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Greggs shares go stale as outlook predicts flat profits for 2018

Last updated: 09:00 09 May 2018 BST, First published: 08:44 09 May 2018 BST

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Severe weather from the 'Beat from the East' had caused the group to close several outlets

Greggs plc (LON:GRG) shares sank in lunchtime trading Wednesday as the company said it expected underlying profits for the year to be flat following slower like-for-like (LFL) sales growth in the first quarter of 2018.

The FTSE 250 bakery chain reported in a trading update that LFL sales for the first 18 weeks of the year were up 4.7%, slower than the 7.4% increase in the same period last year, while company-managed shop LFLs were up 1.3%, down from 3.5% growth in the same period a year ago.

READ: Greggs sees full-year adjusted profit meet expectations, but like-for-like sales growth slows

The group said despite a strong start to the year which saw 3.2% LFL sales growth in company-managed shops in the first 8 weeks, weak customer footfall in retail locations in the following period had impacted demand, especially during the severe weather caused by the ‘Beast from the East’ which closed several outlets.

As a result, the firm said average transaction values had continued to grow during the period but LFL transaction numbers had fallen.

Greggs also said it had opened 41 new shops during the period, with 12 closures resulting in a net gain of 29 locations with a total of 1,883 shops trading.

In its outlook, the group said despite sales in May having started more strongly than those in March and April, trading conditions during the first part of the year and a more cautious outlook meant it expected underlying profits for the coming year to be “at a similar level to last year.”

The news followed a cautious outlook when the group released its 2017 results, saying it expected industry-wide cost pressures to continue to dampen its earnings expectations into 2018.

In a note to clients, swiss bank UBS trimmed its target price for the group to 1,435p from 1,450p citing the reduction in short-term forecasts, however it maintained that the company was well positioned to drive profitable growth in the medium term.

City broker Peel Hunt struck a slightly less optimistic tone, saying that: “management's rhetoric is not encouraging and the conference call will be enlightening as to whether management sees the recent slowdown in footfall as a one off or indeed a signal of a wider trend.”

Meanwhile, analysts at Liberum commented that the weak customer footfall for Greggs over the period provided another indication that expectations for other high-street retailers should be set at a low level, particularly Superdry PLC (LON:SDRY) and Next Plc (LON:NXT) who will report results tomorrow.

Mike van Dulken, head of research at Accendo Markets, said: "Shares in Greggs have traded as much as 19% lower this morning after admitting that March and April trading was hit by low footfall as well as by cold weather. One might logically conclude that the former was a result of the latter, however, management has seen fit to distinguish between the two.

He added: "This suggests underlying weakness in demand for its offering, something management echoes by way of a still cautious FY outlook (“uncertainties over market footfall”) . 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."

In lunchtime trading, shares in Greggs were down 14.9% at 1,078p.

--Adds broker comments and updates share price--

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