Greggs: warns on profits as it pegs prices

Newcastle upon Tyne / UK. (ps) Greggs PLC is the United Kingdom´s leading bakery retailer, specialising in sandwiches, savouries and other baker-fresh food on the go. It has almost 1’400 retail outlets throughout the UK, trading under the Greggs and Bakers Oven brands. The Board of Greggs PLC reports on performance in the first 16 weeks of the Company´s 28-week second half, covering the period to 04 October 2008.

Sales

Total sales over the 16 weeks as a whole increased by 6,7 percent, including like-for-like growth of 3,9 percent. After the like-for-like rise of 5,8 percent in the first six weeks, sales growth slowed over the following seven weeks before recovering more recently. The period of slower growth reflected the extremely poor weather throughout August and early September, compared with much more favourable conditions in 2007. Since mid-September the company has enjoyed an encouraging sales trend, with like-for-sales in the three weeks to 04 October growing by 5,7 percent, despite comparison with a period of strong performance last year.

In spite of the increasing pressure on household budgets Greggs has seen only modest erosion of customer numbers and transaction values. The latest phase of its marketing campaign is under way, with TV advertisements emphasising the quality as well as the affordability of our products.

Operating profit

The substantial year-on-year increases in energy and ingredient costs noted in Greggs previous statements continued to be a significant challenge in the period. The full impact of these cost increases was not passed on in full to its customers as the company sought to reinforce its value for money positioning by absorbing short term margin impact.

Greggs is now reaching the anniversary of the first of the very substantial cost increases that started in 2007, and is seeing a stabilisation of the prices of many major ingredients and reductions in some areas including vegetable oils and vehicle fuel. This, combined with tightened control of operating costs, promises a more positive outlook for operating margins in the final 12 weeks of the year.

As a consequence of the period of slower sales growth and temporary margin impact from higher costs the company is reducing its expectations of operating profit for the current financial year by some three million GBP. The final outcome for the year will clearly depend on trading during the weeks ahead, however Greggs believes that its budget for the remaining part of the year is achievable.

Expansion and investment

The company has opened 53 new shops in the year to date and closed 22, giving a net addition of 31 units and a total of 1’399 today. Greggs is on track to achieve its target of adding at least 40 net new shops over the year as a whole.

In the current economic environment the company considers it prudent to lower its total capital expenditure and now expect to invest some 36 million GBP in the business over the year as a whole, as opposed to the 40 million GBP previously indicated. This includes Greggs major investment in its new bakery in Manchester. The plant is nearing completion and will commence full production during the first half of 2009, providing the company with additional capacity to support its continued expansion (source).

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