Balmy Weather and Baking Challenges: Greggs’ Half-Year Rollercoaster
Greggs just served up its H1 trading update, and it’s a classic tale of two seasons. While the sausage roll savant posted respectable sales growth, investors are chewing over a profit warning that’s left a slightly bitter aftertaste. Let’s unwrap this pastry-packed report.
The Dough Keeps Rising (But Maybe Not Fast Enough)
First, the good news from the ovens:
- £1.027bn total sales – up 6.9% from last year’s £961m
- 2.6% like-for-like growth across company-managed shops
- 87 new shops opened (31 net after closures), bringing total estate to 2,649 bakeries
- On track for 140-150 net openings this year – that’s nearly 3 new Greggs every week!
Dig beneath the icing though, and you’ll spot the crumbs of concern. That LFL growth looks less impressive when you recall last year’s figures: 7.6% in Q1 2024 and 6.5% in Q2. This year’s 2.4% (Q1) and 2.8% (Q2) suggest momentum is slowing.
When the Sun Shines, Pastry Sales Wane
June’s heatwave proved particularly problematic. While cold drink sales fizzed, overall footfall dropped as Brits swapped steak bakes for sunbathing. This weather wobble came just as Greggs was enjoying stronger trading through May – proving yet again that UK retailers live at the mercy of the weather gods.
The refurbishment schedule hasn’t helped either. With 108 shop refits completed in H1 (and another 50 planned before Christmas), temporary disruptions were inevitable. As any Greggs devotee knows, when your local branch is shrouded in scaffolding, you’ll likely grab lunch elsewhere.
The Profit Pinch: Why Rising Sales Don’t Always Mean Fatter Margins
Here’s where the filling falls out of the pasty:
- H1 operating profit will be lower than 2024’s strong performance
- Full-year operating profit “modestly below” 2024 levels – the first such warning in years
How does a 6.9% sales bump translate to shrinking profits? Three key ingredients:
- The comparatives are brutal: Last year’s post-pandemic boom set an incredibly high bar
- Cost recovery is backloaded: Mitigation measures won’t fully kick in until H2
- Operational pressures: Refurbishment costs and weather disruption squeezed margins
The Road Ahead: More Icing Than Dough?
Management remains characteristically pragmatic. The shop expansion engine is still firing beautifully – hitting that 150 net openings target would represent 6% estate growth. And with H2 facing softer comparatives (last year’s Q4 LFL was just 2.7%), there’s runway for improvement.
But the real test will be how Greggs navigates this unusual profit blip. Can they leverage their beloved brand to push through selective price increases? Will new product lines (plant-based continues to be a dark horse) move the needle? And crucially, will British weather ever behave predictably?
One thing’s certain: with 2,649 shops and counting, Greggs isn’t going anywhere. But today’s update is a reminder that even Britain’s most beloved baker can’t completely insulate itself from economic elements. Investors might want to pair their yum yums with a strong coffee while digesting this one.
