Food-to-go purveyor Greggs (GRG) served up a predictably downbeat trading update for the first half of its financial year to 27 June, a period during which its stores were closed for weeks on end.
However, it also pointed to an ‘encouraging’ sales trend since shops reopened and said it would continue to invest in new stores, albeit at a slower rate than planned pre-Covid. Shareholders were left cold by the news, marking the stock down 1.8% to a three-month low of £14.32.
TURNOVER CRIMPED
After a strong start to the year, with sales up 11% in the first 9 weeks, the complete shutdown of its 2,000-plus stores from 23 March had a devastating effect, forcing the company to put the majority of it staff on furlough, freeze all non-essential spending and cancel the final 2019 dividend.
Revenues for first half were down more than 45% to £300.6 million against £546.3 million the previous year while pre-tax earnings registered a loss of £65.2 million against a profit of £36.7 million previously.
The crisis resulted in a Greggs taking a raft of charges to write off unusable stock, bring protective measures and enhanced hygiene into its stores, accelerate store closures, and write down the value of a small number of shops which were able to trade once lockdown was lifted but were unlikely to recover the full carrying value of their assets.
Weekly cash outflow, once offsetting factors like the furlough scheme and the business rate holiday are taken into account, was £4.4 million per week, in line with management expectations. In addition the firm saw a £75 million cash outflow in the second quarter to settle liabilities existing at the point its stores were closed.
DEMAND WARMING UP
The firm reopened 800 of its stores in mid-June for take-away customers with a limited range of products based on its best sellers. This meant it could concentrate on having product available while reducing waste, and while social distancing means sales are constrained the trend since reopening has been positive.
Company-managed shops - as opposed to franchised stores - saw sales reach 72% of 2019 levels in the week ended 25 July and at a group level the firm is now back to ‘trading broadly at operating cash breakeven.’ Chief executive Roger Whiteside estimates that with 80% of stores open the firm would be at breakeven on a pre-tax basis.
Unlike rivals such as SSP Group (SSPG), Greggs’ sales are ‘not materially dependent ‘on office-based workers or commuters as most of its shops are in towns or suburbs, although the firm acknowledges that sales will remain below normal as long as social distancing is required.
Once this constraint is removed, it is confident it can resume its growth plans based on expanding its store estate and rolling out new digital channels like ‘click & collect’ and delivery.
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