The chairman, Derek Netherton, said like-for-like sales had been flat during the first nine weeks of the year - compared to analyst forecasts of a 2 per cent rise - but he said rising costs had meant profits were "materially lower" than the same time last year.
"We are taking action to ameliorate the effects of this more challenging trading climate by continuing to bear down on costs across the group, as well as finding more cost-effective ways of increasing sales," he said.
"However, profits in the first nine weeks are materially below the level of last year.
"Whilst it is much too early to predict the performance of the business for the year as a whole, we believe that it is unlikely that we will attain the level of profit achieved in 2005."
The warning took the shine off the announcement that the group had produced a record level of pre-tax profits last year, up 5 per cent to £52m on the back of a 4 per cent rise in like-for-like sales. The dividend was raised more than 10 per cent over the year to 106p.
Analysts at Numis said Greggs had suffered from increased competition from the likes of Tesco and Sainsbury's in inner city areas.
The group said that with air conditioning units and ovens running in each of its 1,300 stores, it was anticipating a rise of £5m in its energy costs this year, equivalent to around 60 per cent of last year's total energy bill.
"We believe that it will prove difficult to recover these extra costs through higher selling prices given the less buoyant consumer spending climate and increased competition," said Mr Netherton.
Greggs' managing director, Michael Darrington, suggested that the group may also be suffering from a health drive among UK consumers, but said that this was an area in which the group plans to raise its game over the coming months.
Shares in the company fell 12 per cent on the news - their biggest ever one-day drop - to close at 4,055p, giving the company a market value of £493m.
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