Bakery retailer Greggs (GRG) rises 2.5% to 438p as investors welcome improving like-for-like trends. A 0.5% same-store sales decline for the third quarter tempts bulls as the food retailer's strategy initiatives under CEO Roger Whiteside show encouraging signs.


Web news - Greggs chart - Oct 2013

Following a profit warning in August caused by the July heat wave, examined in detail here, a lack of downgrades accompanying today's trading statement triggers a relief rally at the retailer, having to contend with a cautious consumer, rising input costs and the structural footfall shift away from the high street.


Over the 13 weeks to 28 September, the value sandwiches-to-sausage rolls seller's like-for-like sales eased just 0.5%, a better-than-expected performance representing a material improvement on the 2.9% decline seen in the first half. The Newcastle-based retailer cooked up a 3.6% increase in total sales for 'Q3' with the help of net new shop openings and growth from franchised shops.


Whiteside, who took over as CEO from Ken McMeikan earlier this year, announced a number of initiatives alongside disappointing interim results (6 Aug) designed to refocus the business and reinvigorate organic sales growth. These include a focus on its core 'food on the go' customers, where it hopes to grab a greater slice of a growing £6 billion market by leveraging its heritage in fresh bakery, as well as plans to re-shape and improve the quality of the estate.


His early efforts appear to be working, with improved Q3 trading reflecting uplifts from store refits as well as a return to more normal weather patterns in August and September following July's balmy temperatures and Greggs' experimentation with longer store opening hours and investment in staffing.


Nevertheless, reaction among City analysts is mixed. Oriel Securities has a 'sell' rating and 350p price target for Greggs, pointing out 'the core estate remains exposed to changing shopping habits and increased levels of competition. It also sees downside risk to earnings forecasts and the dividend.


Panmure Gordon, forecasting taxable profits and earnings of £38.5 million and 28.6p for this year respectively, rising to £40.4 million and 30p in 2014, is more bullish. The broker writes: 'The early signs of the group's strategy initiatives are encouraging and today's update should be well received. We reiterate our "buy" recommendation and 450p target price.'


Another bearish number cruncher is Wayne Brown at Canaccord Genuity, who urges clients to 'sell' and has a lowly 330p price target for the British baker. 'Whilst the improvement in Q3 trading is a net positive, the investment case remains unchanged. Profits will continue to come under pressure over the next two to three years as the group invests in refurbishments and strategically repositions the business towards a "food-on-the-go" model. This does not come without execution risk alongside the shift of the model into a sub-sector that is probably one of the most competitive in the UK retail landscape.'

Issue Date: 09 Oct 2013