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3:00 AM 21st May 2022
business
Opinion

Market Analysis: Greggs, Imperial Brands & Richemont

 
Greggs - Facing multiple pressure points despite strong sales growth - Imperial Brands trailing its competitors - Richemont – the retail spotlight is on China while the Farfetch collaboration is front of mind for investors

Ross Hindle, Analyst at Third Bridge comments on Greggs and Imperial Brands

"LFL sales grew 27.4% for the period, prompting management to suggest its full-year plan is set to remain on track.

“As expected, sales in larger cities and commuter centres lag the rest of the market in terms of recovery, with the new work-from-home culture looking like it is here to stay. Footfall figures remain 6% below 2019 levels. However, Gregg’s strong store footprint has meant it’s outperformed the market from a footfall perspective.”

“The big unknown is how consumers react to the rising costs and tightening of wallets. It is believed that there is an opportunity for Greggs to gain market share from ‘posh’ coffee shops and more expensive food-to-go operators as Britons cut back on their mealtime and beverage spend.”

“However, balancing market share opportunities with margin protection is likely to be a big challenge for Greggs. The Group will struggle to increase prices while still maintaining its value-for-money proposition in the market. Savoury and breakfast products are the most likely to be priced higher”

Ross Hindle
Ross Hindle
“80% of Greggs’ range is manufactured in-house, providing some flexibility in how the Group navigates inflationary pressure. However, Greggs will still face intense cost headwinds.”

“Our experts expect Greggs’ EBIT margin to continue to be under pressure over the months to come, given input costs and how delivery is taking a bigger share of sales.”

“Menu reduction and loyalty schemes are the two lasting good to go trends from the pandemic and our experts do not see that changing.”


"Imperial Brands saw revenue drop 1.3% to £15,362m, with management suggesting the Group remains on track to hit its full-year guidance.”

“The structural decline of combustibles continues to push tobacco companies towards alternative business models, with all focusing on developing a strong portfolio of next-generation products (NGPs).”

“Unfortunately, Imperial trails its competitors in terms of NGP growth & success and while management suggests the Group remains on target to achieve its 5-year NGP ambition, the Group is expected to fall further behind the competition.”

“As NGP's struggle in the short-term, Imperial Brands may be forced to focus on combustibles in order to generate the steady cash flow necessary for investment and development of NGPs.”

“The Group's NGP division still operates at a loss. Our experts say that Imperial probably went too widely across geographies with Myblu. The company will learn from their experience of heat-not-burn and try to get Myblu back on track, mainly in US and UK, where the brand has a good heritage.”

“The cost-of-living crisis should benefit Imperial Brands, given how their portfolio is more focused towards the lower end of the pricing scale.”

Following, Richemont results Harry Barnick, Senior Analyst at Third Bridge

“Richemont grew sales 46% vs 2021, with operating margin reaching 17.7%, a 650bps increase over 2021.”

“Today the spotlight is on China, where covid-related restrictions and lockdowns are limiting growth in a market that represents roughly 25% of Richemont's sales.”

Harry Barnick
Harry Barnick
“With shops shuttered in key markets such as Shanghai and customers unwilling to spend on luxury goods in other cities, the country which electrified 2021 luxury goods consumption could dampen Richemont's global outlook in 2022.“

“Cartier is a shining light in Richemont's portfolio of brands, with performance driven by an attractive product offering, diverse pricing strategy and strong brand image.“

“The collaboration between Richemont and Farfetch remains front of mind for investors. The complex nature of this collaboration is demonstrated by the limited communication from either parties since the news broke over 18 months ago. “


Third Bridge is a global primary research firm that interviews more than 6,000 internationally recognised industry experts and business leaders a year to compile 360-degree market intelligence for institutional investors. www.thirdbridge.com