Not too many investors have been snacking on Greggs’ [GRG] share price so far this year. The high-street baker’s stock has seen a hefty decline as businesses continue to recover from the Covid-19 pandemic.
Yet things have started to look up. Over the past month, Greggs’ share price has cooked up a decent 12.8% return to close 29 July at 2,040p. That might help wash away some of the sour taste from a miserable June where the stock entered a steep selloff culminating in a 52-week low of 1,780p on 1 July.
Should this week’s interim earnings show a robust business in the first half of the year, then Greggs’ share price could mop up some gains. However, investors will also be watching out for how much the rise in living costs has affected sales.
Greggs sees growth return
The pandemic battered Greggs’ business as shops shut and customers were stuck at home. But things have started to improve, so much so that Greggs named its 2021 annual report ‘coming back stronger and better’.
In 2021, Greggs delivered £1.22bn in revenue, up from £811.3m the previous year. Pre-tax profit came in at £145.6m, reversing a £13.7m loss. Perhaps best of all, income seekers were treated to a 42p final dividend and a special one-off 40p dividend.
Greggs has an ambitious strategy to double its sales in the next five years. To hit its target Greggs is expanding. Its stated goal is to have 3,000 stores in operation. In 2021, it added 103 net new shops, taking its total to 2,181 stores. The plan is to add 150 net new stores every year. Other initiatives include extending how long shops are open to bag evening trade.
Hitting these goals could be a tall order as squeezed budgets lead to people cutting down on the sausage rolls. This earnings season has already seen the effects of customers prioritising where they spend their money. Deliveroo [ROO] was forced to half its 2022 guidance after sales in the latest quarter, blaming it on ‘increased consumer headwinds’.
What to expect in Greggs’ interim results
Greggs could well see growth across the board, although it will be interesting to see whether increases in the cost of living mean people are prioritising paying their bills over a steak bake for lunch.
May’s trading statement already offers some clues as to what to expect. Like for like sales increased 27.9%. In the first 19 weeks of 2022. The baker said that this figure was ‘flattered’ by comparisons to trading last year when lockdown restrictions were still in place.
Digital is another area to watch out for. When the pandemic hit, the baker rapidly expanded its multi-channel operations. A partnership with Just Eat was launched in June 2020 and delivery now accounts for 7% of sales.
Greggs’ efforts outside of the food business will also be worth closer attention. A second collection of Greggs themed clothes will go on sale in Primark in August after the first batch sold out in February. The latest items will take a festival vibe and include such must-haves as bum bags and cycle shorts. In terms of serious cash generation, it remains to be seen just how much this contributes to the bottom.
Of the 9 analysts offering price targets on the Financial Times, the median 12-month target on Greggs’ share price is 3,000p. Hitting this would represent a 47.06% upside on 29 July close.
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