According to an interim management statement from the firm: “… we have had six disappointing weeks of trading as a result of the exceptionally wet weather in April and early May”.
Despite tough trading conditions, tight cost control had mitigated some of the impact of the bad weather, said the firm.
Total sales for the first 19 weeks rose by 4.3%, as the baker opened 20 new shops and completed 42 refits. The firm said it was on track to meet its target of a net 90 new shops by the end of the year. It also plans to refit up to 120 stores before December.
During the period Greggs expanded its wholesale operation with the launch of eight frozen take-home products. “Following the successful roll-out of frozen Greggs-branded sausage rolls into Iceland foods, the range has been extended to include a further seven savoury lines and one sweet line, which are now available in more than 750 Iceland stores,” said the financial statement.
The baker said the performance of its first motorway services shop in Cheshire was “encouraging”. A second shop in partnership with Moto Hospitality is due to open at Birch services on the M62 in June.
Pasty tax
The firm’s chairman Derek Netherton also highlighted the negative impact of the government’s decision to impose VAT on freshly baked food – dubbed the pasty tax – revealed in the budget.
“We support the government’s aim of tax simplification, including the clarification of the definition of hot take-away food. What we cannot support is the government’s current proposal to extend the standard rate of VAT to freshly baked food, where there is no attempt to keep it hot and which is not designed to be kept hot,” said Netherton.
“The proposed changes are in our opinion unworkable and would give rise to many new anomalies and further uncertainties.”
A simpler solution for the government and consumers would be to charge VAT on all food kept hot for sale in a heated environment after cooking, all food re-heated to order and all food supplied in heat-retaining packaging.
“This would clearly differentiate between fresh bakery food and food that is being sold intentionally hot,” said the firm.
The decision will have a significant impact on Greggs' sales and profits, since savoury sales account for more than a third of total turnover, it added.
Financial analysts Clive Black and Darren Shirley of Shore Capital said the firm was able to tough out difficult trading conditions.
Top-line growth
“The group has top-line growth through scope to materially expand both its own store estate and other channels of distribution.
“Like-for-like sales growth would, of course, be welcome. But we believe Greggs has the capability to tough it out in these markets, more so than many of its competitors with its strong value credentials. At the same time Greggs is remaining relevant to market developments through range development,” they said.
They went on to describe proposed VAT changes on hot takeaway food as “a worrying challenge”.
Black and Shirley added:“From a commonsense perspective, we share management’s palpable frustration with what the mandarins and ministers in Whitehall – who live and work in a different universe from most Greggs’ customers – propose in the budget.”
Netherton will deliver the interim management statement to shareholders at the annual general meeting to be held in Newcastle upon Tyne today (May 16).