Bakery retailer Greggs (GRG) bucks the high street doom and gloom by serving up news of strong Christmas and New Year trading. Shares in the Newcastle-upon-Tyne-based baker cook up a 7.7% gain at 480p as analysts warm to signs of positive progress with the FTSE 250 firm's turnaround.
In its year-end trading update Greggs, with the best part of 1,700 UK shops, reports total sales up 4.8% and like-for-like sales 3.1% ahead over the five weeks ending 4 January. Improving sales momentum towards the end of a tough financial year to 28 December, characterised by weak consumer confidence and volatile weather patterns, helped fourth quarter same-store sales beat forecasts with a 2.6% rise.
New chief executive officer Roger Whiteside, who took over in the hot seat from Ken McMeikan last year (4 Feb), flags strong seasonal demand for food-on-the-go products ranging from sandwiches and savouries to drinks and sweet bakery products. Christmas favourites such as Greggs' Festive Bakes and sweet mince pies also flew off the shelves.
As Shares has previously outlined, Whiteside is seeking to revive the retailer's growth prospects through his new 'Bakery food-on-the-go' strategy. Key pillars include hefty investment in products and customer service levels as well as shop refurbishments, 216 completed last year, into this new 'Bakery food-on-the-go' format to improve the retail experience. Furthermore in 2013, 70% of the cash-generative retailer's new shop openings were in locations away from the structurally-challenged UK high street, while the FTSE 250 retailer now has 24 franchised shops in UK motorway service stations in partnership with Moto.
Buoyed by improving like-for-like sales, Greggs' forthcoming full-year figures (26 Feb) should meet previously-downgraded pre-tax profit expectations of £40.2 million. Yet Whiteside concedes the costs of reshaping the business, including the decommissioning of 79 in-store bakeries and management restructuring, will constrain profit growth over the next two years.
Reiterating its 'buy' rating and raising its price target from 450p to 500p, Panmure Gordon was forecasting £38.5 million profits rising to £40.4 million pre-tax profit in 2014, though it will review its numbers later today.
N+1 Singer holds off from upgrading its Greggs estimates, though the broker writes: 'Today's update is further vindication of the strategy being implemented by the new CEO to revive growth and fundamentally, improve the retail proposition. Clearly it is important that the momentum is sustained in the 2014 financial year to support the recovery investment thesis.'