Investors’ voracious appetites for bakery food-on-the-go retailer Greggs (GRG) show no signs of being sated, the high-flying shares bid up another 6.6% to £17.07 on news of an ‘exceptionally strong start to 2019’.
In a surprise trading update, Greggs says it now expects 2019 full year underlying pre-tax profit to beat its previous expectations following a publicity boost from its vegan-friendly sausage roll.
MARKETING MASTERSTROKE
Greggs reports very tasty 9.6% growth in like-for-like sales for the seven weeks to 16 February, building on a strong finish to last year.
Total sales were up 14.1% for the seven weeks, during which sales were boosted by ‘extensive publicity’ surrounding the launch of Greggs’ vegan-friendly sausage roll at the start of January.
This proved to be nothing short of a marketing masterstroke, with Greggs successfully tapping into the ‘Veganuary’ trend.
‘As a result,’ explains Greggs, ‘customer transaction numbers have increased, with additional sales mainly comprising savoury products such as the vegan-friendly sausage roll and our other iconic sausage rolls and bakes.’
ANOTHER MEATY UPGRADE
Thanks to this shoot-the-lights-out growth and last year’s weak, weather-impacted first half comparatives, Greggs is cooking up a comfortable 2019 profits ‘beat’. Yet Greggs does caution that the rate of growth ‘has eased slightly in February’, while sales comparatives also strengthen in the second half of the year.
Shore Capital upgrades its 2019 pre-tax profit forecast by 10% to £102m for earnings per share (EPS) of 79p, estimates that place Greggs’ shares on a prospective price-to-earnings ratio of 21.6 times, quite demanding for a traditional bricks and mortar retailer.
Canaccord Genuity’s Nigel Parson upgrades his price target from £14.70 to £17.30, commenting: ‘Today’s unscheduled trading statement from Greggs shows that the strong finish to the year has translated into a fast start, helped by the huge publicity round the launch of the vegan sausage roll, which has driven customers into the shops, and weak comparatives.
‘As a consequence, we are baking in meaty new upgrades to our EPS forecasts. We are hiking full year 2019 EPS by 6.7% to 78.4p and by 6.7% to 84p for full year 2020,’ he explains.
Parson also points out ‘there is real momentum in the business with Greggs recording 5.2% like-for-like sales growth in the fourth quarter of 2018. The growth is almost completely volume-driven from new customers curious to try the vegan sausage roll which is reflected in a lower average transaction size.
‘The difficult question to answer is where trading levels settle to once the curiosity has died down. We have retained our 3% like-for-like growth assumption for full year 2020, but it’s off a higher base.
'However, it is clear that “vegan” is entering the mainstream with alternative dietary trends on the rise. A third of Britons have deliberately reduced the amount of meat they consume (i.e. the flexitarian diet) or removed it from their diet completely, according to the Waitrose Food & Drink Report 2018-19.'
