The Newcastle-based baker wowed analysts with total sales up by 6.4% to £398M for the 26 weeks to July 4. Own shop like-for-like sales rose by 5.9%, while pre-tax profit climbed to £25.6M compared with £16.9M in the same period of last year.
Sales growth of 6.4% in the half was “tidily ahead” of Shore Capital’s 4.8% expectation. “Against a reasonably challenging comparative of 3.2%, like-for-like [LFL] sales rose by an impressive 5.9% in the group’s own-stores,” said its analysts Clive Black and Darren Shirley.
During the half Greggs achieved net store openings of 14 – with 44 openings and 30 closures – while 118 stores were refitted with 12 café conversions completed. The baker expected another net 20–30 shops opening during the full year, with 200–220 refurbishments. That represented a further 100 in the latter in the second half of this financial year.
Upgrade its forecasts
The results lead Shore Capital to upgrade its forecasts for group profitability, with its pre-tax profit prediction rising from £68.4M to £70.5M.
Earnings per share were expected to reach about 53p this financial year.
Greggs was generous with its income flow in the first half, said the analysts. The interim dividend per share was increased by 23.3% to 7.4p and a 20p special dividend was also issued after the period end.
Greggs’s stock should yield 2.2% on the ordinary dividend this financial year – excluding the special dividend of 20p paid on July 17.
Analyst’s view
“Greggs’ move towards food-to-go and balanced investment in product, price and stores is proving extremely relevant in the current competitive environment.”
- George Scott, Conlumino
The high street baker’s financial position remained strong, after significant capital expenditure in the first half of £31.3M. The group had net cash balances of £41.4M, while cash flow from operations grew by nearly 20% to £42M.
Full year cash balances were likely to reach or exceed £43.4M, predicted Shore.
‘Excellent half of trading’
“So, an excellent half of trading from Greggs, in our opinion,” said Black and Shirley. Sustained performance of the group was now coming through, fuelled by net new stores and a wide range of growth opportunities, such as boosting sales in Ireland, they added. Shore Capital repeated its ‘buy’ advice on Greggs’s stock.
Conlumino senior consultant George Scott Greggs’ profitability benefited from a restructuring of its instore bakeries and support operations completed last year.
The moves delivered a benefit of £2.4M in cost savings since the same period last year, with a further £0.6M savings expected in the second half. “Elsewhere, its ongoing progress around procurement is on track to save £5-£6M,” said Scott.
“Greggs’ move towards food-to-go and balanced investment in product, price and stores is proving extremely relevant in the current competitive environment. We expect its trading story to continue, though strong comparatives will inevitably represent an increasing challenge.”
City analyst N+1 Singer also praised the results, describing them as “very strong interims and [the] wind [is] in its sails going into H2 [the second half of the year]”.
The results were much stronger than expected and good momentum had built for the second half of the year.
The results lead Greggs to upgrade its earnings per share forecast by 2.5% – 4.5%. “We firmly feel that Greggs’s business model is in great shape and on growth considerations/returning excess cash to shareholders see fair value towards 1,400p.”
Read more about Gregg’s results here.