By Gemma Taylor -
Sales at Greggs bakeries were up 4.2 per cent annually during the first half of its financial year in spite of tough trading conditions.
According to interim results published today, the company reported that sales were up to £335 million in the 26 weeks to July 2nd 2011, compared to £321 million in the same period in 2010.
Like-for-like (LFL) sales were up 0.4 per cent, in spite of the configuration of bank holidays that adversely affected trading and cost the business an estimated £2 million.
Underlying operating profit, which excludes exceptional items such as bank holidays, grew 0.8 per cent to £19.3 million.
The fast food retailer posted a record pre-tax profit for the last financial year, and opened 45 new stores in the first half of this year, closing just six. The company believes that it is on target to open 80 new shops throughout the year, following an investment of £5 million for shop refurbishment and refitting.
Kennedy McMeikan, CEO of Greggs, said: “Trading conditions have proved to be more challenging than we expected and we do not anticipate that the second half will bring any alleviation of the tougher consumer spending environment with disposable incomes remaining under pressure.
“Our total sales will benefit from our shop opening programme and we believe that marginally positive LFL sales growth over the year as a whole is achievable.”
May was said to be a particularly difficult month for the retailer, following a strong LFL performance in April, though improved growth in June and July has combated fears over declining figures.
The increase in commodity prices during the half-year affected a number of key ingredients, as well as general retailing and distribution costs.
McMeikan believes that the results in such conditions highlight the robust nature of the company.
He commented: “Our performance to date in these difficult trading conditions confirms our confidence in Greggs’ ability to deliver long-term profitable growth for the benefit of shareholders, employees and the wider community.”
Independent research analysts Shore Capital stockbrokers responded to this morning’s announcement by saying that whilst Greggs’ total sales have performed as expected, the results are “disappointing” nonetheless.
Director and Head of Research at the company Clive Black said: “Whilst sales have met our expectations, LFL sales were up by 0.4 per cent - Shore Capital had estimated 0.7 per cent.
“Operating profits even taking into account the burden of the royal wedding were light of our expectations.
“Hence, operating profit of £17.3 million is below our £18.2 million estimate (2010A; £18.5 million) due to the amalgam of the weak consumer and stubbornly high commodity costs.”
Shore Capital has now placed forecasts and recommendations under review, after an estimate that LFL sales were down 0.5 per cent in the last eight weeks of H1. Should this trend in trading continue, Shore Capital would expect that Greggs’ EBIT would be around £51 million, well below the forecast of £54.9 million.
It is hoped that the slight easing of comparatives will improve out-turn to around £52-53 million over H2, and Black remains positive about the company’s future performance.
He added: “Greggs has a robust balance sheet and whilst not immune from the current weakness of the consumer, the business is increasingly well set for the medium term.”