2nd Aug 2022 14:36
(Alliance News) - Greggs PLC's flat interim profit suggests the market was correct to bake cost inflation into the stock, analysts at Brewin Dolphin commented on Tuesday.
More promisingly, sales increased despite Greggs being forced to increase prices, suggesting the chain's value proposition still resonates with consumers.
Greggs shares were 2.6% higher at 2,131.70 pence each in London on Tuesday afternoon. Shares are down 36% so far in 2022, however.
"Today's results explain the recent share price caution," Brewin Dolphin analyst John Moore commented.
The bakery chain left its yearly forecast untouched as it posted a first-half revenue climb. Profit was flat, however, on rising expenses.
In the half-year ended July 2, revenue increased 27% to GBP694.5 million from GBP546.2 million. Pretax profit inched up just 0.5% to GBP55.8 million from GBP55.5 million.
Distribution and selling costs ratcheted up 32% to GBP339.3 million from GBP257.8 million, as cost inflation dragged on the firm's bottom line.
"The main challenge for Greggs is the combination rising energy prices, the increasing costs of ingredients, higher wages, and an uncertain retail environment heavily influenced by the macro-economic backdrop," Moore added.
"However, the baker has proven its ability to work through these issues in the past and meets today's challenges in a strong financial and strategic position. Previous periods of difficult conditions have in the end been beneficial for Greggs, as many of its competitors failed to invest and innovate, and this offers grounds for optimism for long-term shareholders."
In a sign demand for its sausage rolls and steak rolls are still holding up, Greggs noted that in the four weeks to July 30, like-for-like sales in company-managed shops were 13% higher annually.
AJ Bell analyst Russ Mould commented: "Clearly its relatively cheap offering is resonating with cash-strapped consumers who are perhaps trading down from more expensive options.
"The danger for Greggs is that people make their own packed lunches at home rather than grabbing food and drink on the go, but there is little sign of that shift happening at any scale just yet."
Greggs has been forced to raise prices as costs increase.
It explained: "We have worked hard to mitigate the impact of cost inflation on customers but some further small price increases have been necessary."
Promisingly, price rises for its baked goods have not turned customers off.
"We are encouraged with the consumer response so far to the price rises this year which confirm Greggs' position as a value player," Swiss bank UBS said.
"Elsewhere, the strong store roll-out story continues to indicate that Greggs is already taking market share despite the consumer uncertainties."
UBS expects Greggs to achieve annual pretax profit of GBP153 million, which would be a 5.1% rise from GBP145.6 million.
By Eric Cunha; [email protected]
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