Don’t Throw Out Greggs With the Food Scraps

(Bloomberg) -- The beast from the east, which brought snow to the U.K. in February and March, has played havoc with the pasty.

Greggs Plc, the bakery chain, said it expected underlying profits this year to be similar to the 82 million pounds ($111.5 million) it generated in 2017. Previously, the consensus of analysts’ forecasts had been 87 million pounds. The company said it was hurt by extreme weather conditions, as well as its customers pulling in their purse strings.

Its solid food offering and low prices have so far helped it to buck the weak-consumer trend. It looks like it wasn’t the only one to suffer from poor footfall. The British Retail Consortium said a 3.1 percent decline in total sales in April was the sharpest since the survey began in 1995. Though the reading was distorted by the earlier Easter, it’s nevertheless a bad sign. 

There’s some relief for retailers and casual restaurant chains on the way. The recent heat wave could well send consumers scurrying for their smartphones to order new sunshine-friendly outfits online, while pubs and restaurants will get a lift from alfresco dining. DIY chains and other retailers selling garden furniture and the like will also benefit.

That might not immediately help high street footfall, and that includes Greggs’s shops. After all, a hot pasty isn’t the ideal snack for a sweltering summer day.

The company’s shares fell 15 percent on the profit warning. They were already at a discount on a price to earnings basis to Patisserie Holdings Plc, and that differential has widened. That looks harsh. Greggs still has a strong offering, and net cash. 

Those retailers offering good value for money, including Greggs, are still best placed to cope with volatile consumer conditions.

These can’t be ruled out. As I have argued, although this might be the nadir for the customer, the recovery won’t be straightforward. Although shoppers should gain some breathing space as wage growth moves ahead of inflation, that may be short-lived. Rising oil prices and the pound’s slump against the dollar could stoke inflation and put pressure on disposable incomes once more, playing into value retailers’ hands.

The baker might no longer be on a sausage roll, but it doesn’t deserve to go out with the food scraps.

©2018 Bloomberg L.P.

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