- Heatwaves hit H1 sales
- Concerns over ‘peak Greggs’ resurface
- Contract win with Tesco
Following its surprise profit warning earlier this month, food-on-the-go retailer Greggs (GRG) confirmed guidance for full-year 2025 earnings to drop below last year’s levels as the value sausage rolls-to-sandwiches retailer continues to grapple with tougher trading conditions.
With inflation biting into consumers’ wallets, June’s hot weather impacted the bakery retailer’s footfall, sending pre-tax profits down 14% to £63.5 million for the half ended 28 June 2025.
The lack of information on current trading in today’s (29 July) results statement also made investors nervous and sent Greggs’ shares 4% lower to £15.79 in early dealings.
SLOWING GROWTH
Greggs’ company-managed like-for-like sales growth slowed to 2.6% in the half amid ‘challenging market footfall’ and ‘more weather disruption’ than in 2024, although total sales fattened up 7% to £1.03 billion as the company continued to expand its store footprint.
Despite the profit decline, Greggs held the interim dividend at 19p per share and confirmed its full-year 2025 cost inflation guidance of circa 6%. Led by CEO Roisin Currie, the food-to-go brand reiterated guidance for full-year 2025 operating profit to be ‘modestly below’ 2024 levels.
‘After a challenging start to 2025 we remain clear on the strategic opportunities that lie ahead,’ commented Currie. ‘Through our disciplined estate expansion and focus on innovation, Greggs is evolving its offer further and making the brand more convenient for a wider range of customers.’
APPETITE FOR EXPANSION
Greggs expects to achieve 140 to 150 net new shop openings this year and continues to see an opportunity for ‘significantly more than 3,000 shops’ over the longer term.
The FTSE 250 firm continues to diversify and innovate in an attempt to boost growth, having inked a new contract with Tesco (TSCO) which will see its frozen ‘Bake at Home’ range on offer in Britain’s biggest supermarket chain from September, building on the success of the range in Iceland.
Greggs is also trialling in-store kiosk ordering and in the second half, will trial a new ‘bitesize Greggs’ shop format in space-constrained locations.
CANNIBALISATION CONCERNS
Jefferies commented: ‘A broadly uneventful update, which is somewhat reassuring after the warning earlier this month. We continue to believe the underlying business is fundamentally strong, and maintain our expectation of an acceleration in like-for-like sales in the second half.’
Russ Mould, investment director at AJ Bell, said: ‘Some people might think no news is good news, yet it also begs the question as to why Greggs is keeping a lid on things. The lack of dividend growth is also telling, suggesting that management is cautious - although it does justify the decision on a plan to improve dividend cover to twice underlying earnings.’
Mould continued: ‘This situation won’t stop the growing debate about whether Greggs has reached peak sausage roll. There are suggestions it has grown too fast, the menu is too bloated, and consumer tastes are changing. People want healthier options, and while Greggs has some of these in its stores, the core pastry-based items remain its bread and butter and the doctor says these should only be eaten in moderation.’
Shore Capital said: ‘It always takes time to determine when a brand has reached its peak reach, and we sense that Greggs’ management does not see such a position presently or in the near-term, and for good reason, given the expansion of its manufacturing and distribution base.’
However, the broker added: ‘Whilst so, with circa 400 to 450 stores under three years old, easing like-for-like volumes will be a concern, raising questions about recent maturity profiles and potential cannibalisation through to whether or not older stores and its inevitable tail, are proving to be a greater headwind, should new store potency be strong.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell. James Crux has a personal investment in Greggs.
