UK Economy Pressures: Can Greggs Rise Above?
Analyzing Greggs' Q4'24 Trading Update
Greggs' share price has faced significant pressure following its softer-than-expected Q4’24 trading update. This was compounded by yesterday’s news of a product recall and a downgrade from analysts at Panmure Liberum, who shifted their recommendation from “hold” to “sell” and slashed the stock price target from £33 to £17.33—a steep 47.5% cut. These developments may lead some to believe that Greggs' investment thesis is collapsing and that growth could stall, despite the company’s commitment to opening 140-150 new stores in FY25.
Analysts argue that the period of supernormal growth (with sales increasing ~20% in 2023) might be over—something we never assumed in our projections. They also raised concerns that expanding evening trade might hurt the bakery’s core identity. However, we continue to see growth in average revenue per store, with management indicating in 1H 2024 that LFL growth for the evening segment is higher. This suggests that these initiatives are successfully resonating with customers.
Source: Koyfin (affiliate link with a 20% discount; if you are a paid subscriber, you can benefit from a 3-month free trial)
With that, let’s take a closer look at the Q4’24 numbers and update our valuation to determine if any action is needed in our portfolio.
If you'd like to explore Greggs in more depth, we recommend reading our June article, Baking Success: Greggs’ Growth Strategy Beyond the Sausage Roll
1. Performance Update
a. Revenues
For FY24, Greggs grew revenues to £2.014 billion, up 11.3% year-over-year, with like-for-like (LFL) growth of 5.5%. However, there was a noticeable slowdown, with LFL growth declining from 7.4% in 1H to 5% in Q3 and just 2.5% in Q4 (total Q4 sales grew 7.7%), raising concerns. Management attributed this to a noticeable decline in High Street footfall, reflecting lower consumer confidence.
Source: Greggs filings, StockOpine analysis
Does this suggest that everything in the UK economy is thriving and Greggs is simply falling behind? Far from it.