "Greggs will not be immune from down trading, but we believe that those customers it loses to making their lunches at home should be offset by those giving the higher category players a wide berth."