After Greggs PLC (LSE:GRG) issued an unscheduled trading update, where it lowered its full-year profit outlook, analysts said the baker's putting the blame on the hot weather did not ring true.
Like-for-like sales growth slowed to 2.6% in the first half, which analysts at Panmure Liberum suggested meant that June sales were negative.
Footfall weakened in response to unusually hot weather, the FTSE 250 group said, which, along with increased investment in store refits, meant that profit before tax is now expected to be modestly below last year’s £190 million.
Broker Shore Capital said it saw scope for mid single-digit downgrades to its current forecast of £190.4 million in pre-tax profit and anticipates further share price weakness.
Dan Coatsworth at AJ Bell raised doubts about attributing the sales softness to the weather alone. “It begs the question of whether Greggs is simply using the weather as a reason to mask bigger problems,” he said.
“Greggs says the hot weather has reduced footfall and that’s led to a cut in profit guidance.
"We’ve only had a few days of the temperature being uncomfortably high so one might suggest sausage roll king Greggs is telling porkies. It might simply be that shoppers are losing their appetite for the brand."
Commentary from Third Bridge pointed to more structural concerns. Analyst Alex Doran said the sales volume decline is "not a new phenomenon," and linked it to price increases and a shift away from its value-led menu.
He said experts were questioning the effectiveness of Greggs’ evening menu strategy and suggested the company may have exceeded its optimal store count.
Jefferies described the downgrade as “disappointing” but said it does not affect their view of the company’s fundamentals.
The broker felt the recent good weather has "undoubtedly been a factor" in trading across the sector, and Greggs "is one for which extreme heat is unfavourable (think sausage rolls and steak bakes)".
"We do not see this as a reflection on the underlying health of the business and it does not change our view on the fundamentals. We expect LFL acceleration in H2, and continue to see upside."