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Greggs share price heats up on expansion plans

Greggs’ share price slipped last week, despite  Britain's biggest bakery posting a resilient set of results for 2022. Sales heated up,  but profit growth was lukewarm. Still, management is bullish about expanding, with new stores and later opening hours planned for 2023.

Greggs’ [GRG.L] share price has struggled to maintain the initial momentum seen after revealing strong sales in 2022 on 7 March. While the stock gained 0.8% in the two sessions following the announcement of its preliminary annual results, it closed the week down 3.3% at 2,660p on 10 March. 
Since October last year, the stock has seen double digit gains as strong sales and later opening hours whet investor appetite. Amid the cost of living crisis, Greggs’  inexpensive treats have proven to be popular in cost conscious times.  

That was evident in its 2022 results, yet the announcement was met with a muted response from investors.. Potentially a lot of the good news from the results has already been baked into Greggs’ share price.   

Greggs’ share price muted after 2022 results

Total sales were up 23% to £1 5bn last year, while pre-tax profit was up a slim 1.9% to £148.3m. Greggs said the results “reflected strong sales growth in the face of significant cost inflation and the removal of government pandemic support”.

Helping to boost demand was the decision to make 500 of Greggs’ outlets remain open till 8pm or later. Its expanded menu of hot food options such as pizza slices and chicken goujons also proved popular. The company said that post 4pm sales  were its strongest area of growth. As a result, it plans to extend late night opening hours at 300 Greggs’ outlets to 9pm.

In 2022, Greggs opened 147 net stores, bringing the total number of outlets to 2,328 at the end of 31 December 2022. The company said that there is a “clear opportunity” to have significantly more than 3,000 stores and will target opening 150 stores per annum in the near term. Digital delivery also picked up last year through Greggs’ partnership with Just Eat.

Yet inflationary pressures have meant that costs have risen. At the start of 2022, Greggs’ sausage roll cost £1, but after another 5p increase in January now it costs hungry diners £1.20.  Roisin Currie, the chief executive of Greggs, told PA Media that there were no plans to increase prices, but this would be kept under review.

Shareholders were rewarded with a 44p final dividend for the year, bringing the total ordinary dividend to 59p per share  

How has Greggs share price performed?

Despite the resilient annual numbers, Greggs’ share price declined 3.3% last week as investors digested news that a jump in sales had not translated into a jump in profits. 

“The under-heated response to the numbers reflects the fact that a strong recent run on the stock market has seen a lot of good news already baked into the share price," Russ Mould, director of investment at AJ Bell, said.

Greggs share price has delivered investors a tasty 13.4% gain so far this year, closing Friday 10 March at 2,660, and outpacing the wider FTSE 250’s 2.6% gain. Over the 12-month timeframe those gains extend to over 19%, with Greggs stock rallying 33% over the past six months. 

Mould added that the company’s ability to stay on top of shifting appetites —the introduction of a  vegan sausage roll, for example — had helped it win new customers. Mould described the 18.8% increase in like-for-like sales in the first nine weeks of 2023 as “striking”, although cautioned that it should be careful that its “expansion doesn’t turn into hubris”. 

Can Greggs’ stock rise further?

New initiatives such as longer opening hours, trialing 24-hour drive-thru outlets and new menu items could help to revive momentum in Greggs’ share price. The company’s cash position is strong at £191.6m, which should help with inflationary pressures, including higher wages and its electricity cover is sorted until the third quarter. 

Yet, a sharp downturn in the economy could hit sales.. There could be some gains in the Greggs’ share price,, but momentum might begin to cool.

Of the 10 analysts polled by the Financial Times, Greggs’ share price has a median target of 3085p. Hitting this would see a 16% upside on Friday’s close.

 

Disclaimer Past performance is not a reliable indicator of future results.

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