Third-quarter total sales rose 7.7%, with like-for-like sales in company-managed shops up 3.4%. Growth was driven by new product launches and more settled weather.
The group has opened 57 net new shops so far this year and continues to expect 100-110 net new shop openings in 2026.
Full-year cost inflation is still expected to be around 2%. Alongside accelerating sales growth, the full-year outlook has modestly improved from prior guidance, which had pointed to operating profits of around £188mn.
The shares were up 7.5% in early trading.
Our view
Greggs delivered a positive third-quarter update, with accelerating sales growth and a tight grip on costs underpinning a modestly improved full-year outlook. But this progress may be harder to sustain next year, when greater inflationary pressures could create fresh headwinds.
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 this, Greggs is building 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 around 120 stores in 2026, including new Express locations, are broadly in line with last year's run rate, and should make the bakery chain more accessible to more customers.
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 23%. We support this model. These locations avoid day-to-day costs and continue to outperform company-managed sites.
But store expansion and investment in two new distribution centres have weighed on cash flows in recent years. While Greggs is now past its peak spending phase, new proposals to consolidate some of its manufacturing facilities could see cash flows grow more slowly than previously expected. We think it’s the right long-term move to improve efficiency, but it means it will likely be late 2027 before the investment programme starts driving major benefits.
While the Middle East conflict has driven a sharp rise in energy prices, Greggs’ cost inflation is set to ease to around 2% this year, largely due to proactive hedging of its energy and packaging costs. However, management is seeing signs of greater inflationary pressure in 2027, which could weigh on margins if the group’s unable to pass higher prices onto customers.
Having a healthy balance sheet helps, with the group sporting a small net cash position. 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 means the prospective 3.7% dividend yield looks well covered, with scope for improved payouts further down the line. But no shareholder returns are guaranteed.
We like the underlying business, with an improving cash-generation profile and long-term growth opportunities, making the current valuation look relatively undemanding to us. However, elevated energy prices could bring challenges for both costs and consumer spending. While the proposed operational changes could help margins further down the line, it does bring additional execution risk.
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
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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.
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