Greggs reported full-year revenue up 19.6% to £1.8bn, with life-for-like (LFL) sales in company-managed shops rising 13.1%. Revenue growth was driven by 145 net new shop openings, an increase in prices and volume growth. Underlying profit before tax was up 13.1% to £167.7mn.
Free cash flow of £122.1mn was down from £152.4mn the prior year, the difference largely due to increased investment.
LFL sales are up 8.2% in the first nine weeks of 2024, in line with expectations. Cost inflation is expected to trend around 4-5% for the year.
The board has proposed a final dividend of 46.0p, alongside a 40.0p special dividend.
The shares rose 1.0% in early trading.
Our view
Greggs' 2023 sales breezed past market expectations. Growth did slow as we moved through the year, but that was largely due to less price hikes as inflation eased. Keeping prices down is good news for everyone, even if it gives up some short-term top line growth.
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 at an all-time high. Relying on high-street shoppers and commuter traffic isn't sustainable, so we're particularly supportive of plans to increase its presence at travel locations (like train stations and airports).
Greggs has worked hard over the last few years to increase the number of shops that are franchises to around 20%. We're supportive of this model. It 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 and they are doing all the right things. The evening food-to-go market is huge and an area Greggs has barely scraped the surface of. Just under half of Greggs shops now serve until 7pm or later and with new hot food being trialled this year, they’re giving customers more reason to visit them throughout the day.
One of Greggs' key strengths is that it's a lower-value treat. That makes it more resilient during spells where incomes are being flexed. Leaning into that through the loyalty app, which doubled in users in 2023, Greggs have gained another valuable avenue to drive sales growth. That could translate to longer-term repeat demand even when the economy smooths back out.
Inflated costs are starting to ease and the group's secured good forward cover for food, packaging and energy costs - cost visibility in this environment is key. 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 the decent cash hoard on the balance sheet. This should provide the firepower needed to fund the supply chain and store upgrades planned over the next few years. Perhaps surprisingly for a business geared to growth, there's also a 2.6% prospective yield and the board just signed off on a special dividend too. 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 a high bar's been set.
Greggs key facts
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