Shares in Greggs (GRG) fattened up 3.9% to £29.86 as the food-on-the-go retailer raised full year guidance following a strong third quarter sales performance, with two-year like-for-like sales in company-managed shops up 3.5% despite labour and supply chain challenges.
The Newcastle upon Tyne-based baker also outlined an ambition to double turnover to around £2.4 billion by 2026 through expansion of the UK shop estate to as many as 3,000 stores and the development of new channels including deliveries and evening walk-in sales.
STAYCATION BOOST
The value sandwiches-to-vegan sausage rolls seller hasn’t been immune to staffing and supply chain pressures and has also encountered issues around the supply of ingredients and products in recent months.
Nevertheless, Greggs expects results for 2021 will be ahead of management’s previous expectations, ‘subject to any unexpected COVID disruption’, with the company drawing confidence from a tasty third quarter performance supported by a broadening vegan-friendly food and drink range.
‘Growth was particularly strong in August when a “staycation” effect was evident and remained in positive territory in September,’ explained Greggs, ‘with two-year like-for-like growth of 3% in the four weeks to 2 October.’
The FTSE 250 food retailer also stressed delivery sales have ‘continued to develop well, with 943 shops now involved in supplying customers through this channel.’
Worryingly, food input inflation pressures are increasing and while Greggs has short-term protection as a result of forward buying positions, it expects costs to increase towards the end of 2021 and into 2022.
Year-to-date, Greggs has opened 84 new shops and shuttered 16, leaving it with a total of 2,146 shops trading as of 2 October. For the year as a whole, the company continues to expect around 100 net shop openings.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould commented: ‘Looking through the current turmoil, Greggs has ambitions to be a much larger business in five years’ time and you couldn’t accuse its plan to double turnover by 2026 of being in any way cautious.
‘While some of this will be delivered by new openings, including its first overseas sites since a modest experiment in Belgium in the noughties, Greggs is also looking to expand opening times into the early evenings too, supported by an enhanced delivery offering.
‘By getting more out of existing sites, the company hopes to boost profitability and cash flow and ultimately translate this into a more generous portion of dividends for shareholders.’
Mould added: ‘It’s when times are tough that management really earn their corn and despite seeing shortages on a daily basis and facing inflationary and staffing pressures it is impressive that the company still felt able to raise profit forecasts for 2021.’
