Robust Q3 trading (13 weeks to 28/09): Despite tougher comparatives, company managed LFLs continue to be strong at+7.4% (total sales: +12.4%) in line with exit trends reported in Q2 with growth driven predominately driven by growth in customer numbers. This implies Greggs have been able to maintain 2-year LfLs at over +10% in Q3. We understand growth was broadly consistent across categories and throughout the trading period.
Strategic initiatives are progressing well, with better availability of hot food options and “post-4pm” deals aiding stores to extend opening hours. Management now expects to roll out extended store opening hours to 100 stores by year end. In the meantime, delivery service trials are experiencing encouraging demand, winning incremental business and new customers.
Store openings: on track for 90 openings with a net 56 opened YTD (90 openings, 34 closures). Elsewhere, the construction of the new southern distribution centre at Amesbury is likely to complete by the end of the year which will have the capacity to reach 250 new and existing stores as well as providing capacity for further future expansion in the south of England.
Forecasts and outlook: Management continues to believe that cost inflation from labour and food input costs will continue in line with previous expectations, for the remainder of the year, while sales growth is likely to moderate, given toughening comparatives, in Q4. We leave our forecasts unchanged.
Valuation remains attractive (8.7x FY20e EV/EBITDA). The recent de-rating offers an attractive entry point in our view for a cash generative, multi-year store roll out story with a track record for generating upgrades. BUY
