Greggs saw third-quarter sales rise 20.8%, or 14.2% when looking at like-for-like growth from company-managed shops. Growth was driven by more customer visits, higher evening trading, increased use of digital channels and growing market share.
82 new shops have been opened to date, on a net basis. The group expects 135-145 by year-end. Capital expenditure over the year remains on track to be around £200m.
Uber Eats will become a new delivery partner alongside the existing operation with Just Eat.
Full-year guidance remains intact, with markets looking for pre-tax profit growth of 11% to £164.7m.
The shares fell 1.2% in early trading.
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Our view
Third-quarter numbers were solid - it's hard to find too much fault with double-digit growth. While we're impressed with the overall direction of travel, growth has slowed from the first half and guidance around new shop openings was a fraction lower than expected.
Still, the number of shops is set to rise to 3,000 over the next few years, the menus and stores have had a reset, and market share's moving in the right direction. Relying on high-street shoppers and commuter traffic isn't a sustainable plan, so we're particularly supportive of plans to increase its presence at travel locations (like train stations).
Greggs also plans to increase the number of shops that are franchises from 17% to around 20%. We're supportive of this model. Greggs isn't on the hook for day-to-day costs at these locations when compared to the company-owned sites. There are other growth levers too, including bolstering delivery services (it now partners with both Just Eat and Uber Eats), click and collect, and opening later to attract more evening customers.
There's a real opportunity at hand if it can win hearts and minds at a time when disposable income is tight, the evening food-to-go market is huge and an area Greggs has barely scraped the surface of.
One of Greggs' key strengths is that it's a lower-value treat. That makes it more resilient during the cost-of-living crisis and is reflected in the increased use of the loyalty rewards scheme on the group's app. That could translate to longer-term repeat demand even when the economy smooths back out.
Inflated costs are starting to ease, which gives more wiggle room on pricing over the second half. Still, 9% cost inflation over 2023 is by no means an easy hurdle to overcome, but the group's secured forward cover for food, packaging and energy costs up to early in the fourth quarter - cost visibility in this environment is key.
We also expect a further cooling effect on like-for-like sales from here, given there won't be as much of a tailwind from price hikes as last year. It's a win in the long run. Less pressure on costs makes it easier to keep prices in check and retain that coveted value offering.
We continue to be impressed with cash generation, and along with a decent cash hoard on the balance sheet, there's plenty of firepower to fund future growth. Perhaps surprisingly for a business geared to growth, there's also a 2.7% prospective yield on offer to sweeten the offer. Though, no returns are guaranteed.
There's a lot to like about Greggs, literally and corporately, and we still see some upside over the long term. But as we saw with the market's tough reaction to the last couple of updates, a high bar's been set.
Greggs key facts
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