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Greggs - strong end to the year, guidance intact

Greggs' full year like-for-like sales rose 17.8% in company-managed shops.

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Greggs' full year like-for-like sales rose 17.8% in company-managed shops. This included a strong fourth quarter, helped by a positive reaction to festive products and the non-repeat of Omicron-related challenges. Greggs has seen growth in the use of its loyalty rewards offering through the app, which the group says is linked to customers seeking value. The ''strong'' trading and cost control means full year profits are expected to be reported in-line with expectations.

186 shops were opened in the year, including 70 franchises and 39 shops were closed. 21.5% of Greggs shops now have extended opening hours until 8pm.

Greggs finished the year with a cash position of £191m.

The group expects to add 150 stores to its estate in the new financial year. Greggs remains confident that its value offering will remain attractive to customers but sees ''material cost inflation'' in the short-term.

The shares rose 1.0% following the announcement.

View the latest Greggs share price and how to deal

Our view

Greggs has come a long way in a short amount of time.

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 for the full 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 custom even when the economy smooths back out.

Greggs is facing some challenges. Higher food, packaging and energy costs means cost inflation for the full year is expected to come in at 9%, but forward purchasing on food and energy is keeping a lid on that for now. The rebranding means that some of this can also be passed onto customers. But the extent to which it can do this without hurting volumes is lower than peers.

A cash position of over £190m means Greggs can stomach some disruption, but inflation could dent profitability in the medium term. As could a sharper economic downturn, when a shop bought lunch becomes a luxury that people scrap.

The net cash position also helps underpin the dividend yield of 2.6%. The group's hinted it's returning to a meatier ordinary dividend policy - but as ever, no dividend is ever guaranteed.

There's a lot to like about Greggs - literally and corporately. But the market seems to have taken note of this - the price to earnings ratio looks relatively full in our opinion. That increases the risks of ups and downs should Greggs have any missteps.

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
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 5th January 2023