Greggs says full-year profits could recover to 2019 levels

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Greggs PLC (LON:GRG) said full-year profits could be much higher than expectations and reach 2019 levels if there are no further restrictions.


The baker said that sales have recovered well in recent weeks as out-of-home activity levels have increased, albeit there was no competition from indoor hospitality service.


READ: Greggs slumps to loss, plans 100 new shops after cutting 820 jobs


If restrictions continue to ease in line with the government’s plans, it now expects overall sales performance for the year to be stronger than previously anticipated.


However, it added it’s hard to predict how trading will pan out as there will be increased competition as cafes and restaurants reopen.


Costs have been well-controlled and the rate of cost inflation is in line with plans for the year, the FTSE 250 group added.


In the first 18 weeks of 2021 it opened 34 new shops, including 13 with franchise partners.


The expansion is focused on those locations where performance has proved to be most robust, such as retail parks, roadside and petrol filling stations.


In the year to date, it closed 11 shops, giving a total of 2,101 shops trading at 8 May, comprising 1,761 company-managed shops and 340 franchised units.


In the ten weeks to 13 March, like-for-like sales tumbled 23% compared to two years ago, and shed only 4% in the eight weeks to 8 May. Total sales in the 18 weeks to 8 May 2021 were GBP352mln.


Greggs saw a significant pick up in sales with the reopening of non-essential retail from 12 April, in part reflecting the pent-up demand for retail which has boosted high street footfall.


Delivery sales were 8% of the total, with services available in 800 shops.


Analysts at Shore Capital said the stock is “somewhat overvalued” as there will be “be a mid-single-digit free cash flow (FCF) yield and only a modest dividend pay-out assuming state aid repayments”, as Greggs may pay back furlough money to the government.


“In contrast, whilst admittedly somewhat different, the UK supermarkets trading on roughly half such multiples and whilst they do not have the store opening potential of Greggs, which has around 2,100 outlets presently and talks of around 3,000, the valuation gulf remains a bit too high still to us,” the broker said.


“All that said, hat’s off to Roger Whiteside, Richard Hutton et al for the effective engineering of Greggs in an immensely challenging period, one where many hundreds of Greggs employees have lost their jobs as the business sought to necessarily protect its balance sheet.”


Shares jumped 8% to 2,543p on Monday morning.


–Adds analyst comment, shares–

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