- Total sales up 27.1% in first half
- Bakery retailer facing cost pressures
- Matt Davies appointed as new chairman
Shares in Greggs (GRG) fattened up 2.2% to £21.24 after the food-on-the-go retailer showed it continues to trade well and gain market share with total sales rising 27.1% to £694.5 million in the first half to 2 July 2022.
However, profits were flat due to higher levels of cost inflation, the re-introduction of business rates and an increase in VAT.
And the rising cost of raw materials, energy and wages means the value sandwiches-to-vegan sausage rolls seller doesn’t anticipate material profit progression this year.
MARKET SHARE GAINS
The FTSE 250 firm’s like-for-like sales in company-managed shops grew by 22.4% in the first half and were 12.3% above the comparable half in pre-Covid 2019, despite footfall remaining below 2019 levels.
Pre-tax profits were broadly flat year-on-year at £55.8 million as Greggs was forced to digest higher levels of cost inflation.
Greggs, which has appointed former Tesco UK & Ireland CEO Matt Davies as its new chairman, also served up the news like-for-like sales for the four weeks to 30 July were 13.1% above the equivalent period of 2021.
New CEO Roisin Currie, who succeeded Roger Whiteside earlier this year, said the results demonstrate ‘the continued strength of the Greggs brand and demand for our great tasting, quality and value for money offering’.
During the half, Greggs continued to make ‘good progress with our strategic priorities, including expanding our shop estate and making Greggs more accessible to customers through extended trading hours and digital channels’, said Currie.
In a market where consumer incomes are under pressure, Currie stressed that Greggs offers ‘exceptional value for customers looking for food and drink on-the-go’ and is ‘well positioned to navigate the widely publicised challenges affecting the economy’.
EXPERT VIEWS
AJ Bell investment director Russ Mould said Greggs’ proposition seems to be holding up well amid cost-of-living pressures. ‘Clearly its relatively cheap offering is resonating with cash-strapped consumers who are perhaps trading down from more expensive options.
‘The danger for Greggs is that people make their own packed lunches at home rather than grabbing food and drink on the go but there is little sign of that shift happening at any scale just yet.’
Mould added: ‘Profits are flat but that is probably not a huge concern for investors in the short term. Cost inflation was a factor but of more significance was the one-off reversal in VAT and business rate breaks offered during the pandemic.’
Also weighing in was Charlie Huggins, head of equities at Wealth Club, who pointed out there is a limit to how far Greggs can raise prices to offset extra costs.
‘Greggs also has a reputation for offering exceptional value for money, which it is keen to uphold. Aggressive price increases now would be akin to gorging on pasties and doughnuts - feels good in the short-run but not so good for long-term health.’
Huggins continued: ‘If Greggs can maintain its recent sales momentum, it will go some way to offsetting inflationary pressures. But the group’s near-term prospects still look rather unappetising given the extremely unsavoury cost outlook. That headwind is probably more or less baked into the share price, but until inflation comes down, Greggs will have to run hard just to stand still.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
