Greggs shares tumble as bakery chain serves up lukewarm sales

High street chain blamed bad weather and lower footfall for struggling sales

The bakery chain said profits for the year are likely to be the same as last year’s (Reuters)

Shares in Greggs fell by as much as 19 per cent in early trading on Wednesday after the bakery chain said it was “cautious” about sales this year – and analysts warned the proposed Sainsbury’s-Asda merger could make things worse for the group.

The company reported a 1.3 per cent increase in like-for-like sales in the 18 weeks to 5 May 2018. However, the group added that it experienced a challenging trading environment in March and April, blaming a drop in footfall and weeks of poor weather during that period, which led to the closure of some stores.

As a result, although transaction values continued to grow, the number of transactions taking place fell.

Mike van Dulken, head of research at Accendo Markets, noted that Greggs said sales had struggled due to lower footfall and poor weather, but did not link the two reasons.

“This suggests underlying weakness in demand for its offering, something management echoes by way of a still cautious full year outlook,” he said.

“In fact, 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.”

Mr Van Dulken added: “Greggs’ message only adds to a grim flow of news from the UK high street. Consumer confidence was already waning ahead of Brexit and what was a potential rate hike (no longer), hurting retail zone footfall before inclement weather blew in to make matters worse and dent full year expectations.”

He also warned that price competition for on-the-go food could also step up a gear if the Sainsbury’s-Asda deal gets the green light and the new, combined supermarket group slashes prices by 10 per cent as promised.

Meanwhile, the group said sales of its healthier options continue to grow, but also announced that it planned to extend its value meal deals offer.

“Greggs is clearly doing well with hot drinks and hot savoury items, as it has done for a long time, but the jury is still out on whether introducing the likes of ‘feta and beetroot dip with grains and lemon salad’ is a step too far,” said AJ Bell investment director Russ Mould.

“The idea of reinventing itself to a ‘food-to-go’ chain has been in motion for some time and the business has seen success with more mainstream items like lower calorie wraps and porridge.

“However, there is a danger that Greggs’ transformation is happening at the wrong time with consumers increasingly cautious about how they spend money. That may explain why Greggs has now flagged that it will be extending its value meal deals offer.”

Greggs said sales in May have started more strongly than in the previous two months, but added: “Given the uncertainties over market footfall we are cautious in respect of the outlook for sales in the balance of the year.”

The group said: “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.”