Analysts at JPMorgan reckon Greggs PLC (LSE:GRG), the baker, may have reached an earnings inflection point after first-half profits beat expectations and management adopted a more confident tone on trading.
“The inflection we talked about appears evident now,” analyst Borja Olcese said in a note, citing “materially more positives than negatives”.
Operating profit rose 23% year on year, 9% ahead of consensus, as margins expanded by 100 basis points. Pre-tax profit increased 20%, beating forecasts by 4%.
Greggs maintained its full-year profit outlook, implying a relatively undemanding second half.
Cost inflation guidance fell to around 2% from 3%, while planned capital expenditure was cut to about £180 million from £200 million. Greggs remains in a net cash position, with stronger-than-expected operating cash flow pointing to scope for future share buybacks.
The baker's main weakness was volumes, with like-for-like sales growth of 1% late in the period implying volumes fell by around 1% to 2%.
However, management sounded more constructive on July trading as heatwave disruption eased and indicated like-for-like growth could improve.
JPMorgan estimated those comments added roughly 500 basis points to the shares’ intraday move.
