Shop at Greggs for tasty upgrades

High-street baker Greggs expects full-year profits to rise above expectations, and it's largely thanks to management efforts to spruce up its stores. Clearly, a push to become more up-market has been mirrored by investor sentiment, yet despite a 60% surge in the share price this year, there could be more to come.

Like-for-like sales in its own shops are up by 5% so far in the second half, pushing sales in the year-to-date up by 4%, both ahead of expectations. It's also impressive given last year's strong fourth quarter. Total sales growth is down slightly on 2013, from 3.7% to 3.6%.

Improvements have been made to Greggs' packaging, food selection and stores this year, with lower calorie options hitting the shelves as the company embarks on its own health kick. Some high-street stores have closed, with new ones cropping up in motor service stations. Management also put part of its performance down to favourable weather, but many stores now include a seating area, which should offset falling sales when winter weather hits.

"The stars are reasonably aligned for Greggs in 2014," said Clive Black, an analyst at Shore Capital. He reckons the "simple but effective" improvements will also be helped by lower running costs. Flour, cream and pork have all fallen, and the slump in oil prices should lower distribution costs.

With a couple of weeks left of the year, bad weather could still make its mark on full-year profits, but Black does not seem too concerned.

"Momentum appears good and with positive same-store volumes, Greggs should be the beneficiary of positive operational gearing, a very virtuous feature of this vertically integrated business model," he adds.

Greggs boss Roger Whiteside says he'll make a further update on trading over the Christmas period in early January.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.