An extended product range, new outlets, and store refurbishments helped bakery firm Greggs plc (LON:GRG) post a 10% rise in 2016 profits, beating market forecasts, but the firm's shares fell as it highlighted a "more challenging" UK consumer outlook.
The FTSE 250-listed firm, which is transforming itself into a food-on-the-go retailer, reported pretax profits before exceptional items of £80.3mln for the year to December 31, up from £73mln in 2015 and above the average forecast of £78.7mln.
The group's total sales rose by 7% to £894.2mln, with sales at stores open over a year up 4.2%.
Greggs said it had improved its product range, extending choices in hot drinks, hot food and healthy options over the period.
It also refurbished 208 shops and opened a net 66 new shops in 2016, taking the total to 1,764.
The firm said trading in 2017 has started in line with expectations, with like-for-like sales at shops which they manage up 2% in the eight weeks to February 25.
Greggs reiterated that the UK consumer outlook was more challenging than it has seen in recent years, but said it is "confident of making further progress."
Greggs shares dropped 3% in early morning trading, down 33.5p to 977.5p, reflecting the “more challenging" conditions comment.
Analysts at Shore Capital said they are not changing their 2017 forecasts for Greggs despite current trading being slightly ahead of their expectations.
In a note to clients thy pointed out the “stock is trading on a FY2017 PER of 16.1x, an EV/EBITDA multiple of 7.9x and is forecast to yield 3.3%.”
Reiterating a ‘hold’ rating on Greggs, the analysts added: “We remain of the view that such valuations fairly reflect the short to medium term potential within Greggs, noting management has reiterated it expects rising commodity and labour costs to have a modest impact on margins in the short term.”
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