Interactive Investor

Greggs is growing fast and beating expectations

5th October 2021 08:31

Richard Hunter from interactive investor

A year-long recovery at the vegan-friendly high street baker remains intact after this bullish Q3 trading update.

Greggs' (LSE:GRG) no-nonsense, value approach has succeeded where others have struggled, despite broader pressures outside of its control.

The company remains understandably guarded on the outlook, with staffing and supply chain disruption still rampant. At the same time, inflationary pressures are elevated, especially in food, although the fact that the company has been forward buying has given Greggs some short-term protection.

Perhaps most impressively, despite the wider pressures and a society which has not yet fully returned to normal, Greggs’ like-for-like sales for the third quarter were 3.5% higher than the pre-pandemic period in 2019, with most recent trading also holding up as the figure was 3% ahead in September.

As such, the company is now guiding that its full-year numbers will now be better than previously expected, with its confidence in prospects already displayed with the reintroduction of a dividend.

Even with this currently strong performance, the company is not resting on its laurels. An ambitious capital expenditure programme out to 2026 will peak in 2024, as Greggs targets 150 new store openings per year from 2022, with 100 expected this year. Equally, the online and delivery channels will also be receiving attention, while extended evening openings should also bring benefits. 

Strategically, the company’s imaginative marketing ploys have also been successful, particularly the more recent vegan-friendly food and drink ranges, with themed offerings such as Halloween to follow. Greggs will also be outlining its plans for new stores at an upcoming Capital Markets Day, offering the fact in advance that pre-pandemic company-managed stores returned 42% on capital and franchised stores 33%.

Greggs’ return to form has been reflected in a share price which has risen 128% over the last year, as a compared to a hike of 29% for the wider FTSE250. Investors remain convinced that the company’s growth still has far to go and the market consensus of the shares as a 'strong buy' echoes this confidence in prospects.

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