Bad weather has dampened pub retailer Greene King’s (GNK) like-for-like sales, down 1.2% in the 18 weeks to 3 September 2017, compared to a market decline of 0.7%.
That causes the share price to crash and analysts to say that earnings forecasts may have to be downgraded by as much as 7% for the next few years.
It also has a negative read across to sector peer Marston’s (MARS) whose share price declines by 6.3% to 106.3p,
WHAT HAS HAPPENED?
In the first 10 weeks of this period, Greene King’s like-for-like sales were in line with expectations, but trading has suffered since the second half of July when the weather worsened.
Unfortunately the brewer and pubs operator is cautious about the trading outlook as it expects weaker consumer confidence, higher costs and increasing competition to continue in the near term.
The disappointing trading update and downbeat outlook has spooked investors, triggering a 13.7% share price drop to 568.6p.
WHAT DO THE ANALYSTS SAY?
Liberum’s Anna Barnfather maintains her ‘buy’ recommendation but concedes that consensus expectations of like-for-like sales of ‘flat to 1%’ in the year to 29 April ‘look a stretch’.
As a result, she believes earnings downgrades of 3% to 5% are likely and investors may have to wait for the second half of the financial year for earnings momentum to return.
One broker not willing to take any chances is Karl Burns from Investec.
He has downgraded his earnings per share (EPS) estimates by 3% to 7% for the 2018 to 2020 and moved to ‘hold’ with a lower target price of 667p.
Like-for-like sales growth is anticipated at only 0.5% for 2018 and 1% for 2019 and 2020.
‘We believe EPS momentum remains limited given the weak like-for-like backdrop and high cost pressure environment, though the yield should provide some support to the share price,’ says Burns.
The stock is yielding nearly 6% based on his forecasts for 2018 and the current share price.
Pre-tax profit expectations remained unchanged at £268.4m in 2018 and £268.2m in 2019.
WHAT IS THE PUB GROUP GOING TO DO?
Greene King says excluding Fayre & Square, which is currently being rebranded, like-for-like sales were down 0.9%.
In a bid to reduce the impact of lower than expected sales and margin declines from cost pressures, Greene King aims to cut costs by £45m this year.
