- Sales hit new peak of £2 billion
- Like-for-like sales growth slows
- Investments to crimp margins
Sales topped £2 billion for the first time at Greggs (GRG) last year as the value-for-money sausage roll, coffee and Yum Yums retailer continued to lure in cash-strapped punters.
So why did shares in the beloved bakery chain sour 13% to £18.08 today?
The catalyst for selling was news of a further slowdown in organic sales year-to-date, as well as a warning that the phasing of infrastructure investments would weigh on the food-to-go brand’s margins in 2026 and 2027.
SUBDUED SALES
Despite low consumer confidence, Greggs’ results for the year ended 28 December 2024 were robust enough. Total sales rose 11.3% to more than £2 billion and adjusted pre-tax profit fattened up 13.2% to a slightly better-than-expected £189.8 million.
However, like-for-like sales growth slowed to 2.5% in the final quarter and current trading remains subdued, with like-for-like growth slowing to 1.7% in the first 9 weeks of 2025, impacted by a weather-blighted January.
Guided by chief executive Roisin Currie, Greggs expects its costs to increase due to inflation but says this will be covered by the price increases introduced last year.
Greggs warned that in 2026 and 2027, higher costs from expanding its manufacturing and distribution operations would have an impact on margins, although in the longer-term profitability should recover, with the Newcastle upon Tyne-based bakery retailer’s return on investment expected to reach around 20%.
Shore Capital commented: ‘We didn’t anticipate any improvement in current trading, so this number comes as no surprise, noting recent comments from food-to-go peers McDonalds (MCD:NYSE) and Costa Coffee that the UK is currently amongst the weakest markets they trade across.’
The broker added: ‘We do not anticipate a pick-up in current trading until the second half as comparative begin to ease.’
Analysts at Jefferies said: ‘A solid full year 2024 result, but the explicit disclosure of investment-related margin headwinds in full year 2026 and full year 2027 is new. While temporary in nature, it clearly pushes out the timeline before Greggs can return to its normal high-single-digit profit growth trajectory.’
TIME TO TAKE STOCK?
Begbies Traynor’s (BEG:AIM) Julie Palmer said: ‘Greggs has been growing rapidly for years, but it appears momentum is finally slowing and, looking at the latest results, it could be time for the iconic bakery to take stock and evaluate its growth.’
While Gregg’s value proposition remains strong, Palmer observed that it faces ‘an uphill battle if it’s going to maintain margins when the increase to the National Living Wage and employer's National Insurance contributions will see costs leap by 6% this year.’
Russ Mould, investment director at AJ Bell, said Greggs is suffering from ‘a serious slowdown in growth. Miserable weather was blamed for a poor start to 2025 and a cautious consumer is not going to help its cause. Greggs is doing everything it can to stay on top, such as further menu innovation. There is a danger Greggs is moving too far away from the products which drove its success, namely sausage rolls and Belgian buns.’
Mould added: ‘Burgers, pizzas and chicken goujons make Greggs more of a direct rival to kebab shops that are ten a penny across the country. Domino’s Pizza (DOM) is also pushing hard on lunchtime wraps meaning the food-on-the-go market is becoming dangerously crowded.
‘Shoppers want good value for money in the current economic climate and Greggs might find its products are pushing above the price point at which people don’t blink to buy.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
