High Street bakery Greggs warns of lower than expected profits this year after reporting a fall in underlying sales.
Excerpt from: Greggs bakery in profits warning
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The chancellor faces a stern test in the Commons; Greggs is urged to cut down its ambitions; retailers look to the internet
As you may have read elsewhere, George Osborne has a big week coming up. On Wednesday he will deliver what must be the most eagerly unanticipated budget in decades – not least, presumably, by the chancellor himself, who after last year’s debacle, will attempt to redefine the term tax relief by escaping from the chamber with his red box intact.
Those who claim to know about these things are expecting a dull speech as, firstly, Osborne cannot really risk another downgrade to his political credit rating; and secondly, the country’s finances are still in such a pickle that he possesses few real options.
Still, the standard tactic in such situations is to launch an attack on tax avoidance – as Osborne did last year. Then he railed against dodgers holding expensive properties within “corporate envelopes” warning: “I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around the new rules are found.”
Let’s hope he’s limbered up. Tax advisers have been peppering wealthy clients with notes suggesting clever ways of restructuring their property portfolios, while, as one expert puts it: “I don’t use the word lightly, but this whole [clampdown] is pretty much a farce and will have cost a fortune to set up and operate”.
Of all the measures George Osborne has been tempted to introduce this week, sticking VAT on freshly baked goods probably never attracted him.
You’ll recall he tried that last year with a move dubbed the “pasty tax”, leaving the bakery chain Greggs (among others) to claim that the move could have a “material impact” on its profits and force it to close some stores.
Osborne doesn’t talk much about that aborted effort these days, but the issue of Greggs and the odd store closure does recur – as we will likely hear this week when Roger Whiteside, the chief executive who is just a month into the job, has his first stab at a major results statement.
He needs to come up with something approaching a strategy to make Greggs look more appetising to parts of the City. Top of the menu, according to analysts at Liberum, will be greater investment in the shops, cutting the rollout of new stores, and being more aggressive on closing underperforming outlets. Still, the early signs of Whiteside’s ability to slash are not encouraging. The company’s corporate website features a video of his predecessor, Ken McMeikan, gushing about ancient plans to add 600 new stores.
Not long ago, retailers were preoccupied by acquiring more and more stores. It used to cause a right old stink (particularly with the supermarkets), but now that a glorified version of mail order is back in vogue this dash for more shops seems oddly quaint.
Tesco is so worried that internet shopping will make its vast warehouses even more unattractive places to shop that it spent £50m last week in the hope that the prospect of a Giraffe burger (it’s the brand, not a food scandal) will make a trip to the supermarket a family day out. If that shows how desperate things have become, we will get another reminder about the growing influence of internet retailing this week with two key clothing companies updating the City.
The biggest of these will be Next – which you may have noticed still possesses the odd store. That’s fine, but the City is more interested in the website, a business perfected years ago with Next Directory and which prompted a Panmure Gordon upgrade last week.
Then comes pure internet retailer Asos, which is expected to continue impressing, as well as unveiling a US warehouse plus updates on new websites in Russia and China. It’s a sign of how fashionable Asos has become that these projects are viewed as exciting. For other sectors, they’d be risky.
Bakery could soon be powering the British military after signing a deal with Armed Forces food supplier Naafi
Greggs goes marching on. The bakery, which has a grip on the high street and is targeting motorway service stations, could soon be powering the British military after signing a deal with the Armed Forces food supplier Naafi.
Sausage rolls and steak bakes will be available at the military base in Gutersloh, Germany for a 12-week trial at a Greggs-branded counter.
If successful the partnership could expand to military bases around the world such as Afghanistan, Ascension, Brunei, Gibraltar, the Falkland Islands and Northern Ireland – bringing a taste of home to the British soldiers abroad. The food would also be served on Royal Navy ships under the deal.
The plan was hatched after a survey of what food the members of the British armed forces missed the most; Greggs topped the list.
Ken McMeikan, Greggs chief executive, said: “It’s great to hear that Greggs was the most requested brand that troops missed from home and we are really pleased to be making our savouries accessible to our troops.”
Formerly no-frills baker now serves up artisan loaves such as herb focaccia and green olive bread
Here is the original post: Kipper Williams cartoon: Greggs serves up posher bread
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.
