Greggs has reported strong trading for the first four months of the year, and is declaring a special dividend.
Outlook
The report comments:
“The strong start to 2015 has been supported by rising consumer disposable incomes and low input cost inflation. We expect market conditions to remain favourable and support a good first half performance, ahead of our previous expectations. In the second half of the year we will come up against stronger sales comparables and a less certain cost outlook. However we expect to deliver good growth for the year as a whole and further progress against our strategic plan.”
Highlights
- Own shop like-for-like sales in the first 16 weeks up 5.9% (2014: 3.8% growth)
- 69 refits completed
- 24 new shops opened, 18 closures
- Product and service initiatives continue to drive growth
- Supportive consumer income environment and low inflation
- Special dividend of 20 pence per share declared
Trading performance
Continued strong trading performance in the first four months of the year. Total sales for the 16 weeks to 25 April 2015 grew by 5.0 per cent and like- for-like sales in own shops grew by 5.9 per cent over the same period, ahead of expectations.
Customers are clearly enjoying theimproved range of freshly-made sandwiches, including Balanced Choice products offering healthier options with fewer than 400 calories. In the coming weeks, the Balanced Choice menu will grow through the introduction of upgraded salads, a summer berry fruit pot and the new own-label drinks range, which has been developed with no added sugar and includes `Juicy Water’ options containing one of your ‘five a day’ .
Breakfast has continued to be an important driver of growth and new options have been added to the range. The £2 breakfast meal deal now includes free range omelette sandwich combinations, as well as new porridge flavours and a ‘fruit and oatie’ cookie. Also introduced is a breakfast baguette which features in a £3 meal deal.
Shops
During the first 16 weeks, 69 shop refurbishments completed and Greggs will refit 200 to 220 shops this year. These continue to perform well as the shop environment is transformed to strengthen the ‘bakery food-on-the-go’ positioning.
24 new shops opened, including 17 franchised units in transport locations. 18 shops closed, giving a total of 1,656 shops trading at 25 April (comprising 1,594 of own shops and 62 franchised units).
On 30 April, Greggs will open a test site with the Irish motorway service operator Applegreen, at a service area located on the M2 near Belfast. Working with franchise partners like Applegreen allows Greggs to extend its offer to markets which were previously inaccessible and will help the assessment of Northern Ireland’s appetite for Greggs’ `Always Fresh. Always Tasty.’ offer.
Capital structure
The Board has completed its review of the appropriate capital structure of the Group for the medium term and will adopt the following approach:
- continue to prioritise investment in the business and maintain a net cash position. Given the leasehold nature of the shop portfolio, the Board does not currently believe that it is appropriate to take on structural debt.
- maintain the progressive dividend policy, with a target that the ordinary dividend is two times covered by earnings.
- aim to maintain a year end net cash position of around £40 million to allow for seasonality in the working capital cycle.
- To the extent that there is material surplus capital within the Group, taking into account the cash position, expected performance and anticipated investment requirements, the Board would expect to return capital to shareholders, likely by way of a special dividend.
- The Board may retain cash above the indicated level where it believes that this would be in the interests of shareholders.
As a result of this review, the proposed share buyback announced at the time of the Group’s preliminary results will not be carried out. Rather, given the current strong cash position and expected cash requirements for the year ahead, the Board declares a special dividend of 20 pence per share, a distribution of £20 million. This dividend will be paid on 17 July 2015 to shareholders on the register on 19 June 2015.