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But UK growth plans make sense, including longer opening hours and considerably more outlets
Thursday 07 Oct 2021 Author: Tom Sieber

Having steered the company successfully through the pandemic, Greggs’ (GRGCEO Roger Whiteside and the rest of his well-regarded management team have outlined big plans for the coming years.

The company hopes to double turnover to £2.4 billion by 2026 and while this is an ambitious target, Whiteside’s track record since taking the helm at Greggs in 2013 offers encouragement it can be achieved.

When Whiteside joined, Greggs was a well-run but somewhat tired discount bakery chain. Now it is a popular food-on-the-go outfit which has broadened its appeal in recent years to accommodate changing tastes, including demand for vegan products.

The plan is a clear one. The company wants to increase the pace of net shop openings to 150 per year from 2022 onwards; for context it expects around 100 in 2021.

In addition, it wants to boost sales by extending opening hours for around two thirds of its estate into the early evening, build on the delivery offering which expanded fast during Covid restrictions and get more people to use its revamped app.

These efforts should allow Greggs to generate more revenue on a per shop basis and therefore increase profitability and cash flow. The proceeds can then be reinvested in the business to refurbish outlets as well as boost supply chain and IT infrastructure.

There should also be cash left over to reward shareholders with enhanced ordinary and special dividends.

The company sees potential longer term for international expansion. It is probably a good thing that Greggs is treading cautiously here, in its own words ‘conducting some very early analysis to help better understand the possible opportunity’.

Just because a proposition works in the UK doesn’t mean it will necessarily translate beyond these borders. Overseas markets have often been a graveyard for the ambitions of British firms in the past as they’ve struggled to replicate their homeland success, perhaps because of cultural or management issues. Greggs itself abandoned a five-year effort in Belgium (seen as a launchpad for wider European expansion) in 2008.

For now, investors would settle for execution on the domestic opportunity. This won’t be easy, given the inflationary pressures, supply chain issues and staff shortages which Greggs, like any number of businesses, is facing.

However, the company lifted full-year guidance despite these challenges in a third quarter update (5 Oct) and notably Shore Capital retreated from its long-running negative stance on the shares, which had been driven by valuation concerns, in response.

Analyst Clive Black commented: ‘We deem it sensible to step back from our erroneously over-cautious stance on the shares, remodel medium-term earnings for today’s new base and strategic ambitions, and so return with refreshed financial forecasts and the corresponding investment thesis.’

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