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06 January 2021

Greggs Fourth Quarter Trading Update

The well-loved on-the-go bakery retailer Greggs has displayed some respectable results given the nature of their operations and the impact of COVID-19. The company has just reported its fourth-quarter trading update, displaying like-for-like sales 81.1% relative to the final quarter of 2019. Over the year, the company generated sales of £811m and bearing in mind the degree of economic uncertainty and instability that 2020 has thrown at the company, the shortfall from £1,168m for 2019 total sales does not seem devastatingly significant.

Greggs operates over 2,000 stores around the country and even expanded its estate by 28 net new shops. This immense physical shop front presence, however, has been a looming disadvantage for the company throughout the past nine months. Due to the falling demand related to lockdown restrictions and social distancing in general, the company attempted to keep job losses to a minimum with its employee consultation programme and, although it assisted towards preserving jobs, 820 redundancies were unavoidable.

The company adapted well to the limitations on performance, however, by adjusting its operations to focus on deliveries and other revenue streams. The company has a longstanding relationship with the frozen food supermarket chain Iceland which has remained open throughout lockdowns. Iceland sells Greggs branded home bakery products which has proven to assist revenues during the restrictions. In addition, Greggs successfully built a partnership with Just Eat, the home food delivery company. This has allowed the wide customer base of Greggs access to its warm pastries on delivery and, in the last quarter of 2020, that accounted for 5.5% of revenues from company managed stores. Currently, Greggs has 600 stores offering delivery services with its Just Eat partnership, and the company expects this to increase by around one third in 2021 to 800 stores nationwide.

From a financial perspective, the company has faired well and maintained a robust financial position given the circumstances. The company expects to generate up to £15m of full year losses before tax, which is strong considering it managed to increase its estate of stores over the year. Greggs understandably received government support via the Bank of England and their lending facilities as well as now having a three-year £100m revolving credit facility with a group of banks. Due to the significant uncertainty surrounding the developments with coronavirus and continued lockdown restrictions, that will no doubt affect Greggs, resulting in the bleak outlook provided by the company that it does not expect profits to return to pre-COVID-19 levels during 2021.

The glimmer of hope is there for the company, demonstrated by the five weeks to 2nd January where the company managed stores averaged 85.7% of 2019 sales. This may imply a potential boost when lockdowns are lifted, and the 2,078 Greggs stores can cater for their bakery loving client base in 2021. Greggs has no intention of sizing back and expects to open 100 net new stores around the UK in the coming year with the assistance of stabilising market conditions.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Greggs Fourth Quarter Trading Update

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