Interactive Investor

ii view: Greggs sales growth eased in recent months

Shares in this high street and industrial park food business have outperformed the FTSE 250 index this year. Buy, sell, or hold?

14th May 2024 15:55

by Keith Bowman from interactive investor

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Trading update for first 19 weeks of 2024

  • Like-for-like sales up 7.4%
  • Total revenue up 14% to £693 million

ii round-up:

Food-on-the-go retailer Greggs (LSE:GRG) today detailed a slight slowing in sales growth, although it maintained expectations for the full year 2024.

Same store, or like-for-like sales rose 7.4% in the first 19 weeks of 2024 compared with the 8.2% reported for the first nine weeks of the year, which implies growth of 6.7% for the last 10 weeks. 

Shares in the FTSE 250 company fell 2% in UK trading having come into this latest news up around 8% year-to-date. That’s similar to supermarket mammoth Tesco (LSE:TSCO) and close to the near 6% improvement for the FTSE 250 in 2024. 

Total sales at Greggs during the period were up 14% from a year ago to £693 million. A combination of delivery demand, evening trade and increased customer use of its App all fed into the sales performance.

A new iced drinks range including coffee and flavoured lemonades performed well, along with hot foods such as pizza and Chicken Goujons.

Moves to improve its operational efficiency during the period included leasing a site at SmartParc, Segro (LSE:SGRO), Derby, to expand its manufacturing capacity. A net 27 new store openings leave it on target for net new full-year store openings of between 140 and 160.

Accompanying management outlook comments pointed to a ‘good start’ in a ‘challenging market,’ with cost inflation still expected to be 4-5%.  

Broker UBS reiterated its ‘buy’ rating on the shares post the update. Interim results are likely to be announced early August. 

ii view:

Greggs began a transformation from bakery to food-on-the-go retailer in 2013. Today, its products are predominantly made in centralised bakeries. It currently trades from 2,500 shops made up of 1,986 company-managed shops and 514 franchised outlets. Group strategy includes growing its store portfolio over time to a potential 3,000 UK stores, increasing its digital related sales such as click & collect and delivery and investing in supply chain production and logistics.  

For investors, the tough economic backdrop including elevated borrowing costs for its customers cannot be forgotten. Costs pressures such as those for wages persist, other food-on-the-go companies like McDonald's Corp (NYSE:MCD) remain competitive, while geographical exposure is limited just to the UK.  

More favourably, growth initiatives including expanding its store numbers are being pursued, and costs such as food ingredients and energy have eased. A focus on product categories such as pizza is being aided by both extended opening hours and digital initiatives, while there is at least a forecast dividend yield of close to 2.5%.

For now, and while the challenging economic backdrop offers headwinds, Greggs' focus on product value should mean it remains a favourite of hard-pressed consumers.

Positives: 

  • Value product offering
  • Several growth initiatives 

Negatives:

  • Uncertainty economic outlook
  • Lacks geographical diversity

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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