UPDATE 1-Greggs eyes healthy eating and digital world after profit slump

Wed Feb 26, 2014 6:56am EST

* FY underlying pretax profit 41.3 mln stg, down 19 pct

* Sales 762.4 mln stg, up 3.8 pct, down 0.8 pct lfl

* Lfl sales up 2.1 pct in first 8 weeks of new yr

* Shares down 7.3 pct (Recasts, adds detail, CEO, analyst comment, shares)

By James Davey

LONDON, Feb 26 (Reuters) - British baker Greggs has responded to a 19 percent slump in annual profit by targeting a bigger slice of the healthy eating market as well as a move into the digital world with a mobile phone payment option for shoppers.

The Newcastle, northern England, based firm, known for its pasties, sausage rolls, doughnuts and Belgian buns, said on Wednesday it was seeking to further grow sales of products below 400 calories, having grown them 20 percent in 2013.

"We've got a significant number of products, particularly in the sandwich range, that qualify under that banner and we want to make more of that as part of the sandwich work that we're doing," Chief Executive Roger Whiteside told Reuters on Wednesday.

Analysts at N+1 Singer reckon Greggs is working towards 50 percent of its sandwich range being a healthy option, noting that sandwiches represent 30 percent of the firm's total sales.

Greggs, which with 1,671 shops has more outlets in Britain than burger chain McDonald's, also said it had launched a mobile payment app that allows customers to pay for goods with their smartphone. Treats and rewards, such as a free breakfast, are built into the app.

The firm said the scheme is the first launched by a UK "food-on-the go" retailer that eliminates the need for customers to carry a separate loyalty card or their wallet when they shop.

Data and surveys have shown an improving outlook for UK consumer spending, which generates about two thirds of gross domestic product, but retailers remain wary as inflation continues to outpace wage rises.

Greggs posted a profit before exceptional items of 41.3 million pounds ($68.90 million) for the year to Dec. 28, in line with analysts' expectations, after a year in which trading was hit by competition from supermarkets and bad weather, as well as the cost of changes to the group's strategy.

The firm said early in 2013 that it planned to return to growth via its core "food-on-the-go" business - and abandoned a previous strategy to build cafes and supply third parties.

The retailer plans to invest 25 million pounds in process and systems platforms over the next five years. It has cautioned that this will constrain profit growth in the short term, though the net annual benefit at the conclusion of the programme is expected to be 6 million pounds a year.

Shares in Greggs, up 23 percent over the last year, were down 7.3 percent at 492 pence at 1115 GMT, valuing the business at 535 million pounds.

Total sales for the year grew 3.8 percent to 762.4 million pounds but were down 0.8 percent at stores open for more than a year.

Greggs said it expected market conditions in 2014 to remain challenging but added that it had been encouraged by recent trading, with like-for-like sales in the eight weeks to Feb. 22 up 2.1 percent. ($1 = 0.5994 British pounds) (Reporting by James Davey; Editing by Elaine Hardcastle)

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