Greggs Plc (GRG) Ord 2p

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Greggs’ full-year sales rose 6.8% to £2.2bn, reflecting 121 net new store opening over the year. On a like-for-like basis, sales in company-managed shops were up 2.4%.

Underlying operating profits fell 4.0% to £188mn, driven by higher employment and packaging costs.

Free cash flow fell from £104mn to £75mn, reflecting higher levels of capital expenditure. The net cash position fell by £80mn to £46mn at year-end.

In the first nine weeks of 2026, total sales were up 6.3%. Full-year guidance remains unchanged, with profits expected to be at a similar level to the prior year.

A final dividend of 50p per share was announced, taking the full-year total to 69p, in line with last year.

The shares were broadly flat in early trading.

Our view

There weren’t many surprises in Greggs’ full-year results, with top-line growth continuing to be driven by new store openings in 2025. But inflationary pressures and the costs from setting up two new distribution centres weighed on the bottom line.

There’s no escaping the fact that the wider environment is a challenge. UK economic growth is slim, consumers are more conscious of their spending, and costs have been dealt an unhelpful hand from changes to tax rules and minimum wages. However, cost pressures now look set to ease this year – the first positive development on costs for a while.

Price hikes are being leaned on to help provide an offset, and have been the main driver of like-for-like sales growth. But Greggs needs to ensure price increases don’t exceed customer appetite.

Despite the challenges, Greggs is working hard to build 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 120 stores in 2026 are in line with last year's run rate, as the bakery chain looks to become more accessible to more people.

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 20%. We support this model. These locations avoid day-to-day costs and continue to outperform company-managed sites.

But the store expansion programme and setting up two new distribution centres have been costly. 2025 looks to have been the peak year for these types of investment, but it’s likely to be 2027 before they start driving major benefits.

Having a healthy balance helps, with a small net cash position currently. 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 mean the prospective 4.4% dividend yield looks achievable with scope for improved payouts further down the line. But as always, no shareholder returns are guaranteed.

We still like the underlying business, including its list of growth drivers, and soft performance last year means an attractive entry point is on offer. But the near-term outlook for consumer spending remains muted, potentially weighing on cash flows if sales dry up.

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.

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.

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.

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