Greggs (LSE:GRG) shares have finally started to show signs of a recovery. But could that be about to come to a screeching halt?
The company has been showing signs of life recently. Unfortunately, one of the big challenges of the last 12 months looks like it’s starting to reappear.
Signs of recovery
The reason Greggs shares are up is simple. The company’s stores are doing better.
On a like-for-like (LFL) basis, sales grew 3.3% in the 10 weeks leading up to 10 May. And that reverses a trend of downward numbers since 2022.
Realistically, the company can’t open that many more new outlets. So future growth is going to have to come from the ones it has.
That’s why the LFL sales growth figure is so important. And even a move from 2.5% (in 2025) to 3.3% can make a big difference.
That’s why the stock has started a recovery after a prolonged decline, but the big question is what happens next. And I’m wary.
Hot stuff
Last July, Greggs issued a profit warning when UK temperatures reached 35 degrees. Not so many people want to eat sausage rolls in that weather.
The stock – obviously – didn’t react well to that news. But fast-forward to today and the record for the hottest day in May has just been broken – twice.
On Monday (25 May) and Tuesday (26 May) parts of London reached their hottest levels on record for this month. Coincidentally, that’s also 35 degrees.
I’m not saying there’s a golden rule that steak bake sales fall off a cliff when the temperature reaches that level. But investors would be unwise to ignore this entirely.
Management has identified this as a challenge before. And I wonder whether it might derail the recovering LFL sales growth and put pressure on the share price.
Does this really matter?
In the grand scheme of things, a couple of hot days in May don’t matter much for investors. Especially not over the long term.
In the context of a 10-year investment, two bad days are less than 0.01% of the overall returns. By themselves, they aren’t going to make a huge difference.
The stock market, however, is likely to act as though they will. If LFL sales growth slows, I expect the share price to respond in a similar way.
That’s not to say that the next results won’t be insightful. Greggs has been making moves to try and become more of an all-weather proposition.
Will the introduction of new products bring customers in for things other than sausage rolls? I’ll be watching the next results with interest.
What should investors do?
The stock market is trying to figure out what long-term LFL sales growth will be for Greggs. And it’s not been a straightforward job recently.
Unusual weather is one of the things that can distort the picture. It can weigh on sales, bringing headline figures down.
Investors, however, need to focus on the long-term picture. A weather-induced temporary setback could be an opportunity worth considering.
Stephen Wright has no shares in any of the companies mentioned.
