Greggs - Return Of Business Rates Hampers Profits

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Greggs plc (LON:GRG)’s half year sales of £694.5m were 27.1% higher than last year, with like-for-like (LFL) sales up 12.3% compared to pre-pandemic levels. Despite the higher revenue, pre-tax profit was broadly flat at £55.8m, reflecting the re-introduction of business rates after a grace period during the pandemic, higher VAT and increased input costs from inflation.

Looking ahead, the group said LFL sales in non-franchised shops were 13.1% higher in the four weeks to the end of July, but acknowledged “there are considerable uncertainties in the economy”. Greggs’ expectations for the full year are currently unchanged.

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An interim dividend of 15p was announced, in-line with last year.

The shares rose 2.2% following the announcement.

Greggs’ Earnings

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown:

“The return of business rates means bakery-favourite Greggs has been unable to lift profits, despite an impressive increase in sales. This disappointing development is wholly outside the group’s control, but it also comes at a time when cost inflation is taking a real bite out of things. For the full year, higher food, packaging and energy costs are expected to push overall cost inflation for the chain to 9%. It’s reasonable to expect that number to be revised upwards, putting pressure on Greggs to shift more pastry-encased goodies.

Its position at the lower end of the value spectrum means Greggs is well placed to capture demand from those looking for a bite to eat, while times are tough. However there comes a point when cash-strapped consumers rein in that sort of spending altogether, which would be problematic for Greggs. The group’s throwing money at a strategy shift, which includes opening new stores and extending opening hours. The idea to shift away from core shopping locations and into travel hubs, like train stations, is a strategy that’s served the likes of WH Smith well, and holds real merit as a hedge against declining town-centre footfall.

Ultimately, Greggs has a sturdy balance sheet and room to stomach disruption, but an abrupt change in consumer spending habits could see the much-needed strategy rejuvenation taken off the boil, which would have far reaching implications.”


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Image and article originally from www.valuewalk.com. Read the original article here.

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