September 8, 2017 / 6:58 AM / 14 days ago

UPDATE 2-Weak spending, rising costs hit UK pub group Greene King

* Underlying pub sales down 1.2 pct in 18 weeks to Sept. 3

* Blames weak UK consumer, “unprecedented” cost pressure

* Shares fall as much as 15 percent to five year low (Adds details, shares, analyst quote)

By Rahul B

Sept 8 (Reuters) - British pub group Greene King reported a drop in sales and warned weak consumer confidence and rising costs were set to continue, sending its shares down as much as 15 percent on Friday.

The company, which runs more than 2,900 pubs and restaurants, said recent mixed weather and a drop in business at its family pub restaurant brand Fayre & Square had contributed to the decline.

However, it also joined rivals in pointing to a broad-based weakness in consumer confidence as incomes are squeezed by rising inflation, and to growing costs in the industry such as from the national minimum wage and from a weaker pound.

“We remain cautious about the trading environment and expect the challenges of weaker consumer confidence, increased costs and increasing competition to persist over the near term,” it said in a statement.

At 0855 GMT, Greene King shares were down 12.4 percent at 578 pence after touching a five-year low of 559 pence.

The company, which also brews beers such as Greene King IPA, Old Speckled Hen and Abbot Ale, said pub like-for-like sales for the 18 weeks to Sept. 3 fell 1.2 percent, compared with a market decline of 0.7 percent.

It said cost savings were helping it to contain the impact of “weaker than anticipated sales” and “unprecedented industry cost pressures.”

However, Investec analysts cut their recommendation on the stock to “hold” from “buy” and slashed their target price by 183 pence to 667 pence.

A string of Britain pub and restaurant groups including Mitchells & Butlers and Whitbread have also reported slowing demand - a warning signal for the country’s economy which relies heavily consumer spending.

Budget pubs chain JD Wetherspoon is due to report full-year results next week. (Reporting by Rahul B in Bengaluru; Editing by David Goodman and Mark Potter)

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