Greggs profit warning signals spread of UK retail woe
Slowdown extends as ‘no part of the high street appears to be immun
hares in Greggs fell by almost a fifth on Wednesday after the high street bakery chain warned on full-year profits and analysts pointed to a retail downturn even at the cheapest end of the high street.
The news came as pub operator JD Wetherspoon reported a recent slowdown in sales and data showed a record slump in British retail sales for April.
Greggs, which sells £2 breakfasts and sausage rolls for under £1, blamed “weak customer footfall in retail locations” for sagging demand for its food-on-the-go and warned that underlying profits for the full year would not be any higher than they were in 2017, when it notched up £81.3m of earnings on this measure. Analysts had expected a 2018 result of roughly £87m.
Roger Whiteside, chief executive, said: “Customers are spending more but there are just fewer of them out there.”
People visit Greggs when they are already out doing something else, he said, so cutting prices would not work as a strategy. “Reducing the price of a sausage roll isn’t going to bring them out.”
Trading conditions, he said, have been tougher. “Having seen 18 months of the year it can’t all be explained by weather, there’s something going on so we need to be more cautious for the year ahead.”
Its shares fell as much as 19% in early trading, before the decline eased to 14% down by mid-morning to settle at £10.87.
Wetherspoons, which is known for its deals that offer a meal and an alcoholic drink for less than £10, said that its like-for-like sales rose 3.5 per cent in the three months to late April. This was markedly lower than the 6 per cent increase reported in the previous quarter.
“No part of the high street appears to be immune from this downturn now,” said Darren Shirley, a retail analyst at Shore Capital. “Greggs is represented across the country, and from what they are saying there is a slowdown across the board.”
The UK’s retailers are undergoing a torrid time as a shift to online retailing and a downturn in consumer sentiment related to high property costs, wage growth that is only just inching ahead of inflation and economic uncertainty in the lead-up to Brexit.
Retail sales declined by a record 4.2 per cent in April compared with the same month last year, according to the British Retail Consortium. The figures were distorted by the timing of Easter this year, with shoppers doing much of their stocking up in March.
Meanwhile, the Recruitment and Employment Confederation has reported a “significant dip in the demand for retail staff”.
The downturn has already prompted a number of retailers and restaurant groups including Carpetright, House of Fraser, Prezzo, New Look and Jamie’s Italian to strike arrangements to escape leases and cut rent bills.
Also on Wednesday, property group St Modwen said is will dispose of more than a quarter of its shopping centre assets as it revamps its portfolio towards higher-growth areas such as the logistics hubs and warehouses that serve online shoppers.
The landlord is selling its 220,000 square foot Longbridge Shopping Park in Birmingham to Zurich Assurance for £54m. It has also exchanged contracts to sell its 118,000 square foot Wembley Central shopping centre to an undisclosed buyer.
Chief executive Mark Allan said the sales aimed to “increase our portfolio focus on assets with better structural growth characteristics” and “accelerate the delivery of our 7.5m squ ft near-term industrial [and] logistics development pipeline”.
Last month, European shopping centre landlord Hammerson abandoned a £3.4bn plan to merge with smaller rival Intu. The takeover would have brought together ownership of the UK’s biggest shopping centres, with the combined group owning Brent Cross in London, Birmingham’s Bullring and Manchester’s Trafford Centre. Some investors opposed the deal, however, because of pessimism over the prospects for retail landlords.
In announcing it was cancelling the Intu takeover, Hammerson acknowledged that the financial strength of retailers and tenants in the UK had “softened”