Greggs reported full-year revenue up 23% to £1.5bn, whilst life-for-like (LFL) sales in company-managed shops rose 17.8%. Revenue growth was driven by 147 net new shop openings, an increase in prices and a strong first quarter that benefited from a lockdown-impacted comparable period a year earlier.
Profit before tax was up 1.9% to £148.3m. Higher revenue was largely offset by significantly higher costs and reduced support from Government pandemic measures that had been in place over the prior year.
Free cash flow of £152.4m was down from £235.3m the prior year, the difference largely due to increased investment. At the year-end, net debt including lease liabilities was £109.7 (2021: £84.6m).
2023 has started with LFL sales up 18.8%, in line with expectations. Cost inflation is expected to trend around 9-10% for the year.
The board has proposed a final dividend of 44.0p, giving a total for the year of 59.0p (2021: 57p).
The shares were broadly flat in early trading.
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Our view
We continue to be impressed with how far Greggs has come in such a short space of time.
The number of shops is set to rise to 3,000 over the next few years, the menus and stores have had a reset and trading is holding up well. Relying on high-street shoppers and commuter traffic isn't a sustainable plan, so we're particularly supportive of plans to increase its presence at travel locations (like train stations).
Greggs also plans to increase the number of shops that are franchises from 17% to around 20%. We're supportive of this model. Greggs isn't on the hook for day-to-day costs at these locations when compared to the company-owned sites. There are other growth levers too, including bolstering delivery services (it currently has a partnership with Just Eat), click and collect, and opening later to attract more evening customers.
We can't knock momentum, with double-digit growth for the full year. That's being helped by weak comparisons from the same time a year ago, thanks to Omicron, but still a strong showing. One of Greggs' key strengths is that it's a lower-value treat. That makes it more resilient during the cost-of-living crisis and is reflected in the increased use of the loyalty rewards scheme on the group's app. That could translate to longer-term repeat demand even when the economy smooths back out.
But Greggs does have some challenges to face. The cost outlook was something we were keen to hear more about and the news is relatively good. 9-10% cost 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 Q3 and made progress on locking in some food and packaging costs too - cost visibility in this environment is key.
A cash position of over £190m means Greggs can stomach some disruption. But a sharper economic downturn would cause some pain when a shop-bought lunch becomes a luxury that people scrap. The healthy balance sheet and decent cash generation also underpin the growing dividend and investment in growth opportunities. Of course, returns are never guaranteed.
There's a lot to like about Greggs - literally and corporately. We still see some upside over the long term, but the strong share performance in recent months means growth prospects are starting to look priced in.
Greggs key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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