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Greggs – holding its own, despite unsavoury cost outlook

04/10/2022

GREGGS, the leading UK food-on-the-go retailer, has announced a third quarter trading update for the 13 weeks to 1 October 2022:

  • Total sales up 14.6% with like-for-like sales rising by 9.7%.
  • No change to inflation outlook – costs still seen rising by c. 9% this year.
  • Despite “cconsiderable uncertainty” in the economy, full year expectations are unchanged.

Charlie Huggins, Head of Equities at Wealth Club, commented:

“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.

This is arguably the most difficult trading environment since the 2008/09 financial crisis. 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.

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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.” 

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