ii view: Greggs sales exceed management hopes

A value takeaway offering and a strategy to enhance digital sales. Buy, sell or hold?

Trading update from 10 May

ii round-up:

Food-on-the-go chain Greggs (LSE:GRG) today outlined a better-than-expected recovery in sales following the easing of pandemic restrictions despite increased competition as cafes and restaurants had also reopened. 

Like-for-like, or same store sales at its managed stores since its last trading update on 10 May, had averaged a gain of between 1% to 3% compared to the same pre-pandemic period back in 2019. That’s ahead of management hopes and, if continued, would provide a materially positive impact on its anticipated full year results.

Greggs shares rose marginally in UK trading, having already about doubled since pandemic lows back in March 2020. Shares for supermarket and fellow food takeaway provider Sainsbury's (LSE:SBRY) are up by just over a third in that time. Pub and restaurant operator JD Wetherspoon (LSE:JDW) shares have risen by just over 70%.

At its 10 May update, Greggs pointed to the potential for full-year profit to early January 2022, coming in at around the £108 million made in 2019 compared to 2020’s pandemic loss of £14 million.

Total sales in the 18 weeks to 8 May came in at £352 million, up from a Covid hit 2020 same period of £280 million, although still down from the £373 million achieved in the pre-pandemic 2019 period.

Greggs' first-half results are scheduled for 3 August. 

ii view:

The Newcastle headquartered company began a transformation from bakery to food-on-the-go retailer back in 2013. Today, its products are predominantly made in centralised bakeries. It operates over 2,100 outlets across the UK in a variety of locations from high streets to industrial parks. Digital technology is now central in its strategy, with a reward offer, click and collect, and home delivery provided by its partner Just Eat. 

For investors, accompanying management comments in May pointed to ‘considerable uncertainty’ regarding the outlook. An estimated price to Net Asset Value (NAV) of 8.1 times compared to a three-year average of 5.2 times may also suggest that the shares are not obviously cheap, while the dividend payment remains suspended.

That said, Gregg’s value proposition at a time of economic turbulence and uncertainty is unlikely to be forgotten by consumers. Its takeaway offering arguably enhances its appeal at a time of avoiding indoor spaces, while its digital-related sales are being pushed and a target to expand its store portfolio to 3,000 outlets ongoing. In all, while some caution is sensible, recovery momentum looks to remain with this well-managed company.  

Positives: 

• Value product offering
• Pursuing digital initiatives such as click & collect & home delivery 

Negatives:

• Ongoing pandemic clouded outlook
• Dividend payment suspended

The average rating of stock market analysts:

Buy