7th Mar 2023 13:19
(Alliance News) - Greggs PLC reported a solid increase in annual revenue and a slight up tick in profit on Tuesday, as it boasted a record number of shop openings in the year and like-for-like sales ahead of pre-pandemic levels.
Russ Mould, investment director at AJ Bell, said Greggs' offering is "perfectly pitched" in the current environment in which household budgets are under pressure and "sometimes people are just too busy to make sandwiches."
"Cheap, hot, filling food is just what people are looking for and as the company continues to roll out new stores, there are a growing number of outlets where people can snap up these products," Mould said.
The bakery chain posted a pretax profit of GBP148.3 million in 2022, up 1.9% from GBP145.6 million the previous year, while revenue rose 23% to GBP1.51 billion from GBP1.23 billion.
Greggs reported strong like-for-like sales growth in the year, with like-for-like sales 18% higher year-on-year and 15% higher than the pre-pandemic level of 2019.
"After two years of unprecedented disruption to trading caused by the Covid-19 pandemic, we started 2022 relieved to see what appeared to be a return to more normal conditions. We knew we would come back stronger and better," the company said.
Greggs noted a record number of new shop openings in 2022, growing its estate to 2,328 shops as at December 31. In 2023, Greggs is targeting 150 net openings.
AJ Bell's Mould cautioned that, while this plan will likely be applauded, Greggs "needs to be careful ambition does not tip over into hubris."
"Will the brand still be as popular, for example, when economic conditions have improved and people have a bit more money in their pocket?" he suggested.
In the first nine weeks of 2023, like-for-like sales in company-managed sales were up 19% against the prior year. Greggs said this was in-line with its expectations and reflected the impact of Omicron in the comparator period.
Greggs said cost inflation will continue to be a challenge in the year ahead, driven particularly by pay awards and energy costs. It expects overall input cost inflation in 2023 to be in the range of 9% to 10%. In 2022, cost inflation totalled 9%, in-line with previous guidance.
Matt Britzman, equity analyst at Hargreaves Lansdown, said the news on cost inflation was "relatively good."
"9-10% inflation over 2023 is by no means an easy hurdle to overcome, but the group's secured forward cover for all electricity requirements up to the end of the third quarter and made progress on locking in some food and packaging costs too – cost visibility in this environment is key," he said, adding that the direction of travel for Greggs looks "promising".
Analysts at Peel Hunt said that they imagine that consensus on Greggs will not change today. "With the shares having done so well, we would not expect them to run away given the "no change to forecast "print," they explained.
Nonetheless, Peel Hunt said it intends to review its target price for Greggs, as its risk profile has improved since it last opined. Currently, Peel Hunt has Greggs at 'hold' with a target price of 2,000 pence.
Shares in the FTSE 250-listed fast food chain were 0.8% lower at 2,728.50p on Tuesday afternoon in London. Over the past 12-months, the stock is up 20%.
Analysts at Shore Capital were in broad agreement with Peel Hunt: "Whilst Greggs' is undoubtedly a high-quality business, with robust medium to long growth potential and ambitions, we see the stock a fully and fairly valued and reiterate our 'Hold' recommendation. For choice, an absence of upgrades today may make the fast money pencil the share down a penny or two, but long-term the share has scope to hold its fulsome ratings with delivery."
By Heather Rydings, Alliance News senior economics reporter
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