Greggs holding its own, despite unsavoury cost outlook
"Until inflation comes down, Greggs will have to run very hard just to stand still,” says Charlie Huggins, head of Equities at investment services company, Wealth Club
Print4 October 2022
Greggs, the leading UK food-on-the-go retailer, has announced a third quarter trading update for the 13 weeks to 1 October 2022.
This showed total sales were up 14.6% with like-for-like sales rising by 9.7%. However, there was no change to its inflation outlook, with costs still seen rising by circa 9% this year.
Overall, despite “cconsiderable uncertainty” in the economy, full year expectations are unchanged.
“Greggs is holding its own in an extremely challenging economic environment, with little sign so far of consumers cutting back on sausage rolls and pasties,” said Charlie Huggins, head of Equities at investment services company, Wealth Club.
“This is arguably the most difficult trading environment since the 2008/09 financial crisis,” he added. “The cost of raw materials, energy and wages are all rising rapidly. Greggs is significantly exposed to all three, putting pressure on profits. There’s a limit to how far it can raise prices to offset these extra costs, without ostracising its loyal customer base.
“Fortunately for Greggs, while costs have grown, so too have revenues. Gregg’s brand reaches more people today than before the pandemic, and is in fine fettle. For that, the group can thank Piers Morgan’s hatred of vegan sausage rolls, but also excellent operational execution. Greggs has transformed its supply chain while growing its product range and store estate. Latest additions to the menu include the ‘vegan bean & cheeze toastie’ and ‘vegan southern fried chicken-free baguette’.
“If Greggs can maintain its recent sales momentum, it will go some way to offsetting inflationary pressures. But the group’s near-term prospects still look rather unappetising given the extremely unsavoury cost outlook. That headwind is probably more or less baked into the share price, but until inflation comes down, Greggs will have to run very hard just to stand still.”
The bakery chain previously had 21 stores in Northern Ireland, but in July 2020, the BBC reported that Greggs confirmed three NI stores would not reopen following the pandemic – namely, those in Larne, Ballymena and Omagh. The company said the three stores were earmarked for closure before the Covid crisis.
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