Greggs’ sales rose 7.5% to £800mn over the first 19 weeks of the year, helped by partnerships with franchisees and grocery retailers. Like-for-like sales in company-managed shops grew 2.5%.
20 net new stores were opened during the period, bringing the total store count to 2,759. Management remains confident it will deliver its target of 120 net new stores this year.
Full-year guidance remains unchanged, with cost inflation expected to be around 3% this year, as the group has already locked in prices for 85% of its energy needs. Underlying operating profits are still expected to be around last year’s level of £188mn.
The shares rose 3.2% in early trading.
Our view
Greggs delivered a positive update, with sales growth picking up over the first half. Costs are being kept in check too, giving management the confidence to reiterate full-year guidance, which pleased markets on the day.
Still, there’s no escaping the fact that the wider environment remains a challenge. UK economic growth is slim, and consumers are becoming more conscious of their spending.
Despite the challenges, Greggs is working hard to build the foundations for future growth. The number of shops is set to rise to 3,000 over the next few years. Expected net openings of 120 stores in 2026 are in line with last year's run rate, as the bakery chain looks to become more accessible to more people.
Menus are also being adapted to changing customer preferences, and Greggs is opening later to attract more evening customers – the group’s fastest-growing daypart. Greggs has also worked hard over the last few years to increase the number of franchised shops to around 20%. We support this model. These locations avoid day-to-day costs and continue to outperform company-managed sites.
But the store expansion programme and setting up two new distribution centres have been costly. 2025 looks to have been the peak year for these types of investment, but it’s likely to be 2027 before they start driving major benefits.
While the Middle East conflict has driven a sharp rise in energy prices, Greggs’ cost pressures still look set to ease this year. That’s because the group’s already locked in prices for around 85% of its energy needs for 2026, alongside most of its food and packaging requirements. But if the conflict drags on, we could see cost inflation pick back up next year.
Having a healthy balance sheet helps, with a small net cash position at the last count. There’s plenty of liquidity on hand, so we’re not concerned about the group’s financial position. Lower planned investment levels this year also mean the prospective 4.6% dividend yield looks achievable with scope for improved payouts further down the line. But as always, no shareholder returns are guaranteed.
We still like the underlying business, and a strong start to the year means full-year guidance looks achievable. Soft performance last year means an attractive entry point is on offer. But the near-term outlook for consumer spending remains muted, and if higher energy prices persist into next year, it could put pressure on profit growth.
Environmental, social and governance (ESG) risk
Consumer services companies are medium-risk in terms of ESG, and very few companies are excelling at managing them. That leaves plenty of opportunity for forward-thinking firms. The primary risk-driver is product governance. The impact of their products on society, labour relations and environmental concerns are also key risks to monitor.
According to Sustainalytics, Greggs’ management of material ESG issues is strong.
Greggs’ overall ESG reporting is not up to par with leading reporting standards, though it has appointed a board-level responsibility for overseeing ESG issues. A very strong environmental policy and a decent whistleblower programme are in place. Executive-level compensation could benefit from some elements being explicitly linked to sustainability performance targets.
Greggs key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.