Bakery retailer Greggs has provoked cautious optimism from analysts over its latest quarterly trading update, with signs of a recovery in like-for-like sales.
Analyst Sahill Shan at N+1 Singer stated the third quarter update signalled the emergence of ‘green shoots’ after a tough couple of years for the business. It was “reassuring”, he said, and represented the best performance since second half figures for 2011.
“Whilst caution is merited, we feel the strategic steps being taken to drive sales growth are slowly beginning to gain traction. Further evidence of an improving trend will help rebuild confidence in the recovery thesis.”
Shan stressed like-for-like sales for the company had been in growth in August and September after it was hit by the July heatwave. Hot weather traditionally puts shoppers off buying hot baked goods.
Shore Capital analyst Darren Shirley said: “We take encouragement from the more positive trend.”
The weather
Matt Piner, research director at retail analyst Conlumino, acknowledged the uplift in sales for the latest quarter, but warned Greggs had to guard against being too influenced by the weather.
“After the July heatwave caused sales to plummet (like-for-like sales fell by 3.2% in the five weeks to August 3), a more temperate climate in August and September led to some recovery.
“With the severe January snow also causing a trough in sales, it is clear that Greggs needs to find ways to protect itself from the vagaries of the weather.”
Greater efficiency
He recognised the company was targeting greater efficiency, focusing on its food to go offering, reshaping its store estate and improving the environment in its shops to boost sales and profit.
Greggs reported like-for-like sales only 0.5% down in the 13 weeks to September 28, with new shop openings and continued growth from franchised stores supporting the revival. The performance represented an improvement on a 2.9% decline in the first half of the year.
However, all this still meant like-for-like sales were down 2.1% in the 39 weeks to September 28.
Greggs said it had completed 141 shop refits so far in the current financial year and was on track for 215 by year end. More than half of that figure would represent its new ‘bakery on the go’ store format.
“We are encouraged by the recent improvement in like-for-like performance, although with consumer disposable incomes still under pressure we remain cautious,” said Greggs chief executive Roger Whiteside.