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Greggs shares crumble as growth cools in face of tough comparisons

A net 56 new shops have opened in the year-to-date, with a 2,000th outlet welcoming customers in August

Greggs PLC -

Greggs PLC (LON:GRG) reported a slight cooling in the rate of sales growth of its pasties and sausage rolls in the past quarter but has kept up its rapid rate of new shop roll-outs.

The Geordie fast-food chain reported total revenues in the 13 weeks to 28 September of 12.4% with like-for-like sales up 7.4%.

This was down slightly from the 14.7% jump in sales in the first half, when LFL sales were up 10.5% but remains impressive in the face of subdued updates from the wider sector.

Like the wider industry, management said the group, continues to deal with cost pressures on labour and food ingredients.

Pressure on staff costs is likely to rise further in future, whoever the government, with the Chancellor’s flagging his aspiration for a £10.50 UK national minimum wage and an easing of the age thresholds.

With 34 closures alongside the new openings, a net 56 new shops have opened in the year-to-date, with a 2,000th welcoming customers in August.

Greggs said the softer rate of growth was not surprising given the stronger comparative sales from the previous year, but sales were driven by growth in customer numbers.

Shares in the FTSE 250 group were down 10% to 1,876.96p by lunchtime on Tuesday, having roughly doubled over the past 12 months.  

More outlets, more peri peri, more hours in the day

For the full year, management expects a net 90 openings, versus previous guidance of "up to 100" as some franchise openings have been pushed into next year.

Some of these customers were attracted by the new autumn menu, including a hot sandwich range augmented by chipotle chilli steak and hot peri peri chicken baguettes, while the popular spicy chicken and pepperoni bake has made a return, alongside a pumpkin spice latte coffee.

Trials are progressing with shops remaining open later into the evening, supported by an extended range of 'post-4pm' deals, the company said. 

“We are encouraged by customer demand for our delivery service trials, and are developing the operational processes to service this channel.”

Preparations for a potential Brexit include building stocks of key ingredients and equipment that could be affected by disruption to the flow of goods into the UK.  

"Our expectations for the full year remain unchanged," the company said.

In line with forecasts

Analysts at UBS said the growth was in-line with expectations that Greggs could maintain around 10% two-year "LFL growth stack" and so they continue to forecast full year LFL growth of 8%.

Recommending Tyneside locals should "look out for the sausage meat mounds" as the company prepares for Brexit, Clive Black at Shore Capital added that "Greggs is, unlike Mike Ashley’s Newcastle United, sadly, the deserved pride of Newcastle".

However, he said, no doubt like the rest of the retail, food manufacturing and food & beverage segments, "there will have been a cold chill" around the proposed changes to minimum wage announced at the Tory party conference.

All in all, Black said: "The group has re-invented itself quite marvellously, becoming more relevant to a broader client base through product, reducing its dependence upon salt, sugar and saturated fat, to evolve a more relevant and sustainable proposition that is a) tasty, b ) strong in net value and c) sit down or take-out."

The analyst said the stock's "deservedly fulsome" multiples "do bring with them the downside risk of disappointment".

Quick facts: Greggs PLC

Price: 1119 GBX

Market: LSE
Market Cap: £11.52 m

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