Interactive Investor

ii view: baker Greggs still confident as new CEO announced

Longer trading hours, a digital initiative and an ongoing store opening programme. Buy, sell or hold?

6th January 2022 09:55

Keith Bowman from interactive investor

Longer trading hours, a digital initiative and an ongoing store opening programme. Buy, sell or hold?

Fourth-quarter trading update to 1 January

  • Like-for-like sales up 0.8% compared to Q4 2019
  • 103 net new shops opened during the year

Guidance: 

  • Expects full-year outcome slightly ahead of its previous expectations

ii round-up:

Greggs (LSE:GRG) continued to underline its growth opportunities despite the ongoing uncertainties of the pandemic, supply chain and staffing challenges.

Final-quarter like-for-like sales rose 0.8% on a two-year basis, down from the 3.5% achieved in the prior third quarter, as consumer caution kicked-in given the emergence of the new Covid variant. However, counterbalancing that dip was a slight upgrading of full-year expectations. 

Greggs shares retreated by around 2% in UK trading in a broadly weaker stock market, having risen by more than 85% over the last year. That compares to gain of almost 15% for the FTSE 250 index. Shares for fellow food retailer Tesco (LSE:TSCO) are down by 1.7% over that time and Sainsbury's (LSE:SBRY) has risen by 24%.

Greggs opened 103 net new stores over the year with longer trading hours and new digital channels now helping to drive growth. It currently partners with delivery company Just Eat Takeaway.com (LSE:JET)

News of a potential £30 million to £40 million special dividend was also detailed, while the group’s current Retail and Property Director, Roisin Currie, is to become its new chief executive in May. 

Full-year results are scheduled for 8 March. 

ii view:

Greggs was founded over 80 years ago by John Gregg to delivery fresh eggs and yeast to customers in Newcastle. Today the bakery and food on the go chain operates 2,181 stores across the UK.

The Newcastle headquartered company began a transformation from bakery to food-on-the-go retailer back in 2013. Today, its products are now predominantly made in centralised bakeries and outlets are located from high streets to industrial parks. Digital technology is central in its strategy, with a reward offer, click and collect, and home delivery service. 

For investors, supply shortages and increasing costs are overshadowing performance near term, while challenges from the pandemic have clearly not disappeared. 

But Greggs' plans to open 150 new stores a year and double its turnover to £2.4billion by 2026 remain front and centre. Its value proposition at a time of economic turbulence and uncertainty is also likely to remain popular with consumers. In all, despite headwinds, ambitious growth plans remain supportive longer term. 

Positives: 

  • Value product offering
  • Opening new stores 

Negatives:

  • Ongoing pandemic uncertainty
  • Rising cost headwinds

The average rating of stock market analysts:

Strong buy

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