Morning Note: Market news and an update from Greggs.
Market News
Fed Chair Powell said monetary policy will move to a neutral stance over time – the Fed is doesn’t feel like it’s in a hurry to cut quickly, with the speed of cuts dependent on data. However, Raphael Bostic told Reuters that he’s open to another 50-bp cut in November if the labour market weakens. The 10-year Treasury yield ticked up to 3.79%, while gold trades at $2,645 an ounce.
US equities rose late in the session to close slightly higher last night: S&P 500 (+0.4%); Nasdaq (+0.4%). Nike reports this evening after the market close. In Asia this morning, Japanese equities staged a partial recovery (Nikkei 225, +1.9%), while the yen gave up some of the previous day’s gains following a dovish-sounding Bank of Japan summary. Shigeru Ishiba called a snap election for 27 October. Hong Kong and China were closed for a holiday.
The FTSE 100 is currently trading 0.2% higher at 8,235. Following the completion, of its £500m share buyback programme, Melrose has this morning announced it will commence another programme of up to £250m over the next 18 months (just over 4% of the current market cap).
The Bank of England’s Megan Greene says strong UK consumer could renew price pressures. However, an IOD survey showed business chiefs are the most pessimistic (-38) they have been about Britain’s economy since late 2022 amid concerns over looming tax hikes and workplace regulations. Sterling trades at $1.3338 and €1.1990.
Brent Crude slipped to $71.60 a barrel. Libya is said to be preparing to restore oil production. The Bloomberg Agriculture Spot Index surged 7% last month, the most since Russia’s invasion of Ukraine, with extreme weather threatening supplies of sugar, grain and coffee.
The FT reports that ports along the east coast and Gulf coasts have shut down as dockworkers went on strike for the first time in nearly five decades. According to JPM the estimated economic loss will be $3.8bn-$4.5bn a day.
Source: Bloomberg
Company News
Greggs has this morning released its Q3 trading update, which highlights a slowdown in the rate of sales growth. However, cost inflation is easing and the company has reiterated its full-year expectations. In response, the shares have been marked down by 4% in early trading.
Greggs is the leading bakery food-on-the-go retailer in the UK, with more than 2,550 outlets, of which more than 540 are franchised shops operated by partners in travel and other convenience locations. The emphasis of the group’s estate expansion is on those locations which improve the quality of the estate, as well as extending its reach, such as Retail Parks, Roadside, and Petrol Filling Stations. Overall, the group sees a clear opportunity to expand its UK estate to at least 3,000 shops.
More than half of shops provide delivery services to catchments served by Just Eat and Uber Eats, while the longstanding partnership with Iceland offers Gregg’s products in store for home baking.
In the 13 weeks to 28 September 2024, total sales grew by 10.6%, leaving them up by 12.7% in the year to date. Like-for-like sales growth in company-managed shops was 5.0%, and by 6.5% year to date, highlighting a slowdown in the quarter.
At a time when consumers continue to face uncertainty Greggs offers exceptional value for money. Growth was supported by menu development and further progress in extended trading hours and new digital channels. The company has previously highlighted that the Greggs App was scanned in 18.3% of company-managed shop transactions.
The group has a strong balance sheet, with net cash of £141.5m at the last balance sheet date (30 June), which is supporting capital expenditure, expected to be in the range of £250m-£280m. The group continued to expand its estate, with 86 net new shops opened in the year-to-date (152 openings less 66 closures). The group is on track for between 140 and 160 net shop openings in 2024 and around 50 relocations to better premises within existing catchments.
Greggs is developing further capacity to support its significant growth ambitions. Investment in its supply chain is progressing well – the group has completed the redevelopment of its Birmingham distribution centre and the extension of the Amesbury distribution centre, adding logistics capacity to support a further 300 shops in the group’s southern network.
The group now expects the overall level of cost inflation for 2024 to be towards the lower end of the 4%-5% range previously communicated. Further out, there is some uncertainty over the outlook for staff costs in light of the new government’s employment rights bill. Overall, whilst acknowledging ongoing economic uncertainty, the board’s expectations for the full-year outcome are unchanged.
Source: Bloomberg