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Greggs shares: cost inflation metric will be key in second half

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Popular UK stock Greggs [LON:GRG] released its half year numbers this week with Like-for-like sales rising by 16% with underlying profit before tax up 14.2%. There was no change to Greggs’ inflation outlook – costs still seen rising by c. 9% this year.

Despite economic uncertainty, Greggs said full year expectations are unchanged. Total sales were reported at £844.0m, up 16% on a like-for-like basis. Underlying pre-tax profit rose 14.2% to £63.7m. Significantly management felt confident enough to raise the interim dividend 6.7% to 16p.

“This is another solid performance from Greggs in a challenging economic environment, with little sign so far of consumers cutting back on sausage rolls and pasties,” said Charlie Huggins, who is managing the Quality Shares Portfolio at The Wealth Club.

Greggs is benefiting from doing the simple things too. It has a brand that resonates with consumers, and it augments that with sensible investments in stores, new ranges, supply chain and infrastructure.

Some of the strong sales growth is explained by lapping the impact of Omnicron in the first nine weeks of last year. But the group has also successfully expanded its evening trade, and this has made a strong contribution.

“Forget sausage rolls, pizza and flatbread are the new best bites at Greggs as extended opening hours continue to hit the spot with consumers,” said Matt Britzman, equity analyst at Hargreaves Lansdown. “This is a real opportunity if it can win hearts and minds at a time when disposable income is tight, the evening food-to-go market is huge and an area Greggs has barely scraped the surface of.”


With a fresh click + collect website waiting to be launched and a continued push to offer a better digital experience Greggs is making hay (or more accurately, vegan bakes) while the sun shines.

Greggs cost inflation has peaked

Importantly, cost inflation now appears to have peaked. Like-for-like cost inflation is seen falling from 11% in the first half to around 7% in the second. This should reduce the need for price increases and help Greggs to convert more of its sales to profit heading into 2024.

But Huggins at The Wealth Club says that Greggs isn’t out of the woods just yet. Cost inflation may have eased but it remains…unsavoury. Meanwhile, pressure on the UK consumer could build into the second half as the impact of higher interest rates starts to bite.

Nine per cent over the year, if that comes to pass, is a tricky backdrop to navigate for the baker. Expect sales growth to ease from here out, as Greggs starts to lose the benefit of more favourable comparable periods, so the second half is where we’ll really see just how much progress is being made.

But Greggs is in a far better position than most retailers and is more than holding its own. “Should inflation continue to moderate, the business could really be in a sweet spot,” Huggins said.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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