LFL sales shift into reverse at Greggs

Hot snacks seller Greggs ended 2011 on a roll with like-for-like sales growth picking up sharply in the fourth quarter, but 2012 has got off to a slow start.

Sales growth in 2011 was a bit more than the market expected after a strong finish to the year while the profit before tax figure was a tad under-baked.

Total group sales for the 52 weeks ended 31st December rose to £701m from £662m, an increase of 5.8% and a few million above the £697m the market had been anticipating.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Like-for-like sales grew by 1.4% over the year as a whole, comprising an increase of 0.4% in the first half, 0.8% in the third quarter and 3.8% in the final quarter. The acceleration in sales in the final quarter reflects the much milder weather conditions in December 2011 than those experienced in the final month of 2010, when much of the country was blanketed in snow.

Total sales for the first 10 weeks of the current financial year to 10th March 2012 were up 3.3%, with like-for-like sales down by 1.8%. "It is too early to tell if this slower start is a sign of a more prolonged trend in sales, however we have managed costs well through this period and our profit performance remains on target," said Chief Executive Kennedy McMeikan.

Pre-tax profit before exceptional items was £53.1m, up 1.1% from £52.5m in 2010, with the bakery chain calculating that it lost around £1m in profits versus 2010 because of the Royal Wedding, reflecting its reduced trading hours and additional costs of operation on the day.

The market had pencilled in a figure of £53.94m for profit before tax.

Diluted earnings per share, excluding exceptional items, edged up to 38.8p (consensus: 38.95p) from 37.3p the year before.

After a record number of new shop openings in the UK in 2011 the group expects to increase its chain by around 90 in 2012. In 2011, the group opened 98 new shops and closed down 14 outlets.

The group has three types of shop: 'Food on the go', 'Local bakery' and 'Coffee shop'. Perhaps with half an eye on the stunning growth achieved by Whitbread's Costa Coffee, the board intends to try to grab a piece of the coffee shop pie. Greggs has been trialling a new coffee shop format, "Greggs moment", in its heartland of Newcastle upon Tyne, to general acclaim. As a result of the warm reception, the group will be opening three more "Greggs moment" outlets in 2012.

During 2011 the group also diversified into wholesaling, with Greggs branded sausages apparently selling like hot-cakes in the Iceland supermarket chain. The group is now working closely with Iceland to add more Greggs products to their range.

Worryingly for a statement referring to sausage rolls, the group said "we have seen no cannibalisation" of sales from existing Greggs shops operating in the areas where Iceland is selling Greggs-branded frozen sausage rolls.

Although the group is expecting 2012 to be another tough year for the UK consumer, there is, at least, the comforting prospect that inflationary pressure on fuel, domestic energy and food costs will ease off, and sentiment might get a boost from the Queen's Diamond Jubilee celebrations plus the major sporting events, the Olympic Games and the Euro 2012 football tournament.

As has been the case every year since Greggs floated in the early eighties, the dividend has been increased, with the full year payment up 6% to 19.3p from 18.2p in 2010. That payment is more generous than the 19.12p the investment analyst community had been expecting.

jh