Greggs feels the pinch

Sales of frozen 'bake at home' products sold through Iceland and 10 new franchise stores in motorway stations contributed 2.8 percentage points to total revenue growth at the UK bakery chain, while same store sales fell 2.7 per cent. This led to a 2.2 per cent fall in underlying operating profit to £51.8m, causing margins to drop 50 basis points to 7.1 per cent.

Chief executive Roger Whiteside blames poor like-for-like sales on falling disposable incomes and wet weather. He says Greggs will now refocus on its core estate of 'local bakery' style shops and food-on-the-go outlets. Therefore, there will be half the number of new stores openings this year (50 to 60 units), with capital expenditure redirected to revamp twice as many existing ones (250).

While fewer new stores might dampen short-term sales, it may provide a stronger platform for growth as fresh store layouts are proving successful. Like-for-like sales in the reformatted food-on-the-go shops increased by single digits, while local bakeries, launched in June, delivered doubled-digit growth. The refurbished estate should also give Greggs greater pricing power. Greggs still aims to expand its wholesale arm and plans to build a £30m frozen food manufacturing facility factory in the East Midlands.

Canaccord Genuity expects flat adjusted EPS of 39p in 2013, rising to 40.8p in 2014.