Greggs strikes cautious note as bad weather dents sales

In a trading update ahead of its annual general meeting, the FTSE 250 bakery chain highlighted weak customer footfall in retail locations, which hit demand for food-on-the-go. This was further exacerbated by severe weather, which meant some of its shops could not be opened.

"The combination of these factors, along with our strong comparative performance in the same period of 2017, has made for a challenging trading environment throughout March and April. Average transaction values continued to grow but we saw a reduction in like-for-like transaction numbers."

Total sales in the first 18 weeks of the year were up 4.7%, down from 7.4% growth in the same period a year ago, while company-managed shop like-for-like sales were up 1.3% versus a 3.5% increase the year before.

Still, Greggs said sales in May have started more strongly than the two preceding months, although given the uncertainty over market footfall the group said it was cautious about the outlook for sales in the balance of the year.

"We are well positioned to compete for sales in the months ahead with the launch of our new summer menu featuring new sandwiches and salads and we will be extending our offer of value meal deals. Costs are being controlled tightly with food input cost inflation easing in line with our expectations, and we expect this trend to continue.

"Taking into account trading conditions in the year to date, and our more cautious outlook, we currently believe that underlying profits for the year are likely to be at a similar level to last year."

At 1500 BST, the shares were down 15% to 1,076.44p.

Peel Hunt said: "Weather conditions were clearly unhelpful in March/April but management’s newly cautious rhetoric is the real surprise this morning and we’re taking the hint with our forecasts and rating. Footfall has been weak even leaving aside the weather conditions and management is not convinced that things will improve in the near term.

"There are no changes to the company’s wider strategy, and rightly so, but we have never been especially relaxed with the high teen multiple and the 'safe haven' status that this implied of Greggs. That halo has now slipped and whilst turning negative after the shares have fallen 15% may appear to be ambulance-chasing, the shares still trade on nearly 17x price-to-earnings and that for us is too high."

Mike van Dulken, head of research at Accendo Markets, said: "Today’s share price reaction suggests shareholders interpreting guidance for ‘underlying profit at a similar level to last year’ as implying a real possibility that it comes in below."

Shore Capital analyst Darren Shirley said the update is "disappointing" as he downgraded his FY2018 current pre-tax profit estimate by 7% to £81.3m.

"We retain our hold stance this morning as we asses were the share price settles, though anticipate immediate and material short term share price weakness on market opening."