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Greggs share price falls despite business improving

Greggs share price falls despite business improving

The Greggs plc share price will be in focus today on the back of the bakery chain's third-quarter results, after a turbulent 2020.

In early January, it hit an all-time high, but then it got caught up in the brutal coronavirus sell off. Like the rest of the market it staged a recovery in late March, but that ran out of steam in early June, and the Greggs share price has been in a downtrend since then. In fact, last week it fell to its lowest level in almost two years.

Q3 results to rally Greggs share price?

Sales at company-managed stores in September were 76.1% of last year's level. The group reopened all its stores in early July after the Covid-19 shutdown, as sales ticked up in August, and improved again in September. Greggs cautioned about the uncertainty surrounding the health crisis, but it plans to open net 20 stores this year, so it clearly isn’t that worried about the current environment. The digital service and the click-and-collect options are now available nationwide, so this should help the group in the event of localised lockdowns. The manufacturing sites have reopened too so new products are available.

It's encouraging to see that Greggs are keen to expand the business, but the group is looking into ways to cut employment costs – the lockdown had a serious impact on the business. In a bid to reduce job losses, working hours are likely to be reduced. The pandemic hit the company hard on account of the store closures. In April, it was announced the company accessed £150m from the Bank of England’s Covid corporate financing facility (CCFF). At the time, the firm’s bank balance was £47m, so it was in pretty good shape.

Reopening and delivery market to help Greggs share price?

Greggs took their time in reopening stores, which showed how much consideration they gave to their staff and customers, but traders didn’t see it that way. In late April, the company revealed plans to reopen a limited number of stores, but that scheme was postponed because of health concerns. It was in mid-June when Greggs largely got back to normal, but that meant that shops were shut for roughly three months, with the Greggs share price already having suffered in the March sell off.

First-half sales tumbled by 45% to £300.6m. The group swung to a loss of £65.2m, from a profit of £36.7m in the same period one year before. Not surprisingly, no dividend was declared. Since reopening stores, business has picked up again, and in the last week of trading before the interim results were posted, sales were 72% of the levels achieved a year earlier. In a bid to get with the times, Greggs has teamed-up with Just Eat to cash in on the lucrative takeaway market.       

The Greggs share price has been pushing lower recently and a break below the 1,120p area should put 1,000p on the radar. A rebound from here might run into resistance at 1,400p.