Ubiquitous food-on-the-go retailerGreggs (LSE: GRG) released some positivenumbers to the market this morning. After a rather mixed2016, should investors see todays update as a sign to pick up its stock? Lets look at the numbers.
According to Greggs, Christmas trading was particularly strong, with demand for mince pies and festive bakes allowing the company to generateshop like-for-like growth of2.3% in the final two weeks of the year. With sales rising 6.4% over the last three months, this was the companys 13thconsecutive quarter of like-for-like sales growth.
When todays figures are taken into account, total sales at the 989m cap rose 7% in the 52 weeks to the end of December, with company-managed like-for-like sales up 4.2%. Positively, Greggs now expects full-year results to be slightly ahead of previous expectations.So much for the high streets inevitable decline.
As far as 2017 is concerned, the businesssaid that it would continue to invest in improving its systems and developing its supply chain, while also cautioning that uncertainty in the trading environment would seeincreased pressure on real income growth.Althoughexpecting to seeindustry-wide cost pressures this year, Greggs did seek to reassure investors that these wouldonly havea modest impact on short-term margins.
Shares in Greggs shotupalmost 5% as markets opened this morning, leaving the company on a price-to-earnings (P/E) ratio of around 17. Although perhaps a little more than Id like to pay, this still doesnt seem overly expensive given its history of generating high returns on capital. A safe 3.4% yield and 35m cash on the balance sheet makes the investment case even sweeter.
Those investors keen to tap intothe UKs love of baked treats may also be tempted by the shares of fellow retailer Patisserie Valerie (LSE: CAKE).
Back in November, Patisserie reported its tenth consecutive year of revenue and profit growth with the former exceeding 100m for the first time and gross profits rising 14.5% to 81.3m. Online sales were a particular highlight, jumping 23% to 3.8m. The companys reported net cash position of13.3m 7.2m more than the previous year was the icing on the cake.
I cant say Im surprised by recent results. With many years of strong returns on capital and high operating margins relative to the rest of the market, Patisserie presents as a classy business. Moreover, thanks to its plans for the future, I continue to view its shares as reasonably valued, albeit not quite the deal they were before Novembers results were announced (theyre up 17% since).
While a P/E of almost 20for 2017 looks steep at first glance, CEO Luke Johnsons target of opening 20new stores every year justifies this fairly high valuation, in my opinion. Not only did the company exceed this figure in 2016(some of which are alreadytrading ahead of management expectations), it has also managed to open another six stores since the year-end. This approach, coupled with the companys seemingly well-received online offering, should continue driving revenue and profits higher over the medium term.
In sum, while Greggs may suit investors keen to generate a steady income stream from a quality company, I think Patisserie has the edge when it comes to growth prospects.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.