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Author: Alan LittleDate: 2022-03-09

Greggs (GRG) says that rising wheat costs will hit profits in 2022

British bakery chain Greggs (GRG) closed lower on Tuesday after it said that rising wheat costs linked to the war in Ukraine would hit its bottom line in 2022.

Greggs (GRG) closed 4% down in London on Tuesday after the bakery chain warned that rising costs of ingredients linked to Russia’s invasion of Ukraine will weigh on profits in 2022.

In a new trading update, Greggs said that cost inflation has already surged to around 7%, which is around 200 basis points higher than it had previously expected.

While Greggs has navigated supply chain disruptions during the last 12 months, the conflict in Eastern Europe has increased the costs of sunflower and oil, which will make it more expensive to produce the sausage rolls and other products it sells.

The Newcastle-based company said that it was now less optimistic about its performance for the year ahead as a result, which is in stark contrast to its January update when it said that it was “well placed” to take advantage of “many attractive opportunities”.

Shore Capital analyst Clive Black said that there is now an “amalgam of elevated gas, oil and wheat costs” that will make it more difficult for Greggs to offer the strong value that its customers expect.

The bakery did add up to 10p to product prices at the start of the year, but has yet to confirm whether there will be further hikes, stating that it will only do so if the “market moves”.

The warning took the shine off a robust financial update for Greggs as it posted £145.6m pre-tax profits for the 12 months to January 2022.

Sales also grew 5.3% compared to pre-pandemic levels to £1.2bn during the same period.

Greggs shares slumped 10% in early trading on Tuesday, but they recovered slightly in the afternoon and eventually finished 4.3% lower at 2,183.26p.

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