Bakery food-on-the-go retailer Greggs (GRG) reported an ‘exceptionally strong’ first half trading performance boosted by the enormous success of its vegan-friendly sausage roll.
Yet the high-flying shares slipped 2.6% to £23.23 as the bakery company warned that its phenomenal like-for-like growth ‘will begin to normalise’ in the second half amid tougher comparatives.
There was also a steer that food input costs will be higher in the second half.
Having treated the market to a steady stream of earnings upgrades, there was a bit of disappointment among more demanding investors as Newcastle Upon Tyne-headquartered Greggs left full year profit guidance unchanged.
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Broker Canaccord Genuity describes Greggs’ first half to 29 June as ‘magnificent’. The baker generated a tasty 58% increase in adjusted pre-tax profit to £40.6m on total sales up 14.7% to £546m. This included nourishing 10.5% growth in company-managed shop like-for-like sales.
INVESTMENT TO INCREASE
However, full year guidance remains unchanged because costs will rise as Greggs invests in digital marketing and IT, improving its sustainability credentials and in increasing shop opening hours into the early evening for a quarter of its shops, an initiative requiring investment in wages.
As CEO Roger Whiteside (pictured below) explained: ‘Given the strength of our year to date and the outlook, we have decided to increase investment in strategic initiatives in the second half of the year to help to deliver an even stronger customer proposition and further growth in the years ahead. Our expectations for underlying profits for the year as a whole remain unchanged.’
In the outlook statement Greggs, which continues to stockpile ahead of Brexit, also cautioned: ‘Current trading remains strong, although we continue to expect that the rate of like-for-like growth will begin to normalise as we face stronger comparative numbers in the second half of the year.’
The value sausage rolls-to-sandwiches seller added: ‘Commodity cost pressure has been modest in the first half of 2019 but we expect higher food input costs in the balance of the year, resulting in overall cost inflation being at the higher end of our expectations.’
SPECIAL DIVI DISAPPOINTS
A high quality, cash-generative retailer with a formidable capital returns record, Greggs served up an 11.2% hike in the ordinary interim payout to 11.9p and also declared a special dividend of £35m or 35p per share.
Yet this special dividend was a little lower than expected due to the timing impact on cashflow from a change in HMRC timing of collection of cash taxes and with management also cautious given ‘the current political and economic uncertainties facing the UK’.
