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Stocks in Focus: Greene King Plc

This week I am looking at the impact that England’s recent success at the World Cup, and the UK’s unusually long spell of warm weather has had on the pub sector, and specifically Greene King.

When looking at Greene King in April, we discussed the impact that weather can have on the pub retailers and brewers. Greene King had blamed the “Beast from the East” earlier this year for their drop in like-for-like sales of 1.8%.  However, the news that some 59% of consumers were expected to watch an England game at a pub looked promising for the sector, and as Greene King has already seen like-for-like sales increase by 2.2% for May and June, we should expect reasonable figures for the quarter. 

Whilst this will no doubt be good for business, there are some concerns that consumer spending has been merely brought forward from later in the year. Greene King’s full year results, which were announced at the end of June, demonstrate the difficulties that pubs continue to face. Group revenue to the end of April was down 1.8% and margins are being squeezed now that inflation has begun to rise. In addition, they will continue to be affected by the rising National Living Wage, and higher input costs on food and drink, such as the recently introduced “sugar tax”.

Despite the problems facing Greene King, the company continues to show resilience in tough market conditions. The Brewing & Brands business has performed particularly well - revenues increased by 7.4% for the year and the division continued to gain market share in spite of the declining beer market. Looking forward, management intend to reduce costs further within the business to maintain margins and strengthen the balance sheet. However, with the World Cup now over this increase in consumer spending could quickly reverse. 

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