Greggs puts bad weather and pasty tax behind it with London stores getting an Olympic sales boost of 10%
Jessica Ennis celebrated her heptathlon gold by indulging in a bit of sub-athletic snacking – and it appears that Greggs customers have been doing the same during the first week of the Olympics.
Greggs said the group’s London stores have recorded a sales sprint in the opening seven days of the Games, with turnover rising 10%. Some outlets have witnessed growth of 80%, with its branch at the Westfield shopping centre – next to the Olympic site in Stratford – reporting record sales.
Like the rest of the UK, Greggs needed a good Games to get over a damp start to the year. The Olympics boost was the high point in second-quarter numbers which showed the chain had suffered from the pre-Games weather that swept the UK. The group, which has 1,600 shops in the UK after expanding beyond its Newcastle heartlands, said underlying sales fell 3.5% in the three months to 30 June. In the first half, profits fell 4.6% to £16.5m.
Kennedy McMeikan, Greggs’ chief executive, said: “The market remained challenging and was particularly impacted by the record levels of rainfall in the second quarter with UK high street footfall down over 7%. Greggs was not immune to this.”
McMeikan said the group’s profile had been raised by the furore over the pasty tax, caused by George Osborne’s decision to charge 20% VAT on hot pasties and sausage rolls – among Greggs’ top products.
MPs from Cornwall joined the campaign against the levy, which was strengthened by a 300,000-strong petition. Osborne backed down on the tax, and other ill-received budget measures, in May.
McMeikan, who delivered the petition to Downing Street, said: “There’s no question that the profile of Greggs is significantly higher than it was before the pasty tax started. But we were not able to see how much that has benefited sales; the chancellor announced the tax in March but in April it started raining and didn’t stop. This really is a very resilient performance, given the exceptional weather.”
Greggs’ margins had been squeezed partly as a result of higher promotional activity. It is on course to open a record 90
Greggs, the UK’s largest bakery chain, reports a drop in profits in the first half, blaming wet weather for a fall in like-for-like sales.
View post: Wet weather knocks Greggs profits
Grim statistics for Osborne, more mining concerns and an analyst with a taste for Greggs
When David Cameron was asked last week about the future of his embattled chancellor George Osborne, the PM replied: “He’s not going anywhere.”
How very honest. Even the most bullish economist reckons the UK economy is flat-lining and we get another chance to see just how short a distance George has travelled with a string of economic announcements this week.
The British Retail Consortium sales monitor (out Monday night) is expected to show muted sales for July (apparently there’s been some bad weather) with optimists hoping that a few punters were moved to stock up on the beer and crispy snacks as the nation’s couch potatoes limbered up for the Games.
Tuesday will also see industrial production numbers for June, and those figures are sure to be knocked by the month’s two-day public holiday. “The only question is just how dire will the industrial production figures for June be?” muses IHS economist Howard Archer, which makes a cheery segue into Wednesday’s Bank of England quarterly inflation report.
There the Bank will do what it does best – and revise its previous guesses on inflation and growth. All of which will leave it with the option of another monetary stimulus, just to try to get things moving again.
A big week for the big miners, with Xstrata reporting on Tuesday and Rio Tinto following them up on Wednesday. Both have been hit by a sluggish market for metals and minerals, with fears that demand from China – which has powered the sector – might slide further as its economic growth falters. However, while many analysts reckon that shares in both companies have been showing signs of perking up a little of late, pointing to attractive yields on both stocks, all that technical talk is largely academic, as only one big question remains: will Xstrata still be an independent by the end of the year?
Glencore’s proposed takeover of Xstrata still lurks in the background and even though analysts don’t expect an update this week, it looks precariously balanced. The cheeky move by the Qataris to build a 10% Xstrata stake and then demand better terms may still be an issue, but with the shares now at much lower levels, many investors might feel that they can rebuff Glencore without damaging their own investment. City scribblers at Liberum also question whether Glencore’s owners would bid more. Crunch time approaches.
For investors – just as for many of its customers – high-street baker Greggs has become something of a guilty pleasure.
We scoff our way through 140m of its sausage rolls each year, and City analysts seem to like what the baker has to offer too – with one such fan being Shore Capital’s Clive Black, hardly a loyal supporter of food retailers (though he may have indulged in the odd product).
