Greggs sales rise prompts profit upgrade

Shares in Greggs rose 14 per cent after the UK's largest bakery chain guided that its full-year profits would be "materially ahead of previous expectations" after sales rose more than 5 per cent and the falling cost of ingredients boosted its gross margin.

Before the trading statement, analysts' consensus on full-year pre-tax profits was £48.1m, but house broker UBS upgraded its estimate to £54.1m on Monday.

Like-for-like sales rose 5.4 per cent in the 11 weeks to September 13 compared with a year previously, meaning that in the year to date, like-for-like sales are nearly 4 per cent ahead of the previous year.

Greggs said that margins "continued to strengthen" in the second half of its trading year, reflecting ongoing deflation in commodity costs combined with structural cost savings being "ahead of plan".

The Newcastle-headquartered baker, which employs 2,700 staff in Scotland, said it was maintaining a "strictly neutral" position on this week's referendum on Scottish independence and would not join the chorus of business voices warning about the potential impact of a Yes vote.

"Scotland is a very important market for us," said Roger Whiteside, chief executive of the chain, which has 1,660 shops around the UK including 239 in Scotland.

More than a tenth of its workforce is based in Scotland including staff in its shops, two large bakeries and an additional production facility, but the company stressed it would continue to trade as normal regardless of the outcome of Thursday's vote.

"We're anxious not to get drawn into the debate and have maintained a strictly neutral position," Mr Whiteside said. "We need to respond to any changes in market conditions depending on the result either way."

He would not comment on the possibility of price rises in Scotland, which other retailers including John Lewis and Asda have warned about: "I don't think it is possible to say at the moment".

In the period, Greggs closed 43 stores, mostly in poorly performing high street locations, and opened 32 new ones, predominantly in "places where people work or travel" including motorway service stations, industrial estates and office parks.

In a note entitled "The cherry on top", Catriona O'Grady, UBS analyst, said: "We believe the changes made under the bakery food-on-the-go strategy remain the key driver with a positive impact from meal deals, products initiatives such as the new sandwich offering and upgrades to coffee and sweet ranges. Refits numbering 153 have been carried out that benefited trading and the broader trading environment has also improved, which we believe implies volumes may have returned to positive territory."

In early trading, shares in Greggs rose 14 per cent to 611.5p.

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