Greggs finals

The leading bakery retailer in the UK, with almost 1,700 retail shops throughout the country.  I have a holding in my income portfolio (epic code: GRG).

Geggs announced their final results for the year ended 28 December 2013 today and profits were marginally below expectations.  Sales were up 3.8% to £762.4m, although like-for-like sales were down 0.8%.  There was though an improving trend in the second half of the year, with like-for-like sales up 1.2% driven by a fourth quarter that was up 2.6%.

Pre-tax profit before exceptional items was down 18.9% to £41.3m and diluted EPS before exceptional items was down 20.1% to 30.6p, this compared to market expectations of £42m and 31.4p respectively.

Statutory EPS was 23.9p a decline of 39.3% from last year and covered the maintained full year dividend of 19.5p 1.2x (covered 1.6x by the pre-exceptional EPS).  Management's comment "...In the short term, so long as cash flow allows, it is the Board's intention to maintain the dividend at or around this level..."  gives cause for some concern that a dividend cut may be considered.

Free cash flow was strong at £23.9m compared to £15.2m last year and was slightly better than I was forecasting here in my analysis of the company.  Indeed with the exception of the comment from management about the short-term outlook on dividends, nothing has changed my view on the analysis I set-out.

Net cash increased to £21.6m from £19.4m last year and £12m at the interim stage.

With respect to their outlook management stated that "...Although economic activity across the UK is showing some signs of improvement, management is planning for continued pressure on footfall and consumer spending and an increasingly competitive food-on-the-go market...".  It is also worth showing here management's view on input costs compared to 2013 detailed in their presentation:

This shows a somewhat better position on input costs and inflation for 2014 compared to the difficult 2013 position.

It will undoubtably be a difficult two years as management restructure the business and improve the logistics within the company, but at the current price of around 487p there should be a 6% margin of safety based on my previous analysis and a 4% yield.  I would though exit on any cut to the dividend.