The weak performance on the high street on the back of all the usual weather and consumer spending excuses are the typical reasons for avoiding these companies, but within that depressed scenario Greggs seems to have a decent enough story to tell, with plenty of new store openings to go alongside fresh places to sell its products, such as Moto service stations.
We’ll hear that all again this week when the company updates the market. Yet despite Black pencilling in like-for-like sales in the second half of the year that look flatter than a chapati (the same could also be said of the group’s share price graph), Black still reckons that Greggs’ “sales growth” and “strong balance sheet” make it his “positive play, for now”.
Just like a weight-watcher caught with a jam doughnut – it’s best to have a convincing explanation ready.
The former chief executive of Greggs tells why he has pledged to use his retirement to fight excessive boardroom pay
I am the founder of Pro-Business Against Greed. I was managing director of a public company, Greggs the bakers, for 24 years. I believe in taking a long-term view – building a business for the benefit of consumers, employees and shareholders – and being of benefit to society as a whole. For me, this is the moral and sensible justification for business’s existence in our civilisation. Unfortunately, this view of business has been largely undermined by the growth in excessive rewards and greed – the “because I’m worth it” attitude.
It is essential that our politicians and legislators bear down on these excesses – through encouragement, threat and legislation. We must have binding, forward-looking votes on remuneration at AGMs. As an absolute minimum, these should take place every three years. There must be appropriate regulation to ensure companies have external, independent members on their remuneration committees (university vice-chancellors, for example, would have the ability and common sense to be excellent candidates). There should also be regulation encouraging simplicity and transparency in pay packages.
I believe chief executives’ and senior bankers’ pay is too high and must be reduced. If their packages halved in value over the next few years, they would still be generous. There should be three elements of remuneration: basic pay for doing a good job – the sort of good job one would expect of the average chief executive – an annual bonus up to a maximum of 100% of salary for a truly exceptional performance, and grants of shares to match an individual’s investment in shares, made out of their bonus. To encourage long-termism, these shares should vest over between seven and 15 years, and not be saleable until three years after they have retired or left the company.
Politicians and legislators, as well as company boards and investors. must keep up the pressure if we are to reduce this gross inequity which has grown up in our society.
UK’s biggest bakery chain warns government plan to charge VAT on freshly baked goods will lead to ‘further unemployment, high street closures and reduced investment’
Greggs has warned the government’s proposed “pasty tax” could have a “material impact” on its profits and force it to close some stores.
Derek Netherton, chairman of the UK’s biggest bakery chain, said George Osborne’s plan to charge VAT on freshly baked goods will lead to “further unemployment, high street closures and reduced investment”.
“Savoury sales are more than a third of our turnover, and the outcome of the consultation process could have a material impact on our sales and profits,” he said in a trading update.
The profit warning sent Greggs shares, which have already lost 13% of their value since the changes were announced in the budget, down 19.5p to 476.5p in early trading.
Netherton said the extension of the 20% VAT rate to freshly baked food would have a “disproportionate impact” on the “speciality bakery sector”. He said Greggs will formally submit its objections to the proposed changes, which he said were “unworkable”.
“We support the government’s aim of tax simplification, including clarification of the definition of ‘hot takeaway food’. Greggs has always charged VAT on products in this category, such as hot sandwiches, soup and hot drinks,” he said. “What we cannot support is the government’s current proposal to extend the standard rate of VAT to freshly baked food where there is no attempt to keep it hot and which is not designed to be kept hot.”
Greggs reckons it would be better if VAT were charged on all food kept hot for sale, reheated to order or sold in heat-retaining packaging. This would mean freshly baked pasties served while they were cooling would be exempt from VAT.
The Newcastle-based baker has already delivered a petition with almost 500,000 signatures to Downing Street.
Greggs executives are likely to come under further pressure from shareholders to put a figure on the expected cost of the proposed changes at its AGM in Newcastle on Wednesday afternoon.
Despite the publicity created by the “pasty tax” Greggs’s like-for-like sales dropped 1.8% over the three months to 12 May. The company blamed the “exceptionally wet weather in April and early May” for the decline. Total sales were up 4.3% due to the opening of 25 shops.
The company is also pushing ahead with its ambitious move into the coffee shop market with opening of its second “Greggs moment” coffee shop in Middlesbrough and plans for three more before September.