By James Davey
LONDON (Reuters) -Britain's popular baker and fast food chain Greggs warned on Tuesday the surging cost of raw materials, energy and staff would limit any material profit growth in 2022, taking the shine off its rebound from COVID-19.
Shares in Greggs, known for its sausage rolls, steak bakes, vegan snacks and sweet treats, were down 5.9% at 1046 GMT after it said costs were rising more than it had expected.
CEO Roger Whiteside told Reuters he expected cost inflation of 6% to 7% for 2022 versus a previous expectation of about 5% as Russia's invasion of Ukraine had fuelled commodity and energy prices.
"All the proteins, all the cereals, all the oils - everything's going up in price," said Whiteside, noting food ingredients represent 29% of Greggs' total costs.
Russia and Ukraine account for 29% of the world's wheat exports. Concerns over the impact of the invasion, which Russia describes as a "special operation", have driven wheat prices to multi-year highs.
Greggs also faces higher staff costs due to April's government-mandated 6.6% increase in the minimum wage. Labour is the company's biggest cost.
"As ever, we will work to mitigate the impact of this on customers. However, given this dynamic, we do not currently expect material profit progression in the year ahead," Whiteside said.
The company has five months forward cover on food and packaging costs and nine months forward cover on energy prices.
It raised prices for consumers at the beginning of 2022, but has not since. "We'll keep things under review as the market develops," the CEO said.
Last month, Allied Bakeries-owner Associated British Foods (LON:ABF), said it could be impacted by the higher price of wheat. The British franchisee of pizza chain Domino's has hedged itself against rising wheat prices.
Greggs made a record pretax profit of 145.6 million pounds ($191 million) in the year to Jan. 1, versus a COVID-hit loss of 13.7 million pounds in 2020. Total sales were 1.23 billion pounds, up 5.3% on 2019, before the pandemic impact was felt.
The group said it started 2022 well, helped by the easing of pandemic restrictions, with like-for-like sales in company-managed shops up 3.7% compared to the 2020 level.
It opened a net 103 new shops in the year, taking the total to 2,181 as of Jan. 1. It sees potential for at least 3,000. It also plans to extend evening trading to 500 shops in 2022 and expand a delivery service with Just Eat.
Whiteside is retiring in May after eight years at the helm and will be succeeded by retail director Roisin Currie.
($1 = 0.7642 pounds)