Shares in Greggs have traded as much as 19% lower this morning after admitting that March and April trading was hit by low footfall as well as by cold weather. One might logically conclude that the former was a result of the latter, however, management has seen fit to distinguish between the two. This suggests underlying weakness in demand for its offering, something management echoes by way of a still cautious FY outlook (“uncertainties over market footfall”) . In fact, today’s share price reaction suggests shareholders interpreting guidance for ‘underlying profit at a similar level to last year’ as implying a real possibility that it comes in below.

Sales growth of +4.7% in the first 18 weeks of 2018 may have faced a tough comparable (+7.4%), however, like-for-like sales still slowed to +1.3% from +3.5% in the same period last year. After rallying into today’s update, the shares have resumed their 2018 reversal and backtracked to levels last traded mid-April last year. Feb’s message about a good start to the 2018 was ignored, and today’s update vindicates those who bailed out at the time. Comments about improved sales into May are also, understandably, being taken with more than a pinch of salt.

Along with April BRC Sales -4.2% overnight (early Easter to blame), this and Greggs’ message only adds to a grim flow of news from the UK high street. Consumer confidence was already waning ahead of Brexit and what was a potential rate hike (no longer), hurting retail zone footfall, before inclement weather blew in to make matters worse and dent FY expectations. Note that price competition for on-to-go food could also step up a gear should a Sainsbury-Asda deal get the green light and the tie up allow the pair to slash prices as suggested.

Mike van Dulken, Head of Research, 9 May 2018