Profits at Greggs have climbed to record levels as the bakery chain shrugged off the woes of the pandemic and benefited from business rates relief, cost reductions and recovering sales.
The company posted pre-tax profits of £55.5 million for the six months to July 3 compared with the £65.2 million loss recorded last year, and even higher than the £36.7 million posted in 2019.
In January the business warned that it was bracing for its first ever half-year loss and believed profits wouldn’t recover until next year. However by May it was more upbeat about its prospects, forecasting a return to the black this year.
Greggs said that given the recent sustained sales rebound as restrictions have eased and shoppers have returned for sausage rolls, it also expected full-year profits to be slightly ahead of expectations. As a result, the business is paying a 15p dividend, its first since October 2019 after the final payout was cancelled to preserve cash during the early stages of the crisis.
First-half sales of £546.2 million are 81 per cent higher than last year, when lockdown battered its high street business, and flat on a two-year basis as it has been boosted by growing delivery demand through its Just Eat partnership. Like-for-like sales are 9.2 per cent lower than the £546.3 million in 2019.
Roger Whiteside, 63, chief executive, said “Greggs once again showed its resilience in a challenging first half, emerging from the lockdown months in a strong position and rebuilding sales as social restrictions were progressively relaxed.”
Despite the lower sales, Greggs has managed to report record profits after taking actions to reduce logistics and overhead costs last year, and business rates relief. The bakery chain received £13 million in rates relief during the past six months but said it would repay about £5 million of furlough support after reversing a £2 million impairment charge on its shops.
Last year Greggs benefited from £18.8 million in rates relief and £87 million of furlough support while its shops were shut.
The big supermarkets, B&M and Pets at Home have all repaid business rates relief after experiencing a sales surge, but so-called non-essential chains including JD Sports and Dunelm have recently paid out dividends while keeping the government’s rates relief, pointing out that their shops had been shut during the crisis.
Despite warnings from other large food manufacturers and retailers about inflation, Greggs said that during the first half of the year it had seen “relatively low levels of food input inflation” and while commodity cost pressure was increasing it still expected “modest” price increases because it had forward purchasing cover.
Analysts at Investec said: “Cost inflation is likely to become a headwind towards the end of the second half and we remain mindful that tailwinds from retail business rates relief are set to reverse.”
Greggs was founded as a delivery business on Tyneside by John Gregg, who opened his first shop in Gosforth in 1951. The business has now grown to 2,115 shops and it still plans to open another 100 shops this year, with 70 per cent of the new openings in car-accessible locations to reflect changing shopper demands.
During the pandemic Greggs temporarily suspended its new product development pipeline to focus on its bestselling items. However it will now focus on building on the success of its vegan sausage roll, with additions including a vegan sausage, bean and cheese melt. It is also planning new products specifically for its Just Eat delivery offer including sharing-box combinations and different pizza toppings.
Greggs shares rose 1.7 per cent, or 48p, to £28.52 in early trading.