Food-to-go specialist Greggs (GRG) continues to deliver tasty sales and profit growth despite the tough economic backdrop with its value proposition shining through during the cost-of-living crisis.

Shares in the bakery retailer rose 4.6% to £28.40 on Tuesday morning after Greggs served up strong full-year results, announced a 40p special dividend and reported a reassuringly good start to 2024.

ANOTHER APPETISING PERFORMANCE

Thanks to a strong finish to 2023, the value-for-money sausage roll-to-sweet treats seller cooked up a 19.6% total sales surge to £1.81 billion including 13.7% like-for-like growth in company-managed shops and a better-than-expected 13.1% pre-tax profit jump to £167.7 million.

Supported by strong cash generation, Greggs increased the total dividend by 5.1% to 62p and said it would treat shareholders to a 40p special dividend on top.

Last year’s growth drivers included a record 220 new shop openings as well as improved participation on the Greggs app, extended evening trading hours and traction with delivery partners Uber Eats and Just Eat.

Robust sales growth has enabled Greggs to continue increasing profits despite significant raw material, energy and wage inflation.

Encouragingly, these cost pressures are now beginning to ease, which augurs well for margins as well as consumer demand as it should reduce the need for price increases.

SOLID START TO 2024

Greggs has started 2024 well with like-for-like sales up 8.2% in the first nine weeks of 2024, a slight slowdown on the 9.4% growth achieved in the fourth quarter of 2023 yet a credible showing considering testing prior-year comparatives.

As a reminder, like-for-likes fattened up 18.8% in the first nine weeks of 2023.

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And while guidance for 2024 was left unchanged, management is confident Greggs can deliver another year of good progress.

‘We are very much on track to deliver our bold five-year growth plan to double sales by 2026 and to have significantly more than 3,000 shops in the UK over the longer term,’ said chief executive Roisin Currie.

EXPERT VIEWS

Russ Mould, investment director at AJ Bell, commented: ‘Greggs is getting more from existing stores by having them open for longer, while at the same time it continues to open new sites. Behind the scenes, it is reinvesting cash flow into manufacturing, distribution and logistics capabilities to support its growth.’

Mould pointed out the FTSE 250 firm’s ‘drive to be the food-on-the-go king is paying off’, with Greggs’ market share at an all-time high and the business having grabbed the top spot for breakfast.

‘It’s hard to think of another British company which remains a core name on the high street and which is still growing as much as Greggs. The brand is now iconic and its sausage rolls legendary. The pace of growth actually slowed each quarter during the past year, albeit still delivering the kind of success most companies can only dream of.’

Begbies Traynor’s (BEG:AIM) Julie Palmer said: ‘The success of Greggs’ delivery partnerships, as well as extended trading hours and a more efficient supply chain, clearly demonstrate that management are finding all the right ingredients to drive sustainable growth alongside the store opening programme.

‘Momentum has clearly continued into the new financial year, but the food-to-go operator must soon grapple with a minimum wage increase and another hike in business rates, so maintaining expectations is the cherry on the top at a time when companies are being fairly conservative given the levels of uncertainty.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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