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8:43am Friday 10th October 2008

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BAKER Greggs yesterday cut £3m off its annual profits forecast, in a move attributed to rising costs and weather-hit sales.

The North-East based company, which has 1,400 outlets nationwide, said increases in energy and ingredient costs are a “significant challenge”, and that the poor August and September weather had hit the business further.

Greggs said like-for-like sales growth for the 16 weeks to October 4 has slowed to 3.9 per cent, although sales since mid-September are more encouraging with growth of 5.7 per cent.

City expectations were for the Newcastle-based baker to record pre-tax profits of about £48m for the year to December.

In the half-year to June 14, Greggs announced pre-tax profits of £14.1m, a drop of 4.3 per cent on the previous year.

The company said its latest profit forecast could be attributed in part to it not passing on the full impact of its increased costs to customers.

A spokesman said: “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 £3m.”

Greggs said in a statement that its desire to maintain the brand’s value-for-money market position – publicised in a high-profile advertising campaign featuring comedian Paddy McGuinness – meant it absorbed some of the recent impact on margins.

However, it added that prices for many ingredients were now stabilising, with 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. It was stated that increasing pressure on household budgets had only resulted in a ‘‘modest erosion’’ in customer numbers and transaction values. Greggs, which also trades as Bakers Oven, has opened 53 new shops in the year to date and closed 22.

It is on track to add a net figure of 40 new shops to its estate for the year as a whole.

The company also said it had reduced capital expenditure for the year to £36m, compared with the £40m previously indicated.

Spending includes a new bakery in Manchester, which is near to completion and will commence full production in the first half of next year.