Food-on-the-go retailer Greggs (GRG) forecast annual losses of up to £15 million for 2020 on Wednesday and also warned that profit won’t return to pre-COVID levels until 2022 at the earliest owing to the ongoing impact of the pandemic.
Yet shares in the value sandwiches-to-sausage rolls seller rallied 7.7% to £19.16 as investors digested a marked improvement in sales trends through a fourth quarter impacted by Covid-19 restrictions.
IMPROVING SALES TRENDS
Over the fourth quarter, sales fell to £293 million from £344 million a year earlier, although company-managed shop like-for-like sales averaged 81.1% of the 2019 level.
That means a decline of almost 19%, though marked an improvement on the 71.2% achieved in the third quarter.
Trading in December was initially more robust, supported by the reopening of non-essential retail shops, although this fell back with the introduction of tighter restrictions later in the month.
And in the five weeks to 2 January, like-for-like sales in company-managed shops averaged 85.7% of the 2019 level.
TASTY CONSENSUS BEAT
In today’s update, Greggs guided towards full year 2020 revenue of £811 million, implying a 35% year-on-year slump, yet comfortably ahead of the £765 million called for by consensus.
Greggs’ sales recovery has been partially supported by the rollout of a national delivery offer with Just Eat as well as strong sales through a wholesale home baking products tie-up with Iceland.
And despite the horrendous trading backdrop, Greggs also guided to a pre-tax loss of just £15 million for 2020, substantially better than the £67 million deficit called for by consensus.
‘Looking ahead, the significant uncertainty over the duration of social restrictions, along with the impact of higher unemployment levels, makes it difficult to predict performance,’ warned Greggs, which does not expect that profits will return to pre-COVID levels ‘until 2022 at the earliest’.
‘In light of the recent Government announcements significant uncertainties remain in the near-term,’ added chief executive Roger Whiteside. ‘We have taken action to position Greggs to withstand further short-term shocks and are optimistic about our prospects for growth once social restrictions are lifted.’
THE EXPERTS’ TAKE
‘The latest lockdown measures present another obstacle in Greggs’ path to recovery, but the company is now well versed in trying to navigate the pandemic,’ said AJ Bell investment director Russ Mould.
‘The company’s latest trading update shows it achieved positive trading momentum despite there being tighter restrictions in parts of the UK. That’s very encouraging for when life does start to return to normal.’
Reiterating its ‘sell’ stance on Greggs, Shore Capital believes the impact of working from home is ‘a game changer, which most probably notably reduces the long-term growth potential of the group, noting that within its growth plans outlined in March 2020 circa 80% of new stores were to be located in Work/Travel locations!
‘How many of such potential locations will remain viable in a post Covid world? Hence, the group’s vaccine bounce is to us an opportunity to exit without too much collateral equity portfolio damage.’
