Greggs‘ (LSE: GRG) shares took a sharp dive early this year after the baker published quarterly results that missed expectations.
Despite posting record revenue of £2bn for 2024 and like-for-like sales growth of 5.5%, shareholders were underwhelmed. Expectations were high, with eyes on growth of 6.3%. At only £125m, net cash also dipped for the year, down from £195m in 2023.
Famous for its sausage rolls and pies, investors have become accustomed to the high street chain posting exceptional results. The slowdown in growth prompted a severe reaction, sending the shares tumbling a massive 26%.
Speaking on the report, CEO Roisin Currie noted a broader slowdown in the UK economy: “Lower consumer confidence continues to impact high street footfall and expenditure,” she said.
However, it all seems like a bit of an overreaction. Earnings per share beat expectations in 2023 and in H1 2024 and are expected to reach £1.35 for the full year — a 6.6% rise.
One risk the company’s been battling with is a change in dietary trends. So can new menu items help Greggs’ share price recover – despite challenges to its expansion plans?
New menu
Greggs recently unveiled some surprising new menu items, including a BBQ Crispy Chicken Burger and Southern Fried Chicken Wrap. These additions mark a strategic move to compete with fast-food giants such as McDonald’s and KFC.
These items will initially be available in over 150 shops, with plans to expand to 300 by spring. There are further plans to reintroduce popular items like the Katsu Chicken Bake and various cinnamon-flavoured drinks.
The changes are all part of a plan to diversify beyond traditional offerings and attract a broader customer base.
Expansion troubles
Greggs is often cited as one of the UK’s biggest success stories, a small local baker that expanded to 2,600 stores nationally. But it seems not everybody relishes the pleasure of seeing Greggs’ familiar blue and yellow logo in their town.
Residents of Conwy in northern Wales are protesting the baker’s plans to open a store on their high street. The 700-year-old town fears the chain could threaten local business, as it plans to open only a few doors down from the long-standing Popty Conwy Bakery.
While pushbacks of this kind are rare for Greggs, it could be indicative of changing attitudes toward the baker. Its rapid growth and familiar branding are aligning it with the likes of Subway and Starbucks — corporate-type outfits which traditionalists shirk.
A promising value stock?
A key risk that Greggs now faces is rising costs brought about by the government’s new Budget. Increases to the Minimum Wage and National Insurance contributions are expected to hit the hospitality sector hard. When the Budget was announced last November, several brokers downgraded their targets for the baker and its competitors.
Still, the average 12-month price target is £28.70 — a 36% increase from the current level. Looking ahead, earnings are expected to reach £1.77 per share by 2027, with revenue expected to reach £2.62bn.
The falling price means it’s now near a three-year low compared to earnings. In my book, that makes it an attractive stock to consider for value investors looking to grab some shares at a bargain.
It may also be what prompted HSBC to put in a Buy rating on the stock last month.
This post was originally published on Motley Fool
