Bakery food-on-the-go retailer Greggs (GRG) suffered a significant sales growth slowdown in February amid widespread UK storms and has also warned of uncertainty due to the coronavirus outbreak.
Yet shares in the value sandwiches-to-vegan sausage rolls seller gained 1.5% to trade at £21.22 on Tuesday, as investors focused on forecast-beating 2019 profits and news of impressive 7.5% like-for-like sales growth over the nine weeks to 29 February.
UNCERTAINTY ON THE MENU
‘We made a very strong start to 2020 in January, but in February saw a significant slowdown in sales growth as a result of the storms that have affected the UK,’ conceded chief executive Roger Whiteside (pictured below) in today’s full year results statement from the Newcastle-Upon-Tyne-headquartered baker.
Whiteside also warned of ‘some uncertainty in the outlook, particularly given the potential impact of coronavirus’. He also reiterated that rising wage and pork costs will present a headwind in 2020.
‘This aside we expect to make year-on-year progress and will do so from a strong financial position, supporting our investment for further growth whilst also delivering good returns for all stakeholders’, added Whiteside.
VALUE OFFERING, VEGAN BOOST
The value sandwiches-to-coffees seller served up a record performance in 2019, boosted by the publicity surrounding the successful launch of its vegan sausage roll.
For the year to December, Greggs’ pre-tax profit before exceptional items rose by a forecast-beating 27.2% to £114.2m as like-for-like sales fattened up by a record 9.2%.
In January this year, Greggs launched a ‘Vegan Steak Bake’ as well as its first vegan doughnut as it continues to capitalise on the vegan boom and broader trends towards healthier eating.
Last year’s strong cash generation supported capital expenditure as well as record annual profit share and special payment for employees.
Greggs not only raised the total ordinary dividend for 2019 by 25.8% to 44.9p, it will also ‘consider capacity’ for a special dividend at the time of the interim results, with Shore Capital expecting a bumper £40m cash return.
WHAT THE ANALYSTS ARE SAYING
Shore Capital commented: ‘With the recent weather driven sales slowdown (likely to be temporary) and the growing uncertainty around the British public’s response to COVID19, management state its full year 2020 financial expectations remain unchanged. We are of the same mind, and leave our broadly consensual full year 2020 pre-tax profit forecast unchanged at £119.5m.’
However, the broker also pointed out its 2020 forecasts ‘include a like-for-like increase of 3%, which implies upside pressure to forecasts will build if momentum results to anywhere close to January levels’.
In a note headed ‘Food-to-go: going nowhere for the next three months’ however, Canaccord Genuity said: ‘Greggs’ results were a fraction ahead of our forecasts but, to put this in context, we have upgraded five times for full year 2019, so it’s been an exceptional year. And the current year has started very strongly, helped by the success of the vegan steak bake.
‘A special dividend is to be reviewed at the interim stage, but we would not bank on it. The risk is that coronavirus-related restrictions on the movement of people derails this year’s performance as Greggs depends on people working, shopping and travelling.’
