Greggs (LSE:GRG) shares have been anything but tasty over the past 18 months. Indeed, had someone invested ten grand in the iconic baker at the start of 2025, they’d only have about £5,500 to show for it today.
Admittedly, there would have been passive income along the way, as Greggs pays dividends. But even including them, the total return would be just under £6,000. Not great.
Yet, big dips like this can create attractive returns, assuming the stock recovers. So is Greggs worthy of attention?
What has gone wrong?
Greggs’ growth story has been blown off course by a few things in the past couple of years. For a start, inflation has wreaked havoc, both in terms of higher operating costs and cash-strapped consumers.
Granted, the baker is famous for its value offering. But if fewer people are shopping (on high streets and retail parks) and taking road trips (Greggs has a growing presence in travel locations), then the backdrop is automatically challenging.
Adding fuel to the fire, weight-loss drugs are booming in the UK, with more than 2m people now taking them. And a daily Wegovy pill has just been approved, meaning people who are scared of needles now have the option.
These powerful medications tend to reduce cravings for sugary and fatty foods. So the risk then is that patients on them may visit Greggs less often.
I was struck by a recent BBC article that quoted one man who had been taking Mounjaro for two years. He said: “Before taking the jabs, I didn’t have the willpower to walk past a Greggs and not have a sausage roll.”
It’s hard to quantify the impact GLP-1s has had on sales, but Greggs has been adapting its menu in response. Egg pots, chicken salads, and other high protein options now compliment sausage rolls and doughnuts.
Another thing that has weighed on the stock in July is that CFO Richard Hutton is stepping down. He’s been with the company for 28 years, so this has added a bit more uncertainty.
Resilience
Despite all these challenges, Greggs has been putting in a resilient performance, in my opinion. Sales rose 7.5% to £800m in the first 19 weeks of the year, with like-for-like sales growth of 3.3% in the last 10 weeks of that period.
Most food-on-the-go retailers would give their right arm for those numbers in today’s environment. And the company is still targeting 120 net openings for the year, bringing the total to more than 2,800 shops.
Greggs is due to report its half-year results at the end of the month. I’m not expecting fireworks, especially as the heatwaves we’ve been enjoying/enduring are not ideal for sales of hot baked goods. Any lowering of full-year guidance (for relatively flat underlying profits) is a near-term risk.
Is Greggs worth a look?
Taking a longer-term view, I think the stock is worth considering. It’s trading cheaply at 12 times forward earnings while offering a prospective dividend yield of 4.5%.
At this price, most of the bad news might be priced in.
Plus, capital expenditure on its two new logistics facilities peaked last year. As such, free cash flow should improve dramatically from 2027 onwards, freeing up cash for potential share buybacks.
What income stock do we like better than Greggs Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at an income share we think is worth your time.
Ben McPoland has no position in any of the companies mentioned.
