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Greggs - sales growth continues

Greggs has reported like-for-like (LFL) sales growth of 17.1% in the first 19 weeks of the year, with total sales of £609m...

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Greggs has reported like-for-like (LFL) sales growth of 17.1% in the first 19 weeks of the year, with total sales of £609m. Growth partly reflects the impact of Omicron last year. In the 10 weeks to 13 May, LFL sales growth averaged 15.7% and that figure is expected to normalise further as we move through the year.

Over the period, 63 new shops were opened with 25 as franchises. 26 shops have been closed so far this year and the total estate stood at 2,365 on 14 May.

Cost inflation is expected to remain a challenge over the year but is in line with expectations. Looking ahead, the Group expects to see sales progress further.

The shares fell 1.6% in early trading.

View the latest Greggs share price and how to deal

Our view

We continue to be impressed with Greggs and 2023 looks to be off to a strong start.

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 trading is holding up well. 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 currently has a partnership with Just Eat), click and collect, and opening later to attract more evening customers.

We can't knock momentum, with double-digit growth continuing in the new year. That's being helped by weak comparisons from the same time a year ago, thanks to Omicron, but still a strong showing. 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.

But Greggs does have some challenges to face. The cost picture is key and we were pleased to hear its tracking in line with expectations. 9-10% cost inflation over 2023 is by no means an easy hurdle to overcome, but the group's secured forward cover for all electricity requirements up to the end of Q3 and made progress on locking in some food and packaging costs too - cost visibility in this environment is key.

A cash position of over £190m last we heard means Greggs can stomach some disruption. But a sharper economic downturn would cause some pain when a shop-bought lunch becomes a luxury that people scrap. The healthy balance sheet and decent cash generation also underpin the growing dividend and investment in growth opportunities. Of course, returns are never guaranteed.

There's a lot to like about Greggs - literally and corporately. We still see some upside over the long term, but the strong share performance in recent months means growth prospects are starting to look priced in.

Greggs key facts

All ratios are sourced from Refinitiv. 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 Refinitiv. 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. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 16th May 2023