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Greggs surprises with profit upgrade

The sausage roll maker has enjoyed continually strong trading into the final quarter of the year
November 28, 2018

Shares in high-street baker Greggs (GRG) rose by as much as 13 per cent after the group revealed that strong sales growth had continued from the third quarter into October and November. As part of a trading update, the group revealed total sales growth of 9 per cent over the eight weeks ended 24 November, with company-managed shop like-for-like sales up 4.5 per cent. That underlying performance beat management’s expectations, prompting improved full-year adjusted pre-tax profit guidance of £86m, up from £82m.

IC TIP: Hold at 1,376p

This performance was in direct contrast to the wider issues blighting the UK high street. As per the British Retail Consortium and the Footfall and Vacancies Monitor, October marked another month of declining visitors to town centres as consumers continued to head online. The vacancy rate is also at a 15-month high, after several brands disappeared from the high street this year.

While there is still a lot to play for before the end of the year – especially as retail enters its peak trading season – it’s encouraging to see sales performing strongly against tough comparatives. Brokerage Peel Hunt also said the bakery's Christmas ranges had "landed well" – retail speak for 'resonated with customers' – but work had also been done to reduce queueing times and convert new customers into sales. As analysts there argue, it wants to ensure potential customers find the products appealing, the service helpful and the environment conducive to a quick and convenient purchase.

Despite a lack of detail on margins, a good like-for-like sales performance has inevitably fed into this, as has a tight grip on operational costs. As such, Peel Hunt followed the company’s lead, marking up current-year pre-tax profit forecasts to £86.7m and FY2019 profit forecasts from £85m to £89m. While the brokerage says the next six weeks are “crucial”, it admits it got "carried away" with Greggs’ sales slowdown earlier this year, describing the weak Spring/Summer season as "no more than a blip".