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Greggs profits constrained by inflation at £55.8m

Greggs sees sales grow 22% in a year, but profits remain broadly stable as fast food companies face inflationary pressures

  • Pre-tax profit broadly stable at £55.8m in the first six months of this year
  • Revenue grew 22.4% to £694.5m but business rates, VAT and CPI weighed in

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Greggs’ profits remained broadly flat year-on-year in the first six months of 2022 as rising costs offset solid revenue growth.

The high street chain, best known for its sausage rolls, posted pre-tax profits of £55.8 million in the half, up from £55.5 million in the first six months of 2021, even as the like-for- like sales grew 22.4 percent to £694.5 million.

Greggs maintained his full-year expectations of little material earnings growth on his 2021 £145.6 million, attributing flat growth in the first half to the “reintroduction of corporate rates, VAT hike and higher cost inflation”.

Greggs opened 40 new locations in the first half, including a high-profile Leicester Square store

Greggs opened 40 new locations in the first half, including a high-profile Leicester Square store

It comes at a time of historically low UK consumer confidence, with consumer price inflation at a 40-year high and expected to be well into double digits by the end of the year.

Nevertheless, Greggs’ balance sheet is strong with a net cash position of £145.7 million, after a special dividend of 40 pence per share was paid in April, at a total cost of £40.6 million. Diluted earnings per share rose from 43.2p last year to 44.8p.

Meanwhile, Greggs opened 40 new locations in the first half, with 12 closings taking the company to a total of 2,239 stores. Another 150 new stores are expected next year.

Head of equities at Wealth Club Charlie Huggins said the costs of commodities, energy and wages are all rising rapidly and “Greggs is significantly exposed to all three,” although the company is “handling these pressures well” so far.

He added: “If Greggs can maintain its recent sales momentum, it will offset inflationary pressures somewhat. But the group’s near-term prospects still look rather unpalatable given the extremely unsavory cost outlook.

“That headwind is probably more or less ingrained in the share price, but until inflation drops, Greggs will have to run fast to stand still.

Greggs maintained his ordinary interim dividend at 15 pence per share.

Greggs shares rose 2.3% to 2,126p early in trading, bringing losses for the year to 36.5 percent.

Chief executive Rosie Currie said: “Greggs delivered an encouraging performance in the first half of the year with sales above 2019 levels. These results demonstrate the continued strength of the Greggs brand and demand for our great taste, quality and value. quality ratio.

“In a market where consumer income is under pressure, Greggs offers exceptional value to customers who search for food and drink on the go.

“We are well positioned to address the widespread challenges facing the economy and continue to have some exciting growth opportunities ahead, with a clear strategy for expansion.

“We remain confident in Greggs’ ability to deliver continued success.”

Elsewhere, Domino’s Pizza Group posted a 16.3 percent decline in pre-tax profits in the first half to £50.9 million on flat group revenue of £278.3 million.

The fast food group told investors it expects improved profitability in the second half as the benefit of passing food cost inflation through to its franchises is realized.

Despite rising inflation, the group also said it expects to meet earlier expectations for full-year earnings.

Investors were less convinced when Domino’s Pizza Group shares fell 2.4 percent in early trading to 284.2 pence.

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