ii view: Greggs shares popular after strong finish to 2023

Fourth-quarter and full-year trading update to 31 December

• Company-managed shop like-for-like sales up 9.4% during Q4
• Full-year total sales up 19.6% 
• Full-year 2023 guidance left unchanged

Chief executive Roisin Currie said:

"2023 was a year of further progress by Greggs.  I am proud of our teams, who did a fantastic job serving more customers as we continue to grow our shop estate and offer greater availability through digital channels and extended trading hours.

"We enter 2024 with plans to continue to invest in our shops and expand supply chain capacity to deliver the growth strategy, supported by our strong balance sheet.  Our value-for-money offer, and the quality of our freshly prepared food and drink continue to evolve and position us well for further progress in the year ahead."

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ii round-up:

UK food-on-the-go retailer Greggs (LSE:GRG) today detailed annual 2023 sales ahead of City forecasts with profit guidance left unchanged.

Fourth-quarter like-for-like sales for its managed outlets climbed 9.4% year-over-year, pushing total full-year sales up 19.6% to £1.81 billion, beating analyst estimates for growth of 18%.

Shares in the FTSE 250 company rose by more than 7% in UK trading having come into this latest news up by a tenth during 2023. That’s below gains of more than a quarter for supermarket operators Sainsbury (J) (LSE:SBRY) and Tesco (LSE:TSCO), although ahead of a 4.4% gain for the FTSE 250 index itself. 

Greggs stores numbered 2,473 at the end of 2023, with a net 145 new shops opened over the year and leaving it with 1,970 company-managed shops and 503 franchised outlets. 

Accompanying management outlook comments flagged reducing inflationary pressures, with a more stable cost base expected over the year ahead despite ongoing wage inflation. Net new shop openings over 2024 are expected prove between 140 and 160. 

Group net cash totalled £195 million at year-end, up from £192 a year ago and underpinning ongoing investment in its supply chain operations, including a yet to open fourth production line and expanded capacity for its logistics operations in both Birmingham and Amesbury. 

Broker UBS reiterated its ‘buy’ rating on the shares post the announcement. Full-year results are due to be announced on 5 March.  

ii view:

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. Its outlets are located from high streets to industrial parks. 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 expanding its opening hours into the evening.  

For investors, pressured consumer spending given still heightened borrowing costs cannot be forgotten. Cost pressures such as elevated wage demands have not gone away, other food-on-the-go companies such as McDonald's Corp (NYSE:MCD) are not standing still, while geographical exposure is limited to the UK.  

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On the upside, store numbers are growing with hopes even persisting that Greggs may revisit its previously failed move overseas. Costs such as food ingredients have also eased. A focus on product categories such as pizza and chicken goujons is being helped along by both extended opening hours and its digital initiatives, while the value proposition at a time of economic challenge should make the company a favourite among cost-conscious consumers.

In all, and with the consensus analyst estimate of fair value standing at around £32 per share, grounds for longer-term optimism look to persist.    

Positives: 

• Value product offering
• Opening new stores 

Negatives:

• Uncertainty economic outlook
• Lacks geographical diversity

The average rating of stock market analysts:

Buy