Greggs cheered by sales trend
A major revamp of struggling bakery chain Greggs has helped the business stem a sales decline but investors have been told profits will remain under pressure for two years.
Chief executive Roger Whiteside said he was "encouraged" by trading figures showing like-for-like sales down 0.5% in the 13 weeks to September 28, improving on the 2.9% fall in the first half of the year.
A new pizza range, a £2 breakfast deal, and a new cake range including Viennese fingers and toffee crunches have boosted performance as the group moves away from its traditional bakery format towards "food on the go".
Meanwhile, 70 stores are being closed this year as the business relocates outlets from high streets to workplace and transport focused sites. Mr Whiteside said: "We just don't sell much any more of bread or cake to take home."
The Newcastle-based group has already issued two profit warnings this year, the latest following a 3.2% drop at the start of the current period, when the heatwave melted away any signs of optimism.
But Mr Whiteside said an improving sales pattern returned in August and September, with like-for-like sales up 1% over the eight weeks.
However, he said the costs of investing in the business were likely to constrain profit growth over the next two years.
Mr Whiteside said: "We are encouraged by the recent improvement in like-for-like performance, although with consumer disposable incomes still under pressure we remain cautious."
He declined to predict when quarterly sales would return to growth as the trading environment remained "fragile".
"We are having to fight for every penny because people don't have any more money in their pockets," said Mr Whiteside.
The chief executive said Greggs had "made good progress" developing its new strategy and focusing on "food on the go"- while a refurbishment of stores and longer opening hours have also had an impact.
"Customers are enjoying the contemporary new look, easy to navigate range and the provision of seating where possible," he said.
Mr Whiteside has put a brake on an expansion in shop numbers, which will now be flat as 70 store openings are matched by closures elsewhere.
The business has completed 141 shop refits so far this year and is on course for 215 by the end of 2013.
Analysts at N+1 Singer said it was too early to say whether the quarterly figures marked a turning point but steps to drive growth appeared to be gaining traction.
But Canaccord Genuity analyst Wayne Brown said while the latest figures were an improvement, its "sell" rating remained unchanged as profits are under pressure amid a shift into a highly competitive sub-sector of food retailing.