Higher energy and ingredient costs have taken a bite out of increasing sales at Greggs, the bakery chain, which today gave warning that its full-year profits will be at least £3 million lower than forecast.

The North East-based bakery chain, which has 1,400 outlets in the UK, said that it had not passed on rising costs to its cash-strapped customers, as it sought to reinforce its reputation for value for money.

Shares in the bakery group fell by more than 3 per cent as investors reacted to the profits downgrade. Greggs also said it had reduced capital expenditure for the year to £36 million, compared with the £40 million previously indicated.

Total sales over the last 16 weeks to October 4 were up by 6.7 per cent, with like-for-like growth of 3.9 per cent.

However, extremely poor weather throughout August and early September caused like-for-like sales growth to slow to 3.9 per cent in the 16 weeks to October 4, although sales since mid-September picked up to show growth of 5.7 per cent.

Analysts had been hoping for pre-tax profits to come in at around £48 million for the year to the end of December.

Greggs 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 £3 million.”

The baker believes that it is well placed to survive an economic downturn. "In spite of the increasing pressure on household budgets, we have seen only modest erosion of customer numbers and transaction values," the group said.

It was also optimistic that food and energy costs were past their peak. "We are seeing a stabilisation of the prices of many major ingredients and 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."

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