Greggs has reported a 13.8% rise in revenue to £960.6mn, with company-managed shops delivering like-for-like (LFL) growth of 7.4%. Performance was driven by the expanding estate, ongoing menu development and higher evening sales.
Underlying profit before tax rose 16.3% to £74.1mn, ahead of expectations. Revenue growth and easing cost inflation helped margins rise from 7.5% to 7.7%.
Free cash flow rose from £19.8mn to £57.4mn, driven by higher profits. Net debt, including leases, was £185.5mn at the end of the period.
51 net new shops were opened in the first half, and Greggs remains on track to open 140-160 net new shops over the year.
An interim dividend of 19.0p was declared, up 18.8%.
The shares fell 1.8% in early trading.
Our view
Greggs has showcased its strengths once more. A high bar’s been set over the past year or so, but results have beaten expectations once again. The value offering that Greggs is so well known for has been holding it in good stead of late, and it was good to see that continue over the half with like-for-like sales well ahead of the industry average.
The number of shops is set to rise to 3,000 over the next few years, the menus and stores have been reset, and market share is at an all-time high. Relying on high-street shoppers and commuter traffic isn't sustainable, so we're particularly supportive of plans to increase its presence at travel locations (like train stations and airports).
Greggs has worked hard over the last few years to increase the number of franchised shops to around 20%. We're supportive of this model. Compared to the company-owned sites, these locations aren't on the hook for day-to-day costs. 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, and they are doing all the right things. The evening food-to-go market is huge and an area Greggs has barely scraped the surface of. Just under half of Greggs shops now serve until 7 p.m. or later, and with new hot food being trialled this year, they’re giving customers more reason to visit them throughout the day.
One of Greggs' key strengths is that it's a lower-value treat. That makes it more resilient during spells when incomes are being flexed. Leaning into that through the loyalty app, which doubled in users in 2023, Greggs has gained another valuable avenue to drive sales growth. 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.
Perhaps unusual for a business geared to growth, management is keen to make sure investors are paid while they wait.The growing dividend is an added attraction, though nothing is guaranteed. The cash hoard on the balance sheet is expected to be flexed to cover increased growth investment, but that’s precisely what it’s there for.
We continue to be impressed and to us there's a lot to like about Greggs’ proposition, including its list of growth drivers. This hasn’t gone unnoticed to the market though, and Greggs sits at a valuation point that will require it to keep delivering quarter after quarter and as with any shareholder returns there are no guarantees
Environmental, Social and governance (ESG) risk
Consumer services companies are medium-risk in terms of ESG, and very few companies are excelling at managing them. That leaves plenty of opportunity for forward-thinking firms. The primary risk-driver is product governance. The impact of their products on society, labour relations and environmental concerns are also key risks to monitor.
According to Sustainalytics, Greggs’ management of material ESG issues is strong.
Greggs’ overall ESG reporting is not up to par with leading reporting standards, though it has appointed a board-level responsibility for overseeing ESG issues. A very strong environmental policy and a decent whistleblower programme are in place. Executive-level compensation could benefit from some elements being explicitly linked to sustainability performance targets.
Greggs key facts
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