Sausage roll maker Greggs has posted flat profit after the return of pre-pandemic tax rates and heightened costs.
In half-year results, the bakery chain posted pre-tax profit of £55.8m, up just slightly from the £55.5m posted in the first half of 2021.
The London-listed chain said this was reflective of the re-introduction of business rates, an increase in VAT and higher levels of cost inflation.
However, like-for-like sales growth was 22.4 per cent in the first half of the year, with the company reporting consumer resilience against inflationary pressures.
Total sales for the six-month period hit £694.5m, up from £546.2m the previous year.
“Consumer behaviour is still recovering from the impact of the pandemic and employment levels are high,” Greggs stated.
“The return of business rates means bakery-favourite Greggs has been unable to lift profits, despite an impressive increase in sales,” Sophie Lund-Yates, equity analyst at Hargreaves Lansdown said.
“This disappointing development is wholly outside the group’s control, but it also comes at a time when cost inflation is taking a real bite out of things.”
“Demand for Greggs’ products appears to have been resilient to the more challenging macroeconomic environment as transaction numbers have not been negatively affected by the price increases that have been necessary to offset input cost inflation,” Russell Pointon, director of consumer at Edison Group, said.
Food, packaging and energy costs have meant the rate of cost inflation “increased significantly” in the first half of the year.
Greggs estimated the overall level of cost inflation in 2022 would be around nine per cent, “although some uncertainty remains,” it added.
Greggs has vowed not to shrink the size of its products, with a top executive saying that customers would find shrinkflation of their favourite treats “dishonest”.
Customers would be quick to call out the company for switching to cheaper ingredients or making products smaller, finance director Richard Hutton told CityA.M.
Instead, prices would reflect the heightened cost of operations and ingredients.
“We aren’t going to be cutting the end off a sausage roll,” he added.
Household names have announced ‘shrinkflation’ measures in recent months, including Cadbury which downsized its Dairy Milk sharing by 10 per cent to combat rising costs.
The company vowed to extend trading hours across more of its shop estate in the second half of the year, with 300 shops open until at least 8pm presently.
“The evening daypart is now our strongest-growing trading time, albeit from a low base,” Greggs stated.
Some 70 shops opened in the first half of the year, with a dozen closures, bringing the total estate to more than 2,200 shops.
Around 150 net new shop openings have been anticipated for the year 2022.
“In a market where consumer incomes are under pressure Greggs offers exceptional value for customers looking for food and drink on-the-go,” Roisin Currie, chief executive, said.
“We are well positioned to navigate the widely publicised challenges affecting the economy and continue to have a number of exciting growth opportunities ahead, with a clear strategy for expansion,” she added.
Currie has recently taken the reins at the company, stepping into the shoes of Roger Whiteside who oversaw Greggs for nine years.
What’s more, the bakery chain announced former Tesco and Pets at Home CEO Matthew Davies had been appointed as chair designate.
Davies will join the board with immediate effect and will be appointed as chair on 1 November, when Ian Durant steps down from the role.