ii view: Greggs sales top £2bn but disappoint City

Shares in this value-focused FTSE 250 food chain have fallen 10% in response to its latest update. We assess prospects.

9th January 2025 11:48

Full-year and fourth-quarter trading update to 28 December

FY revenue up 11.3% to £2.01 billion
FY company managed like-for-like sales up 5.5%
Q4 total sales up 7.7%
Q4 company managed like-for-like sales up 2.5%
Net cash of £125 million, down from £195 million a year ago

Chief executive Roisin Currie said:

"We enter 2025 with a strong pipeline of new shop opportunities, and we continue to broaden our menu and enhance our digital capabilities, whilst also developing our supply chain capacity to deliver our growth strategy.

“Whilst lower consumer confidence continues to impact High Street footfall and expenditure, our value-for-money offer and the quality of our freshly-prepared food and drink position us well to meet the headwinds we expect to see in the year ahead, and we remain confident in the significant long-term opportunity for growth."

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ii round-up:

Food-on-the-go-retailer Greggs (LSE:GRG) today detailed annual sales hitting the £2 billion milestone for the first time, but with fourth-quarter same store sales missing City estimates.

Record new store openings of 226 helped drive total 2024 sales up 11.3%, although final quarter sales for its company managed outlet rose just 2.5%, hindered by subdued high street footfall and below analyst estimates of around 6%.

Shares for the FTSE 250 company fell 10% in UK trading, likely further hit by worries for the strength of UK government finances and the potential for UK interest rates to remain elevated. Greggs shares rose 7% over 2024, marginally exceeding a 4.7% gain for the 250 index itself, although comfortably outperforming an 11% fall for fellow food-on-the-go retailer WH Smith (LSE:SMWH). Shares for retailers Marks & Spencer Group (LSE:MKS) and B&M European Value Retail SA (LSE:BME), also detailing trading updates, fell by more than 5%.

Greggs currently operates across 2,057 company-managed stores and 561 franchised outlets, with 28 closures and 53 relocations made during 2024.

Accompanying management outlook comments flagged rising staff costs over 2025 given recent government Budget changes, although with management expressing confident in its ability to continue mitigating cost rises going forward.

Year-end net cash of £125 million fell from £195 million a year ago, reduced by continuing investment in growth and capacity. Equipment to make iced drinks is now available in 1,100 stores, ahead of management’s target of 700 shops by the end of 2024.

Broker UBS reiterated its ‘buy’ rating on the shares post the update. Full year results are due on 4 March.

ii view:

Greggs began a transformation from bakery to food-on-the-go retailer in 2013. Today, its products are now predominantly made in centralised bakeries. Group strategy includes growing its store portfolio over time to more than 3,000 UK stores, increasing its digital related sales such as click & collect and delivery via Just Eat Takeaway.com NV (EURONEXT:TKWY), and investing in supply chain production and logistics.

For investors, high borrowing costs for its customers are likely hindering high street footfall, with growth in Q4 like-for-like sales of 2.5% down from +5% in Q3. Previous cost pressures for items such as electricity have been increased by staff NI contributions. Other food-on-the-go companies such as McDonald's Corp (NYSE:MCD) are not standing still, while Greggs' geographical exposure is limited just to the UK.

More favourably, growth initiatives including expanding its store numbers and improving its logistics are being pushed. Management remains confident that it can offset expected higher staff costs with reductions elsewhere. A focus on product categories such as iced drinks and pizza is being aided by both extended opening hours and digital initiatives, while a forecast dividend yield of around 2.6% is not to be forgotten.

On balance, and while potential for increased consumer caution requires thought, the group’s focus on product value is likely to leave it as a destination for hard-pressed UK consumers.

Positives:

Value product offering
Several growth initiatives

Negatives:

Uncertainty economic outlook
Lacks geographical diversity

The average rating of stock market analysts:

Buy

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