Greggs results ‘mixed’ as new plant details revealed
Total sales were up by 5.9%, with new channels contributing 3.5% to growth. But like-for-like sales were down by 2.6%.
New shops contributed 5% to sales growth, while Greggs’ venture into new markets through wholesaling and franchising generated extra sales of 3.5%.
New store openings accelerated with the launch of an additional 37 stores. That leaves the baker with 70 new stores net this year.
City analyst Shore Capital said: “While Greggs’ medium-term strategic plans look increasingly well underpinned, short-term trading conditions on the high street remain challenging. The consumer is continuing to look to curtail spending and promotions continue to feature heavily for ‘promiscuous’ customers.”
‘Sales to remain subdued’
Management expects any recovery in like-for-like sales to remain subdued during the fourth quarter. It advised that a 1% short-fall on in-store like-for-like sales would lead to a £2M reduction in turnover, itself causing a potential £1M fall in group earnings before interest and tax. But management added that it would be able to "partially mitigate” the impact.
Shore analysts Darren Shirley and Clive Black detected that management was particularly encouraged by the performance of the Greggs the Bakery store. It was reported to have delivered double-digits boosts in its early days of trading.
“A further 10 conversions are planned with, we believe, the potential for an aggressive roll-out across Greggs' 400 bakery format stores through 2013 and beyond,” said Shirley and Black.
Greggs also predicted the group would be hit by the rise in flour prices of more than 20% in the fourth quarter, with the potential cost reaching up to £0.3M over the three-month period.
Higher flour prices
Higher flour prices are likely to be compounded by higher pork prices. In total, raw material prices are set to rise by 1%, which Shirley and Black describe as “manageable”.
Meanwhile, Greggs has revealed plans to build a new savoury facility in the south of England in mid-2013. Designed to support the baker’s medium-term growth plans, both for new store and new channel outlets, the plant will ease the potential capacity constraints at its Balliol facility.
Management said this would cost between £30−£35M, spread over 2013 and 2014. “Such investment was already within existing capital expenditure plans,” said Shirley and Black. “We leave our forecasts unchanged at £60M spend through 2013 and 2014, a pick up from the £45M in the current year and approaching 1.75x depreciation.”
They concluded: “We remain positive on the medium-term prospects for Greggs and reiterate our ‘buy’ recommendation.”
Kennedy McMeikan, Greggs’ ceo, said: “While we remain cautious about the economic outlook, total sales will continue to benefit from the success of our new shop openings and expansion in wholesaling and franchising.”
He added: “We are making the Greggs brand more accessible to customers through our new shop openings and wholesaling and franchising channels. This underpins our strategy to deliver long-term profitable growth for the benefit of shareholders, employees and the wider community.”
