High Street bakers Greggs say full-year profits are now expected to be “materially ahead” of previous expectations.
The food on-the-go chain reported a 5.4% increase in like-for-like sales at its own shops in the 11 weeks to September 13 - compared to a 1% decline in the same period last year.
Lower prices and strong sales had boosted the Newcastle-headquartered firm’s profit expectations, following a period of falling profit earlier this year.
Greggs said the strong performance reflected a positive response from customers to new product initiatives, improved service, better value and investment in shop refurbishments, plus more favourable trading conditions than had been expected.
Upgrades to the brand’s coffee blend and to some of its core sweet lines were also said to have driven increased sales.
Chief executive Roger Whiteside said: “While we face tougher comparatives in the final quarter the combination of strong sales performance, lower costs and our outlook for the remainder of the year means that we now anticipate full year profits to be materially ahead of our previous expectation.”
In the year to date, Greggs has completed 153 shop refits and expects to complete 200 by the close of the year. 32 new shops were opened in the year to date and 43 poor performing units closed.
A statement within the second third quarter results read: “Margins have continued to strengthen into the second half, reflecting on-going deflation in commodity costs, excellent operational cost control and delivery of structural cost savings ahead of plan.
“Looking forward, we expect the input cost environment to remain benign in the near term and we plan to continue making good operational progress.
“Our sales-driving initiatives have been delivered in more favourable trading conditions than we had expected with no adverse weather impacts so far this year. We expect to continue rolling out new initiatives, in line with our strategy, in the months ahead Whilst we face tougher comparatives in the final quarter the combination of strong sales performance, lower costs and our outlook for the remainder of the year means that we now anticipate full year profits to be materially ahead of our previous expectation.”
Analyst Sahill Shan of N+1 Singer Equity Research described the unscheduled trading update as one of the most positive he had seen from Greggs for some time.
Commenting on the 3.9% increase in like-for-like sales in the year to date, Mr Shan said: “This is an outperformance versus our FY14 like-for-like estimate of 2.9%. Admittedly Q3 was a soft -1%, but this should not detract from a July to September showing which has exceeded management’s own expectations.
“We lift our FY14 profit before tax by 10.5% to £54.5m, implying 35% cumulative increase since January 2014.”
Greggs shares rose 13% to 617p on the news, before settling at 600p by the afternoon.