Greggs reported a 10.6% rise in sales over the third quarter, up 12.7% year-to-date. Like-for-like sales were up 5.0%, with September being the strongest month in the quarter. Performance continues to be driven by menu changes, extended opening hours, and digital channels.
The total store estate totalled 2,559 on 28 September 2024, with 140-160 net shop openings expected over the year.
Cost inflation is now expected to be toward the lower end of the 4-5% guided range, there was no other change to guidance.
The shares fell 2.2% following the announcement.
Our view
Third-quarter trading didn’t throw up many surprises. Like-for-like sales growth is slowing, but that was expected, as the comparable period last year was strong. There was a slight positive on the cost side of things, but with no change to full-year profit guidance, the impact is likely marginal.
Over the past year or so, a high bar has been set, a testament to the job management has done.
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 Greggs is doing all the right things. The evening food-to-go market is huge and an area it’s barely scratched 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, there’s now 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 there's a lot to like about Greggs’ proposition, including its list of growth drivers. This hasn’t gone unnoticed by the market though, and the valuation requires 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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