ii view: Greggs expands stores and digital drive

A first-half loss and a second-half profit during 2020. We assess prospects.

Full-year results to 31 December 2020

• Revenue down 31% to £811 million
• Pre-tax loss of £14 million, down from a 2019 profit of £108 million
• Net cash of £37 million
• No interim or final dividend payments

Chief executive Roger Whiteside said:

"Greggs has made a better-than-expected start to 2021 given the extent of lockdown conditions and is well placed to participate in the recovery from the pandemic. It has a clear strategy to extend its digital capabilities and to grow further in new locations, channels and dayparts.  These opportunities will benefit all of its stakeholders in the years to come.

"In a year like no other I believe that the Covid crisis has in many ways demonstrated the strength of Greggs.  It has shown the resilience of our business model, but most of all the strength of our people who have worked hard throughout to maintain an essential service providing takeaway food to customers unable to work from home, many of whom were themselves key workers.  I would like to take this opportunity to thank all of our people, who can be proud of the part we played in our nation's time of need."

ii round-up:

Greggs (LSE:GRG) was founded over 70 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 just over 2,000 stores across the UK.

For a round-up of its latest results, please click here. 

ii view:

A transformation at Greggs from bakery to food-on-the-go began in 2013. Products are now made in centralised bakeries and delivered via its own logistics. Its outlets are located across a variety of locations including high streets and industrial parks. More recently, it launched the ‘Greggs Pledge,' responsible growth programme. Digital technology is central, with a rewards offer, click and collect, and home delivery provided by its partner Just Eat (LSE:JET). A new group app is expected to be launched during the second quarter of 2021. 

For investors, continued disruption and uncertainty caused by the pandemic cannot be forgotten. Although not an exact comparison, Gregg shares sit on a price/earnings ratio (PE) of over 40 compared to supermarkets such as Tesco (LSE:TSCO) and Morrisons (LSE:MRW) at under 20. Its dividend also remains suspended. 

That said, the group’s value proposition at a time of rising unemployment is unlikely to be forgotten by consumers. Digital related sales are being pushed, and a target to expand its store portfolio to 3,000 outlets is held. In all, this well-managed company appears deserving of long-term investor support. 

Positives: 

• Final quarter sales at 81% of 2019 levels
• Pursuing digital initiatives such as click & collect & home delivery 

Negatives:

• Ongoing Covid-19 clouded outlook
• Dividend payment suspended

The average rating of stock market analysts:

Strong buy