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Greggs (LSE: GRG) is known for its Festive Bake pasty, which the corporate describes as “palms down essentially the most Christmassy factor about Christmas“. I wouldn’t go that far, however I did get pleasure from one simply earlier than Christmas — a time once I additionally owned a couple of Greggs shares.
On 24 December, the FTSE 250 inventory was buying and selling for two,774p. As I write, the share value has slumped to 1,795p — a fall of 35%!
This implies anybody who invested £10,000 into shares of the bakery chain on Christmas Eve would now have £6,500 on paper. Not an awesome begin.
What’s occurred?
There have been a few key points which have hit Greggs lately. Firstly, the agency has skilled slowing progress, with like-for-like gross sales in company-managed outlets rising 5.5% in 2024. The determine the yr earlier than was 13.7%.
Furthermore, like all retailers, Greggs is dealing with larger staffing prices this yr as a result of modifications in Nationwide Insurance coverage contributions. This has compelled it to boost the worth of some meals, together with — shock-horror — sausage rolls.
Final month, CEO Roisin Currie summed up the challenges dealing with the enterprise: “Looking forward to 2025, the macroeconomic panorama stays robust. Inflation stays elevated, and lots of of our clients proceed to fret about the price of residing.“
Report income
It’s not all unhealthy information although. Greggs topped £2bn in income for the primary time final yr, and continues to be concentrating on between 140 and 150 new outlets in 2025. Administration says the long-term plan to open “considerably greater than 3,000” places stays on monitor.
In the meantime, the valuation now appears fairly engaging. Primarily based on the present forecast for 2025, the inventory is buying and selling at round 13 occasions anticipated earnings. That’s not a demanding a number of, in my eyes, and considerably cheaper than current years.
Lastly, there’s a 3.84% dividend yield. Whereas not assured, the payout’s very effectively supported by forecast earnings.
Impaired shopper spending
Greggs additionally continues to broaden its presence away from the excessive avenue, a lot of which is in terminal decline as a result of e-commerce and excessive enterprise charges.
The UK misplaced 37 outlets a day in 2024, in line with the Centre for Retail Analysis. That determine is about to rise in 2025. Due to this fact, it’s constructive that the agency continues to focus on locations the place individuals are on the transfer — airports, practice stations, supermarkets, and so forth.
However my concern is that Greggs may simply be reshuffling its footprint fairly than really increasing over time. In different phrases, the brand new places may merely find yourself offsetting underperforming ones on the excessive avenue.
One other factor I’ve been mulling over lately is whether or not UK shopper spending will really recuperate at all around the subsequent few years. Because the CEO noticed final month: “After years of monetary anxiousness, [customers] are nonetheless dealing with issues about power costs and elevated mortgage and lease prices.”
Do I see power and lease costs coming down? Or robust financial progress when companies — and probably staff subsequent yr — are dealing with larger taxes? Sadly, I don’t. And this can finally be a problem for growth-oriented UK retailers like Greggs.
This shaped the premise of my pondering once I offered my Greggs shares in early February. The agency has an awesome model and is effectively run, however I fear it’s dealing with financial challenges past its management.
