Greggs lifts profit guidance after strong sales growth

Greggs said on Monday that it now anticipates full-year underlying profit before tax will beat previous expectations as it reported a jump in total sales for the six weeks to 9 November.

Total sales rose 12.4% in the six-week period, up from 8.5% growth achieved in the same period last year, with the high street bakery chain attributing the improvement to an unexpectedly large increase in customer visits.

Like-for-like revenue from shops managed by the FTSE 250 company rose 8.3%, more than double the 4.0% growth from the comparable period in 2018.

The final quarter's strong start means that, across the year-to-date, total sales are up by 13.4% and like-for-like sales have strengthened by 9.2%.

"Sales growth continues to be driven by increased customer visits and has been stronger than we had expected given the improving comparative sales pattern that we saw in the fourth quarter last year," Greggs said. "Operational costs remain well controlled and, whilst the comparative sales become stronger still in the balance of the year, the board now anticipates that full year underlying profit before tax (excluding exceptional charges) will be higher than our previous expectations."

This is the second time Greggs has upgraded its profit outlook this year. The group said back in May that publicity surrounding the launch of its vegan-friendly sausage roll had boosted performance.

At 0905 GMT, the shares were up 14% at 2,012p.

Russ Mould, investment director at AJ Bell, said the update suggests that Greggs is more than a one-trick pony.

"Having got on something of a roll with its vegan version of a pastry favourite, the company had until today stalled on a lack of earnings upgrades since the summer. The vegan sausage roll phenomenon which dominated the start of 2019 for the company might still be having some lasting impacts in terms of brand awareness but there’s no mention of it having direct impact in today’s short but sweet update.

"Despite a tough comparison against strong trading in the same period a year ago, it is impressive that recent trading has been sufficiently encouraging to drive an increase in full year profit guidance.

"The products it sells might not always be the healthiest but its business looks in good shape. Encouragingly, sales growth is being driven by an increase in customer visits, suggesting perhaps that people attracted by the vegan sausage roll are sticking around.

"In a busy world where people don’t always have time to stop for a sit down meal, there has to be a place for outlets which offer affordable hot and cold food and Greggs looks to be serving that need nicely at the moment."

Canaccord Genuity said: "This morning's unscheduled trading statement from Greggs revealed that strong trading has continued into Q4 despite tougher comparatives.

"As a consequence, we are raising our earnings per share (diluted adjusted) forecasts by 4.2% to 85.6p for FY19E, by 5.3% to 93.5p for FY20E and by 5.2% to 103.1p for FY21E.

"We retain our hold recommendation but edge up our target price to 2,100p from 2,050p to reflect the upgrade."