Greggs Regulatory News (GRG)

9 Oct 2008 07:00



9 October 2008

GREGGS plc

INTERIM MANAGEMENT STATEMENT

Greggs is the UK'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 4 October 2008.

Sales

Total sales over the 16 weeks as a whole increased by 6.7 per cent, including like-for-like growth of 3.9 per cent. After the previously reported like-for-like rise of 5.8 per cent 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 we have enjoyed an encouraging sales trend, with like-for-sales in the three weeks to 4 October growing by 5.7 per cent, despite comparison with a period of strong performance last year.

In spite of the increasing pressure on household budgets we have seen only modest erosion of customer numbers and transaction values.  The latest phase of our 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 our 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 our customers as we sought to reinforce our value for money positioning by absorbing short term margin impact.

We are now reaching the anniversary of the first of the very substantial cost increases that started in 2007, and are 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 we are reducing our expectations of operating profit for the current financial year by some £3 million. The final outcome for the year will clearly depend on trading during the weeks ahead, however we believe that our budget for the remaining part of the year is achievable.

  Expansion and investment

We have opened 53 new shops in the year to date and closed 22, giving us a net addition of 31 units and a total of 1,399 today. We are on track to achieve our target of adding at least 40 net new shops over the year as a whole.

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

Future prospects

The business enjoys significant fundamental strengths in today's exceptionally challenging market and remains debt free and cash generative. The Board is confident that Greggs' consistent focus on providing great value for money to its customers and continued brand investment leaves the business well positioned for further growth.