Mark Adair

Greggs celebrates a strong half year sales performance in spite of cost pressures

Greggs, the leading UK food-on-the-go retailer, has announced half-year results for the 26 weeks ended 2 July 2022: Total sales up 27.1 per cent to £694.5m, like-for-like sales grew by 22.4 per cent. Pre-tax profit of £55.8m, broadly in-line with last year, due to higher levels of cost inflation.

Expectations for the full year unchanged cost pressures mean Greggs doesn’t expect material profit progression this year.

Charlie Huggins, head of equities at Wealth Club, commented: “Greggs has managed the pandemic well and sales have recovered strongly. However, just as one major threat recedes, another rears its ugly head this time inflation.”

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. Greggs also has a reputation for offering exceptional value for money, which it’s keen to uphold.

Aggressive price increases now would be akin to gorging on pasties and donuts feels good in the short-run but not so good for long-term health.

So far, Greggs is managing these pressures well. While costs have grown, so too have revenues. Gregg’s brand reaches more people today than before the pandemic, and is in fine fettle. Greggs has transformed its supply chain while growing its product range and store estate. Nowadays, you can get a Greggs sausage roll, or even a Mexican Chicken Baguette, delivered directly to your door.

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 hard just to stand still.“

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