Greggs shares rose 2.2% to 2,124p in early morning trading on Tuesday after the food company reported trading in-line with management expectations and a growth in total sales to £694.5 million in HY1 2022 against £546.2 million the year before.
Greggs confirmed a 22.4% like-for-like sales rise in the period, with a 12.3% growth compared to 2019 levels.
The UK baked goods chain announced a pre-tax profit increase to £55.8 million compared to £55.5 million the last year, with the relatively flat profit attributed to the re-introduction of business rates, rising VAT and higher levels of cost inflation.
“The return of business rates means bakery-favourite Greggs has been unable to lift profits, despite an impressive increase in sales. This disappointing development is wholly outside the group’s control, but it also comes at a time when cost inflation is taking a real bite out of things,” said Hargreaves Lansdown equity analyst Sophie Lund-Yates.
“For the full year, higher food, packaging and energy costs are expected to push overall cost inflation for the chain to 9%. It’s reasonable to expect that number to be revised upwards, putting pressure on Greggs to shift more pastry-encased goodies.”
The franchise highlighted a good cash position and liquidity, with net cash at the close of HY1 of £145.7 million after payment of its special £40.6 million dividend in April 2022, representing 40p per share.
“Greggs delivered an encouraging performance in the first half of the year with sales ahead of 2019 levels. These results demonstrate the continued strength of the Greggs brand and demand for our great tasting, quality and value for money offering,” said Greggs CEO Roisin Currie.
The company is well-placed in the cost of living crisis for its reputation as a more budget-friendly food option, however with inflation set to hit 11% later this year and soaring energy costs eating into consumer budgets, Greggs might find its offerings cut out of UK diets entirely as the crisis worsens.
“Its position at the lower end of the value spectrum means Greggs is well placed to capture demand from those looking for a bite to eat, while times are tough,” said Lund-Yates.
“However there comes a point when cash-strapped consumers rein in that sort of spending altogether, which would be problematic for Greggs.”
“Ultimately, Greggs has a sturdy balance sheet and room to stomach disruption, but an abrupt change in consumer spending habits could see the much-needed strategy rejuvenation taken off the boil, which would have far reaching implications.”
Greggs noted a diluted EPS rise to 44.8p from 43.2p, and commented its FY 2022 outlook remained unchanged despite the currently volatile market.
Greggs announced an ordinary interim dividend per share of 15p against 15p year-on-year.