Greggs profits fall 14% but outlook remains unchanged

Greggs PLC reported interim results with pre-tax profit falling 14.3% to £63.5 million and operating profit down 7.1% to £70.4 million, largely consistent with an earlier profit warning. Despite these profit declines, total sales grew 7% to £1.03 billion, supported by positive like-for-like growth across its company-managed and franchised shops. CEO Roisin Currie reiterated the full-year outlook remains unchanged, emphasizing strategic opportunities, disciplined estate expansion, and supply chain investments as key drivers for future growth and managing cost inflation, signaling management's confidence despite a challenging start to 2025.

Analysis

Greggs PLC (LSE:GRG) has reported interim results that confirm a significant divergence between top-line growth and profitability, a situation largely anticipated by the market following a prior profit warning. Total sales for the 26-week period grew a robust 7% to £1.03 billion, underpinned by positive like-for-like sales growth of 2.6% in company-managed shops and a stronger 4.8% in franchised locations. Despite this revenue momentum, profitability contracted sharply, with pre-tax profit falling 14.3% to £63.5 million and operating profit declining 7.1% to £70.4 million. This indicates significant margin pressure, likely driven by the persistent cost inflation mentioned by management. Critically, the board has reiterated its full-year guidance, signaling confidence that its strategic initiatives—including disciplined expansion, product innovation, and supply chain investments—will be sufficient to navigate the challenging cost environment and support the next phase of growth.

Key Decisions for Investors

• Investors should closely monitor the execution of Greggs' strategic initiatives, as the reiterated full-year guidance now hinges on the company's ability to offset margin compression through supply chain efficiencies and continued sales momentum.
• The key focus should be on future margin performance; the divergence between 7% sales growth and a 14.3% pre-tax profit decline warrants scrutiny to determine if cost pressures are temporary or indicative of a more structural issue.
• Given that the negative profit results were pre-released, investors should assess whether the current valuation adequately prices in both the near-term margin challenges and management's confidence in a longer-term growth trajectory.