Bad weather and the pressures of the high street have hit Greggs’ sales, leading the retail baker to issue a profits warning.
Like-for-like sales in Greggs' shops were down
In its Interim Management statement issued to the stockmarket today (April 29), the company said its own shop’s like-for-like sales were down by 4.4% for the first 17 weeks this year.
The company attributed the slump to “adverse weather in January and March” and low footfall on the high street caused by consumers being “under pressure”.
The statement said: “We are continuing to experience lower footfall across much of the estate, although average transaction values have increased marginally.”
Industry commentator Julian Wild, food group director at legal firm Rollits, thought the pasty tax had hit the company hard.
Pasty tax
He told FoodManufacture.co.uk: “Although they made a big fuss about the introduction of VAT on hot food, I think they’ve had to recognise that, with the changes that were made, they’re still affected significantly because they’ve had to put VAT on a number of their hot products. They were hoping they could skate around it.”
Issuing a recommendation to ‘hold’ on Greggs shares, City analyst Shore Capital said there was “little to be cheery about with respect to the future”, because Greggs had issued an earnings warning.
Greggs said: “We do not expect a significant improvement in the difficult underlying market conditions in the short term. The business is focused on continuing with our plans to invest in core sales performance, while taking action to reduce costs.
“Although we are only four months into the year, based on current own shop like-for-like performance, we believe that profits for the year are likely to be slightly below the lower end of the range of market expectations.”
Earlier this month Greggs announced it had won approval to build a new frozen savouries factory in the Midlands as it pursues its plans to move into packaged supermarket retail.
New frozen savouries factory
It also opened 18 new shops in the first 17 weeks, including six franchised units with Moto Hospitality. This represents a net addition of 10 shops after eight closures, giving the company a total of 1,681 shops as of April 27.
Greggs said: “Our new shop openings remain focused on locations that have been less impacted by lower footfall such as workplaces, travel and leisure destinations.”
The new factory will supply the increasing number of retail outlets in addition to supermarket contracts.
Wild thought the retail chain needed to vary its offering to survive the tough competition on today’s high street.
He said: “They [Greggs] probably need to vary their offering and it’s doing that with some of the innovations – new style of stores and café-type offerings. Look at some of the success of retailers such as Thorntons who had a good set of quarterly results. They’re shifting their offering to more of an FMCG business and putting less emphasis on retailing and maybe Greggs has to move in a similar direction.”
However, he warned of stiff competition in the market for frozen savouries. He said: “They’re competing with some pretty competent and efficient players such David Wood Baking, which is a very good operator in frozen savouries.”
