Sparks - Greggs

Against a continuing challenging backdrop, Greggs has indicated FY25’s £4.5m PBT (excluding some exceptional items) will be in line with management’s prior expectations, despite revenue of £2,153m being below our £2,170m estimate. While the revenue growth is weaker than we had forecast, management is giving a clear message of outperformance versus a market that continues to be difficult due to weak consumer confidence.

There was a slight improvement in like-for-like sales growth in company-managed stores to 2.9% in Q425 versus the cumulative position at the nine-month stage of 2.2%. However, Q425 was up against the easiest comparative from FY24, when volumes began to decline. Per our calculation, the two-year like-for-like growth rate has weakened further during Q425 versus the prior quarters this year.

With respect to the outlook for FY26, management has indicated that underlying profit growth will be dependent on a recovery in the consumer backdrop, with the current expectation being that consumer confidence will be a headwind for the market. From a cost perspective, the outlook for underlying cost inflation of about 4%, which is lower than FY25’s inflation, should be offset by pricing, while the already-flagged costs for new supply chain will hold back margin growth. As Greggs moves past its peak capital investment, cash flow growth is likely to be better than the profit growth.