Greggs Faces Challenges Amid Expansion Plans

The chief executive of Greggs believes there is potential for significant growth despite the recent downturn in profits and a slowing sales growth in the current financial year. The bakery chain has reported weaker sales since mid-2024, attributing this to a challenging consumer environment.

Last year, a severe summer heatwave resulted in diminished demand for traditional items such as sausage rolls and steak bakes, leading to a profit warning in July. Roisin Currie, the chief executive, noted that easing inflationary pressures might enhance consumer spending, yet a lack of consumer confidence remains a significant obstacle.

Greggs sees an opportunity for more than 3000 UK shops in the long term as it seeks to expand into transport and roadside locations, supermarkets, and retail parks. Despite a 2.4 per cent increase in company-managed like-for-like sales during the 12 months ending in December, overall profits fell by 9.4 per cent to £171.9 million. This decline has been attributed to rising fixed costs related to manufacturing, logistics, and technology.

Sales growth in the first nine weeks of the new year was only 1.6 per cent. This figure lags behind the 2.9 per cent growth reported in the previous quarter, indicating a trend of volume contraction. Analysts have pointed out that unfavourable weather conditions this year have likely hampered the company’s performance.

Management anticipates this year’s pre-tax profits to be broadly in line with last year unless consumer sentiment improves. Analysts have expressed concerns regarding the impact of increased operating costs and a significant infrastructure investment that may lead to stagnant earnings per share in the near future.

With a current strategy of a net addition of 121 new shops last year and similar expansion aims for this year, experts are questioning whether the company can sustain its aggressive store opening pace. Short-sellers have shown a growing interest in betting against Greggs, as the company has become one of the most shorted stocks on the London market. Hedge funds have increased their bearish positions, with approximately 13.25 per cent of shares on loan.

The rising popularity of weight-loss drugs poses another challenge for the bakery chain. This trend may affect its customer base, prompting the introduction of healthier menu options, including egg pots and overnight oats. Despite these challenges, Greggs management remains committed to communicating its growth potential and demonstrating the positive strides being made in the market.