Profit alert knocks stuffing out of Greggs

Britain’s bleak winter sent a belated shiver through shares in Greggs yesterday after the bakery chain warned profits were hit by the protracted cold snap.

The freezing conditions meant fewer shoppers hit the high streets with a knock-on effect on lunchtime sales of pies, pasties and sausage rolls.

Like-for-like sales, which strip out the effect of stores opening, slid 4.4 per cent in the 17 weeks to last Saturday with last month’s adverse weather playing a big part.

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Although the sales decline moderated in the final couple of weeks, Greggs said its profits were currently running short of last year and against its own hopes.

Shares in the chain, which is one of the biggest retailers in the UK with almost 1,700 stores, slumped 8.6 per cent to close at 422.7p.

The company warned investors: “We do not expect a significant improvement in the difficult underlying market conditions in the short term.”

As well as the poor weather, Greggs has experienced lower footfall across much of its estate. It has attempted to offset pressure on its high street locations by focusing openings on workplaces, travel and leisure destinations.

The group has opened 18 shops so far this year, including six franchised units with motorway services operator Moto.

It has also completed 59 refurbishments in the period but closed eight shops.

Despite a relatively-low average transaction value of just over £2, Greggs has not been immune to the economic downturn.

A higher proportion of promotional deals has also meant a slight impact on its margins – a trend it expects to continue.

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In its latest trading update, the group said total sales in the period rose 3 per cent, driven by the store openings and a 2.9 per cent increase in wholesale and franchise income.

The profit warning came on the same day broadcaster Sky launched a TV series about Greggs entitled Greggs: More than meets the pie.

Philip Dorgan, an analyst at brokerage Panmure Gordon, said: “We think that lower footfall on the high street is structural and that Greggs needs to re-focus its business faster than it currently plans.”

Dorgan cut his price target on the Newcastle-based group’s shares from 550p to 450p.

Independent retail analyst Nick Bubb noted that the firm was guiding towards full-year profits of about £47 million, versus City expectations of between £47.5m and £55.2m.

He said: “It is no surprise to see such a mature business as Greggs issue a profit warning, but it is a surprise that it is still opening new stores, with the total up to nearly 1,700 now.”

Last month, chief executive Roger Whiteside – who recently took over from Scots-born boss Ken McMeikan – said that the firm was sprucing up its stores to persuade cash-strapped shoppers to visit.

“There are fewer customers about shopping,” he conceded yesterday. “What we’ve got to do is attract more of those customers to Greggs.”