Greggs’s ‘strong’ results praised by analysts

By Michael Stones

- Last updated on GMT

Greggs' 'strong' results were welcomed by analysts
Greggs' 'strong' results were welcomed by analysts

Related tags Analyst Retailing Greggs

High street baker Greggs has posted own-shop like-for-like sales up by 5.9% in the first four months of the year, in “a strong” set of results, according to the analyst N+1 Singer.

Total sales rose by 5% in the 16 weeks to April 25 2015, with own-shop sales ahead of the firm’s expectations.

Greggs identified breakfast goods as a key driver of growth, after the addition of new options to its range. Customers also valued the improved range of freshly-made sandwiches, including healthy options offering fewer than 400 calories, it said. 

New own-label drinks

The baker plans to grow its Balanced Choice menu in the coming weeks with the introduction of upgraded salads, a summer berry fruit pot and a  new own-label+ drinks range, which has been developed with no added sugar.

N+1 Singer analyst Sahill Shan said: “Greggs has issued a strong annual general meeting update with trading ahead of both ours and management expectations. There is also good news of a 20p special dividend.”

During the period Greggs completed 69 shop refits, opened 24 new shops and closed 18 others. The business now operates 1,650 retail outlets throughout the UK.

Between 200 to 220 shops will be refitted this year, as the firm bids to “transform the shop environment to strengthen our 'bakery food-on-the-go' positioning”.

‘Rising consumer disposable income’

Greggs said in a statement: “The strong start to 2015 has been supported by rising consumer disposable incomes and low input cost inflation. We expect market conditions to remain favourable and support a good first half performance, ahead of our previous expectations.”

Shore Capital's view

“That Greggs has been able to sustain such trading momentum, as comparatives materially toughened from about 2% through the first eight weeks to about 5% in the latter eight week period is a clear demonstration, in our view, of the renewed and growing potency of Greggs’ product offer and new ‘food to go’ format.”  

The business will see stronger sales comparables and a less certain cost outlook in the second half of the year, predicted the firm. “However we expect to deliver good growth for the year as a whole and further progress against our strategic plan,”​ it said.

Shore Capital analysts Darren Shirley and Clive Black admitted surprise at the strength of the baker’s trading momentum. Welcoming the special dividend, which could become a recurring feature of the investment case, they suggested management could return £20–30M a year to shareholders, while maintaining its £40M year-end cash threshold.

The results were a clear demonstration of “the renewed and growing potency of Greggs product offer and new ‘food to go’ format”​, said Shirley and Black. They also welcomed confirmation of Greggs’ entry into the Irish market through high quality fuel and ‘food to go’ retailer Applegreen.

“With sales ahead of expectations by about £6M, the positive operational gearing in Greggs has once again come to the fore, and we are upgrading our forecasts by about 3% to £68.7M, taking EPS [earnings per share] to 51.9p, so year-on-year growth at a very strong 21.5%,” ​said the analysts. 

Shore Capital repeated its ‘buy’ advice on Greggs’ stock. 

New own-label drinks range

“In the coming weeks we will grow our Balanced Choice menu through the introduction of  upgraded salads, a summer berry fruit pot and our new own-label  drinks range, which has been developed with no added sugar.”

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