Greggs eyes profit rebound after post-lockdown sales recovery
Greggs believes it can get back to normal profits this year after the fast food and bakery chain performed well during the first couple of weeks after non-essential retailers reopened.
The chain, which has more than 2,000 stores across the UK, said its sales had risen compared with 2019 since clothing shops and other retailers resumed trading, generating additional high street footfall.
It did not reveal the exact increase in sales for that period, but said that in the eight weeks to May 8 sales were down just 3.9 per cent. This compares with a 23.3 per cent slide in the ten weeks to March 13, the firm noted in an unscheduled trading update to investors.
Although it warned of “considerable uncertainty”, the board seemed upbeat about the group’s prospects for the year.
It said profits could return to the levels seen in 2019 this year if Covid-19 restrictions continue to be eased as expected.
Greggs added: “Sales have recovered well in recent weeks as out-of-home activity levels have increased, albeit in the absence of competition from indoor seated catering operators.
“If restrictions continue to ease in line with current plans then we now expect our overall sales performance for the year to be stronger than we had previously anticipated.”
It added that “profits are likely to be materially higher than its previous expectation, and could be around 2019 levels in the absence of further restrictions”.
Total sales in the 18 weeks to May 8 were £352 million, up from £280m last year as the pandemic weighed, but down from £373m in 2019.
Greggs has also been helped by deliveries during lockdown. Customers are now able to order from some 800 branches across the country and deliveries made up 8.2 per cent of sales at the shops that Greggs directly manages.
However this is still less than half of Greggs’ 2,101 shops that were trading on May 8. Around 340 of these are franchises. Greggs said it opened 34 shops in the first 18 weeks of 2021.
Last November the firm said it was having to axe more than 800 jobs as restrictions were tightened again following an increase in Covid cases.
Analysts at brokerage Shore Capital said: “Greggs brings further news from the north-east of England, following the electoral noise from Hartlepool over the weekend, with an impromptu trading statement that suggests positive recent trading and materially increased management confidence as to the potential [full-year] 2021 financial out-turn.
“All credit to Greggs for engineering such a position in the face of material adversity over the past year or so of the pandemic.
“Whilst this is an immensely credible achievement, we still have to look at the Greggs’ equity valuation and ask the question: is it fairly valued even with a material beat to our expectations of profit recovery.”
They added: “We note that the group’s delivery service now accounts for 8.2 per cent of sales in company managed stores, a new string to its bow through the pandemic, albeit we would expect this to ease back with normalisation.”