Greggs holds guidance but warns cost inflation, prices rising

High Street bakery chain Greggs reported a 22.4% rise in like-for-like sales for the half-year and maintained 2022 guidance , but bumped up its cost inflation guidance once again as price continued to rise.

The company, famed for its sausage rolls and other food-to-go products, on Tuesday said total sales for the 26 weeks to July 2 were up 27.1% to £694.5m.

Pre-tax profits were flat at £55.8m, as the re-introduction of business rates, an increase in VAT sales tax and rising inflation all kicked in. The company said it did not expect a rise in profits for the year.

“We have worked hard to mitigate the impact of cost inflation on customers but some further small price increases have been necessary; these appear not to have impacted transaction numbers,” the company said.

Cost inflation increased significantly in the first half of the year, driven by food, packaging and energy commodities, Greggs said, adding that it now expected this figure to run at 9% for the year.

Greggs added 5p - 10p to the price of its products at the start of the year and raised prices again in May as the cost of ingredients started to spiral. The group earlier in 2022 predicted prices would rise by 5% and lifted that to 7% in March before the latest rise.

It said it had continued to extend forward purchasing cover and fixed input prices for an average of around five months of future requirements across these areas.

In the four weeks to July 30 LFL sales in company-managed shops were 13.1% above the equivalent period of 2021.

“Clearly there are considerable uncertainties in the economy as a whole, but we continue to trade in line with our plan and are making good progress against our strategic objective to become a larger, multi-channel business,” said chief executive Roisin Currie.

“In a market where consumer incomes are under pressure, Greggs offers exceptional value for customers looking for food and drink on the go. We are well positioned to navigate the widely publicised challenges affecting the economy and continue to have a number of exciting growth opportunities ahead, with a clear strategy for expansion. We remain confident in Greggs’ ability to deliver continued success,” she added.

Hargreaves Lansdown analyst Sophie Lund-Yates said the cost inflation figure could reasonably be expected to revised upwards, "putting pressure on Greggs to shift more pastry-encased goodies".

"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. However there comes a point when cash-strapped consumers rein in that sort of spending altogether, which would be problematic."

Lund-Yates said the group's strategy to shift away from core shopping locations and into travel hubs, like train stations, "is a strategy that’s served the likes of WH Smith well, and holds real merit as a hedge against declining town-centre footfall".

"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.”

Reporting by Frank Prenesti at Sharecast.com