ii view: food chain Greggs proves sensitive to heat

First-half trading update to 28 June

• Total sales up 6.9% to £1.03 billion
• Company managed like-for-like sales up 2.6%

Guidance:

• Continues to expect net new store openings for the full year of between 140 to 150
• Now anticipates that full-year 2025 operating profit could be modestly below that of FY 2024

ii round-up:

Greggs (LSE:GRG) is a UK food-on-the-go maker, distributor and retailer of items including bakery products, sandwiches and drinks. 

Stores numbers total 2,649 as of late June, made up of 2,085 company-managed shops and 564 franchised outlets. 

For a round-up of this latest trading update announced on 2 July, please click here.

ii view:

Started in 1939 and headquartered in Newcastle, the FTSE 250 company today employs over 30,000 people. The chain, whose outlets now include drive-thru stores, began a transformation from bakery to food-on-the-go retailer back in 2013. Today, products are now predominantly made in centralised bakeries. 

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Group strategy includes growing the store portfolio over time to significantly more than 3,000 UK stores, increasing digital sales such as click & collect and delivery via Just Eat Takeaway.com NV (EURONEXT:TKWY) and Uber Eats, as well as investing in supply chain production and logistics.  

For investors, the impact of the weather cannot be ignored, with the sale of ice drinks failing to compensate for items such as sausage rolls and steak bakes during June. Cost headwinds now include increases in staff NI contributions. Other food-on-the-go companies such as McDonald's Corp (NYSE:MCD) and WH Smith (LSE:SMWH) are not standing still, while Greggs' geographical exposure is limited to just the UK.   

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To the upside, ongoing store refurbishments are expected to impact less over the second half given their first half weighting. Iced drinks are not yet available across all stores, with growth initiatives such as new product offerings like Mac N Cheese, extended opening hours, and digital initiatives, all being pushed. A forecast price/earnings (PE) ratio now in line with the broader retail sector suggests the shares are not obviously expensive, while an ongoing store opening programme with ambition for more than 3,000 stores is not to be ignored. 

Clearly risks remain ahead of interim results expected on 29 July. A share price at multi-year lows following the negative response to this warning, plus prospective dividend yield approaching 4%, are likely to be attractive to investors comfortable with greater risk. Others might decide to see how any recovery pans out.

Positives: 

Value product offering

Several growth initiatives 

Negatives:

Uncertainty economic outlook

Lacks geographical diversity

The average rating of stock market analysts:

Strong hold