Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total sales increased by almost 14%, with like-for-like sales up 7.4%.
- Underlying pretax profits rose by over 16% to GBP74.1 million.
- Greggs PLC (GGGSY, Financial) opened 99 new shops, resulting in a net increase of 51 shops, bringing the total to 2,524.
- Menu innovation and multichannel strategy are key drivers of growth, with new products like over-ice drinks and pizza boxes.
- Supply chain investments are on track, supporting future growth plans with new distribution centers in Birmingham and Amesbury.
Negative Points
- Income tax charge increased due to the annualization of the tax rate hike from April 2023.
- Wage inflation is high at 9.5%, driven by the increase in the national living wage and enhanced pension benefits.
- An invoicing issue with a supplier has temporarily overstated operating cash inflow and cash balance by GBP30 million.
- Potential inflation in food and packaging costs could return in Q4, despite marginal deflation in the first half.
- Significant capital expenditure is planned, with GBP280 million expected this year, including a GBP30 million land purchase in Kettering.
Q & A Highlights
Q: Can you elaborate on the impact of input cost inflation on your margins and how you are managing it?
A: Richard Hutton, Chief Financial Officer, explained that the company is experiencing a more stable scenario compared to previous years, with a slight deflation in food and packaging costs in the first half. This has positively impacted gross margins. However, wage inflation remains a factor, driven by increases in the national living wage and enhanced pension benefits. Overall, the company expects a 4% to 5% cost inflation for the year.
Q: What is the progress on your shop expansion and relocation strategy?
A: Roisin Currie, Chief Executive Officer, stated that Greggs has opened 99 new shops this year, including 30 relocations, resulting in 51 net new shop openings. The company is on track to open between 140 to 160 net new shops this year. The relocation strategy is crucial for increasing sales volume and providing extended menus and services like delivery and click-and-collect.
Q: How is Greggs addressing the evening daypart and delivery services?
A: Roisin Currie highlighted that the evening daypart is growing ahead of the average like-for-like rate, with delivery services now representing 6.7% of company-managed shop sales. Greggs is well-positioned to serve the evening market through both walk-in and delivery, leveraging partnerships with Just Eat and Uber Eats.
Q: Could you provide details on your capital expenditure plans and supply chain investments?
A: Richard Hutton mentioned that this is a significant year for capital expenditure, with investments in expanding the shop estate and supply chain. The company is completing work on distribution center extensions in Amesbury and Birmingham, and starting construction on new sites in Derby and Kettering. These investments aim to support future growth and increase logistics capacity.
Q: What are the key initiatives in your menu innovation and customer engagement strategies?
A: Roisin Currie emphasized the importance of menu innovation, with new products like over-ice drinks and pizza boxes being introduced. The Greggs app is also a key tool for customer engagement, with 18% of shop visits now being scanned through the app, up from 10% last year. This helps increase customer visits and loyalty.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
