January 11, 2012 5:45 pm

Greggs serves up Christmas sales rise

Greggs the baker reported a 10.8 per cent rise in sales over the festive season, shifting a record 7.5m mince pies and boosting coffee sales by more than a fifth compared with last year.

In the five weeks to January 7, the Newcastle-based company saw like-for-like sales in stores open for more than one year increase by 5.1 per cent, thanks in part to the “extra day” afforded by Christmas falling on a Sunday.


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This means that it is on track to deliver a 5.8 per cent increase in sales for its full year to December 31, although ingredient price rises and promotional “meal deal” offers have hit profit margins.

Broker Shore Capital forecasts that winter promotions have shaved 40 basis points from Greggs’ full year operating margin, estimated at 7.5 per cent. With management confirming that promotions will continue, analyst Darren Shirley has reduced his 2012 pre-tax profit forecast by £2.4m to £56m.

“The group has a strong balance sheet with the potential for cash balances to build further this year, supporting the dividend income stream and potentially opening up the prospect of a resumption of a share buy-back programme in the medium term,” he said.

Now trading from 1,550 outlets in the UK, which is more than McDonald's, Greggs plans to pass 2,000 within four years by expanding on to university campuses, football grounds and industrial estates. Next week, it opens a trial outlet at a motorway service station in partnership with Moto. In 2011, Greggs opened 98 new stores, one-third of which were not on high streets.

Having opened its first coffee shop, Greggs Moments, and expanded into the breakfast market, chief executive Ken McMeikan is now trying to extend business at the other end of the day.

“We’re looking at what more we can do to encourage customers to come in late in the afternoon or on their way home from work,” he said. “We are now selling frozen Greggs sausage rolls in partnership with Iceland, and that is an indication of our belief that there are still more opportunities in the take-home market.”


Would-be investors in Greggs must weigh up its growth prospects against steadily shrinking margins. The company’s shares proved a defensive bet in 2011, despite extraordinary spikes in input costs, but this is a UK-only growth story. With the potential for 500 more stores, expanding into markets including coffee shops, take-home foods and supermarket freezer cabinets shows the scope of management’s ambitions. Trading on a forward price/earnings ratio of nearly 13 times, this is expensive by retail or food sector standards, but with no debt and a 4 per cent dividend yield, shares look worth buying.

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