Shares in food-on-the-go retailer Greggs (GRG) rose 8.5% to a record £25.45 after the value sandwiches-to-sausage rolls seller reported a ‘strong recovery in sales’ since the easing of Covid restrictions.
Management conceded that ‘considerable uncertainty remains’, yet the baker now believes profits for 2021 are ‘likely to be materially higher’ than its previous expectation and could be ‘around 2019 levels’ of £114.2 million ‘in the absence of further restrictions’.
TASTY TRADING SURPRISE
In an impromptu trading update, Greggs served up news of a modest 3.9% decline in two-year like-for-like sales (measured against the pre-pandemic comparable period in 2019) for the eight weeks to 8 May 2021.
Most recently, since non-essential retail reopened in England on 12 April, Greggs’ two-year like-for-likes have actually been positive, ‘in part reflecting the pent-up demand for retail which has boosted high street footfall’.
However, for the first 18 weeks of the 2021 financial year, two-year like-for-like sales are down by a more material 13.5%, reflecting the impact of lockdown 3.0 in England.
COMPETITION HOTTING UP
Greggs cautioned that the current trading environment is ‘clearly highly unusual, making it difficult to predict how sales will develop’.
Furthermore, the relaxation of restrictions in the coming weeks means the cut-price salads-to-coffees purveyor will see ‘increased competition as cafes and restaurants are able to compete more effectively with our largely take-out offer.
‘Nonetheless we are pleased with the progress that we have made so far this year in both the walk-in and delivery channels.’
Shore Capital noted that Greggs’ delivery service now speaks for 8.2% of sales in company managed stores, ‘a new string to its bow through the pandemic, albeit we would expect this to ease back with normalisation’.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould explained that the reopening of non-essential retail ‘has got people out of the house and Greggs has benefited from increased traffic and temporarily reduced competition from cafes and restaurants.
‘A greater number of people returning to the office will also have helped, as workers nip out at lunchtime for a sandwich and a coffee.’
According to Mould, Greggs is now ‘betting on a big recovery in pre-pandemic activity once considered “normal”, namely going to work in an office, meeting friends and family for social activities, and more movement via personal and public transport around the country. Its stores are conveniently placed to attract people as they go about their day.
‘Many people think we’re going to see structural change in where work is done, however we are still creatures of habit and it wouldn’t be surprising to see queues return to Greggs’ stores for bacon baguettes, sausage rolls and steak bakes slowly build up as more Government restrictions are lifted and companies lay down their long-term working strategies. Even with some people working full time from home, the nation isn’t going to hide away like it did in 2020.’
