Greggs shares soar amid profit hopes

Shares of Newcastle-based bakery and food retailer Greggs rose as much as 15% on Monday to record highs after it published a trading update saying that its 2021 profits are likely to be “materially higher” than its previous expectation and could be around 2019 levels in the absence of further Covid restrictions.

The Newcastle firm reported a “strong recovery in sales levels following easing of restrictions” and said its total sales in the 18 weeks to May 8, 2021, were £352 million (2020: £280 million, 2019: £373 million).

In its outlook, Greggs said: “Sales have recovered well in recent weeks as out-of-home activity levels have increased, albeit in the absence of competition from indoor seated catering operators. 

“If restrictions continue to ease in line with current plans then we now expect our overall sales performance for the year to be stronger than we had previously anticipated. 

“Costs have been well-controlled and the rate of cost inflation we are experiencing is in line with our plans for the year.

Providing guidance on the profit outcome for 2021 remains difficult given the uncertainties surrounding trading conditions. 

“However, given our recent trading performance, the board now believes that profits are likely to be materially higher than its previous expectation, and could be around 2019 levels in the absence of further restrictions.”

AJ Bell Investment Director Russ Mould said: “If Next’s recent trading statement didn’t put a smile on the retail sector, then Greggs’ certainly will.

“The reopening of non-essential retail has got people out of the house and Greggs has benefited from increased traffic and temporarily reduced competition from cafes and restaurants.

“A greater number of people returning to the office will also have helped, as workers nip out at lunchtime for a sandwich and a coffee.

“Greggs’ progress pre-pandemic made it one of the big retail success stories, shedding its baker identity to become a major force in food on the go.

“As the pandemic struck, food on the go became food at home and so Greggs had to think on its feet.

“A home delivery service proved popular and non-public transport locations such as retail parks were resilient, albeit the overall group earnings still fell in 2020 as getting large numbers of people into high street and railway-based stores was always going to be struggle when the Government was telling everyone to stay home where possible.

“Now it is betting on a big recovery in pre-pandemic activity once considered ‘normal’, namely going to work in an office, meeting friends and family for social activities, and more movement via personal and public transport around the country. Its stores are conveniently placed to attract people as they go about their day.

“Many people think we’re going to see structural change in where work is done, however we are still creatures of habit and it wouldn’t be surprising to see queues return to Greggs’ stores for bacon baguettes, sausage rolls and steak bakes slowly build up as more Government restrictions are lifted and companies lay down their long-term working strategies.

“Even with some people working full time from home, the nation isn’t going to hide away like it did in 2020.”