Greggs profits fell by 19.1% during 2013 and the bakery chain said it expects "challenging market conditions" to continue during 2014.
The firm, which is based in Newcastle, posted a drop in like-for-like sales of 0.8%, although total sales rose by 3.8%.
The company announced last year that it would change strategy, focusing on food-to-go units rather than cafes, and refitting hundreds of its stores.
Today in its annual results, the firm said it was "making good progress" with that plan.
The bakery chain Greggs will close around 40 shops and give its existing stores a makeover, after a £2m drop in profts. The Newcastle-based company, which currently has nearly 1700 outlets, blamed the fall on the summer heatwave.
One of the North East's biggest businesses have announced a shock profits warning today, causing a marked drop in its share value - and raising more fears about the pace of the country's economic recovery.
Greggs the Bakers blames bad weather on a drop in like-for- like sales for the first four months of the year.
The company has warned it now expects profits for the whole year to be lower than first forecast.
Greggs the Baker has reported much lower profits than expected - as a result, the company's share-price took a nose-dive this morning.
The Newcastle-based sandwich chain is blaming the bleak winter for a 4.4 per cent drop in sales in the last 17 weeks.
It has triggered a fall of more than seven per cent in the company's share price.
A spokesman says they do not expect any significant improvements in the short-term.
The son of the man who founded baking giant Greggs has been arrested in Newcastle upon Tyne on suspicion of a historic sexual offence.
71-year-old Colin Gregg, who for more than thirty years was a non-executive director of the North East business, was taken in for questioning on Saturday.
The police, who raided his home in Gosforth, say that he has now been released on bail.
Mr Gregg, son of founder Jack Gregg, is also the former headmaster of King's School in Tynemouth and set up the North East Children's Cancer Run in the 1980s.
He reportedly has shares in the bakery business worth around £5.5 million.
Shares in the Newcastle-based baking giant Greggs rose by 6% this morning after the Government climb down on 'pasty tax'.
Ministers have decided to reverse plans to charge VAT on hot baked goods such as pasties, pies and sausage rolls.
Shares in the firm had fallen by 15% in the wake of the announcement in the Chancellor's Budget in March.
Greggs Chief Executive Ken McMeikan has urged Treasury ministers to rethink the planned VAT rise their products.
In his budget, Chancellor George Osborne proposed introducing a 20% tax rate on hot takeaway foods.
Mr McMeikan says Greggs' pasties, pies and sausage rolls should not be subject to VAT because the customer cannot be guaranteed a hot product.
The Prime Minister David Cameron revealed that he like pasties when questioned at a press conference for the London Olympics.
His comments followed an earlier statement from Chancellor George Osborne, saying that he couldn't remember the last time he bought a pasty from Greggs.
The Chancellor George Osborne has admitted he can't remember the last time he ate a Greggs pasty. The comment came in a Commons select committee when he was questioned by Bassetlaw Labour MP John Mann. Mr Osborne wants to introduce VAT on hot takeaway food such as pasties and sausage rolls.