In its fourth quarter trading update, Greggs reported growth in total sales of 19.6% over the year, to £1.8bn. Like-for-like sales rose 13.7%, with growth in the final quarter of 9.4%. Volumes remained a positive trend and the slowing pace of growth toward the back end was due to easing price hikes.
145 net new shops were opened over the year, taking the total to 2,473 at the end of 2023. Plans are underway to open 140-160 net new shops in 2024.
Net cash at the end of 2023 was broadly in line with 2022, at £195m.
The shares rose 8.7% in early trading.
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Our view
Greggs' 2023 sales breezed past market expectations. Growth did slow as we moved through the year, but that was largely due to less price hikes as inflation eased. Keeping prices down is good news for everyone, even if it gives up some short-term top line growth.
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 market share's moving in the right direction. 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. It 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 now partners with both Just Eat and Uber Eats), click and collect, and opening later to attract more evening customers.
There's a real opportunity at hand if it can win hearts and minds at a time when disposable income is tight, the evening food-to-go market is huge and an area Greggs has barely scraped the surface of.
One of Greggs' key strengths is that it's a lower-value treat. That makes it more resilient during spells where incomes are being flexed 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.
Inflated costs are starting to ease and the group's secured good forward cover for food, packaging and energy costs - cost visibility in this environment is key. Less pressure on costs makes it easier to keep prices in check and retain that coveted value offering.
We continue to be impressed with cash generation, and along with a decent cash hoard on the balance sheet, there's plenty of firepower to fund future growth. Perhaps surprisingly for a business geared to growth, there's also a 2.8% prospective yield on offer to sweeten the offer. Though, no returns are guaranteed.
There's a lot to like about Greggs, literally and corporately, and we still see some upside over the long term. But a high bar's been set.
Greggs key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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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