Greggs sales boosted by new openings but margin pressures remain

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Greggs has said input cost inflation is “cooling” but continues to weigh on profit margins, as the food-to-go retailer reported a jump in half-year sales driven by new openings in retail parks and travel hubs.

Roisin Currie, Greggs’ chief executive, said the bakery chain had benefited from a “softening” in food and energy inflation but it was still being hit by “significant” inflation from rising labour costs. Inflation across the group is expected to drop from 11 per cent in the first half of the year to 7 per cent in the second half.

Total sales at Greggs rose 16 per cent on a like-for-like basis to £844mn in the six months to the start of July, in line with expectations and compared with the same period last year. Despite inflation showing signs of abating, profit margins were still down 0.5 percentage points to 7.5 per cent compared with last year. Pre-tax profit rose from £55.8mn to £80mn.

Shares in the London-listed group were down 5.1 per cent to £26.20 in early afternoon trading.

But Ben Hunt, a retail analyst at Investec, said there was “nothing untoward” in Greggs’ half-year results to account for the fall in the share price, and argued instead it may be driven by investors who had expected a further upgrade on trading expectations offloading stock.

“The momentum has carried on,” said Hunt, adding that margins would probably recover rapidly as inflation continues to fall. Greggs added 94 stores in the first half of the year, driven by new openings in locations such as airports, rail stations and retail parks, bringing its total estate to 2,378 sites. The chain posted pre-tax profits of £80mn in the first half of the year, up from £55.8mn during the same period last year.

Currie said that the cost of living continued to be “front of mind” for the consumer but that Greggs’ affordable menu was winning new customers. Greggs pushed through a small 5p-10p price increase on some items in June. Last year, the bakery chain lifted prices on three occasions.

“Consumer disposable income is still under pressure and that’s why we need to continue to be the price leader and offer great value deals,” said Currie. “[Inflation] is cooling from where it was . . . over the past 12 months, however, to look back to historical levels, it is still very high.”