Companies Reporting: Greggs, Tesco, JD Wetherspoon

Our regular look at the FTSE 350 and a selection of other companies reporting from 3 – 7 October 2022.

• Greggs will show the market how sales have performed in the third quarter
• Performance under the spotlight for Tesco as the cost-of-living crisis squeezes incomes
• Profitability under pressure ahead of next week’s results for JD Wetherspoon.

Greggs, Q3 Trading Statement, Tuesday 4 October

Charlie Williams, Equity Research Assistant, “On-the-go food retailer, Greggs, has grown impressively since coming out of the pandemic. Like-for-like sales for the first half of the year were 12.3% ahead of pre-pandemic levels, but large city locations have continued to lag. While their strong presence in towns and suburbs has helped offset this, it would be good to see transport hub locations recover alongside the industry. Management has said price hikes haven’t taken a bite out of volumes yet, but the impact could take time to filter through. Next week should provide a clearer picture.

Profits haven’t seen the same sort of growth, though. The group estimates cost inflation to be running at 9% for the full year, and next week should shed some light on how this may impact the outlook going forward.

Next week will also give us an insight into Greggs’ expansion plan. The group’s focused on opening stores in strategic locations like airports and railway stations in a bid to attract a higher footfall of customers.  An update on progress is hoped for, with some idea of whether rising costs will keep a lid on the pace of expansion.”

Tesco, Half Year Results, Wednesday  5 October

Charlie Williams, Equity Research Assistant, “Tesco prides itself on being price competitive against peers, something that’s put them in good stead recently and allowed for continued growing market share. Management continues to expect full year underlying operating profit in the realm of £2.5bn to £2.8bn, but this assumes a return to normal consumer behaviour. The question now turns to how the cost-of-living crisis is affecting consumer demand. Sales at Tesco’s supermarkets have showed resilience, particularly in Europe, but as consumers start trading down to cheaper alternatives, we’d like to see what impact this has had on sales at the half year mark.

Investors will also be interested to hear how the Invest to Save programme is going. The three-year programme aims to save roughly £1bn and could be the silver lining that gives management confidence in keeping a floor under operating profits. The expectation remains optimistic, but next week should reveal the full impact.

Shareholder returns will also be on the radar. At last check the group had already bought back £300m of its shares. The group promised another £750m by April, so progress on this front will be closely watched.”

JD Wetherspoon, Full Year Results, Friday 7 October

Charlie Williams, Equity Research Assistant, “Pub giant JD Wetherspoon expects a full year loss to the tune of £30m next week, greater than previous estimates as investments in labour, repairs and marketing kept rising. But the glass is still half full for the group. Energy contracts remain fixed until the end of FY23 and 68.3% of their estate is under freehold, reducing the burden of higher energy and rent costs. In the quest to regain profitability, we’d like to know if an estate reshuffle of disposals and purchases will make a difference.

Consumer demand will also be in the spotlight for investors. Fourth quarter like-for-like sales were close to but not above pre-pandemic levels, and the groups’ attractive value strategy should put them in good stead as customers opt for cheaper beverages and eating out options. But as consumer incomes get squeezed, sales could lag. With margins already scraping the bottom of the barrel, any outlook into the coming years will be welcomed.

Investors will be focused on the balance sheet next week. The group’s net debt was £906m in the third quarter, with the group expecting it to fall to £870m by the end of the financial year. With interest rates rising, this is an area where it would be good to see more focus on going forward.”

This article has been brought to you in association with Hargreaves Lansdown. All opinions expressed in this article are from the analysts and do not necessarily represent the opinions of The Armchair Trader.

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