Sausage roll specialist cautious about outlook, with consumer conditions remaining challenging
Fresh from the pastygate chaos in the wake of George Osborne’s budget, sausage roll specialist Greggs has seen sales slump thanks to one of the wettest periods in the UK on record.
The takeaway food retailer saw half year sales up 4.5% but this was boosted by new shop openings. Like for like sales fell 2.3% in the six months, but the slump was 3.5% in the second quarter following the heavy rainfall in April to June. Profits for the six months slipped £800,000 to £16.5m and the outlook is not particularly bright. The company said:
Our total sales growth of 4.5% reflects the good performance from our new shop opening programme and strong growth in wholesale volumes. The market remained challenging and was particularly impacted by the record levels of rainfall in the second quarter, with high street footfall down over 7%. Greggs was not immune to this and our like-for-like sales fell by 3.5% in the second quarter.
Conditions for consumers are likely to remain challenging in the second half and we will therefore continue to focus on delivering outstanding value for our customers.
There are some signs of future increases in global food ingredient costs; however we are largely covered against this for the remainder of 2012.
It is also expanding its outlets in Moto motorway services sites, with 30 at present creating 500 jobs. The government’s embarrassing U-turn on charging VAT on heated food seems to have done little to lift the mood, and the company’s shares are currently 6.8p lower at 498.2p. Analysts at Liberum Capital said the results were below their expectations:
Like-for-likes for the 26 weeks to 30 June were -2.3%. Having being tracking at – 1.8% for the first 19 weeks of the first half, this implies that like-for-likes over the last 7 weeks were -3.7%. The record levels of rain in June will have negatively impacted sales as well as the additional bank holiday in June for the Diamond Jubilee.
Last year, Greggs stated that current trading was ‘marginally positive in July’ however, this year the company do not disclose current trading for the start of the second half. The company has stated that ‘achieving positive like-for-like growth in 2012 is unlikely’ and that the consumer conditions remain ‘challenging’. We continue to believe that the structural decline in footfall on the UK high-street is the main risk of the Greggs investment case as more than 90% of Greggs’ stores are located on the high street.
Darren Shirley at Shore Capital was more positive:
Greggs is currently trading on a 2012 PE of 12.4 times, and with a dividend yield of 4.2 times. Whilst it is not immune from the ongoing consumer constraints and the inclement weather, we reiterate our buy recommendation post today’s update, reflecting the medium to long term store growth potential that remains in the UK (around 100 stores per annum), the margin expansion potential from the ongoing investment in manufacturing infrastructure, the strong cash generation and balance sheet strength. Greggs remains our only positive recommendation in UK food retail.
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