Greggs plc’s (LON:GRG) could delay a special dividend after warning full year profits could be flat following a slowdown in like-for-like sales growth in the first quarter, according to Berenberg.
Berenberg downgraded Greggs to a ‘hold’ rating from ‘buy’ and lowered its target price to 1,066p from 1,225p.
“We continue to believe that the long-term market dynamics will enable the company to expand its estate considerably,” the broker said.
“However, the weaker like-for-like growth during the start of 2018 and management’s cautious outlook suggest near-term performance could be more subdued, which could in turn delay a special dividend.”
On Wednesday, the bakery chain reported a 1.3% rise in like-for-like sales in the first 18 weeks of the year, down from 3.5% for the same period a year earlier.
READ: Greggs shares go stale as outlook predicts flat profits for 2018
It said snowfall and icy temperatures from the ‘Beast from the East’ hit sales during the period as customers stayed indoors and some stores had to close due to struggles with deliveries and staff getting into work.
“Excluding the Beast from the East week in February, like-for-like growth was about 2.2% during the period, implying the underlying slowdown is less stark, but performance is still not as strong as it has been in recent periods,” Berenberg said.
Greggs said full year profits could be flat due to the weaker first quarter performance, sending shares down 15%.
Tough retail market could weigh on sales
“Thus, although we still like the company on a long-term view, given the limited near-term growth the entry point does not look as compelling as it did previously,” Berenberg said.
Greggs said trading had improved since the start of May but Bereberg thinks the rebound "does not appear to be substantial enough to suggest it will return to its previous trend".
The company has reduced its exposure to the high street by closing down some stores. If the retail market remains weak, this will continue to weigh on Greggs' sales, Berenberg said.
"As such, we reduce our 2018E like-for-like growth forecast to 1.9%."
Shares edged down 0.19% to 1,064p in morning trading.