Sometimes the most popular investments can also be the most painful. And Greggs‘ (LSE:GRG) shares have been exactly that.
Three years ago, Greggs looked like one of the most compelling growth stories on the London Stock Exchange. Today, anyone who invested £1,000 back in July 2023 is sitting on just £678.90. And that’s even after accounting for dividends paid along the way.
So what went wrong? And can the bakery giant bounce back?
The three years that went wrong
To Greggs’ credit, the decline hasn’t been driven by poor management. Instead, it’s down to a brutal combination of external pressures all arriving at once.
Unusually wet and cold weather suppressed footfall at a time when Greggs was heavily reliant on casual passing trade. Labour costs surged following successive increases to the National Living Wage, squeezing margins precisely when consumer spending was under pressure. And as households tightened their belts, even Greggs’ famously affordable menu wasn’t entirely immune to the wider slowdown.
The result? A series of underwhelming trading updates that repeatedly disappointed a market that had priced in continued double-digit growth. And so it’s hardly a surprise the share price took a tumble.
But are things starting to move back in the right direction?
Green shoots are finally emerging
Looking at Greggs’ most recent trading update published in May, the company confirmed growth is finally heating back up again.
Total sales of £800m in the first 19 weeks of the year climbed 7.5%. But more encouragingly, like-for-like sales grew from 2.5% to 3.3% in the most recent 10 weeks, driven largely by returning demand and successful product innovation.
Greggs now trades from 2,759 locations and remains on track to open around 120 net new shops for the full year. What’s more, its first international airport outlet at Tenerife South has now opened – also becoming the first Greggs location outside of the UK.
Management’s cost control efforts are also seemingly bearing fruit. Overall cost inflation for 2026 remains guided at around 3% on a like-for-like basis, and with 85% of energy and fuel requirements already fixed in price, helping to protect the business from any near-term inflation shocks.
So could we already be in the early innings of a full-blown recovery?
What to watch?
As encouraging as Greggs’ progress has been lately, it’s important for investors not to become complacent in monitoring key risks.
Greggs remains structurally dependent on footfall to drive sales volumes. And while volumes seem to be on the rise, that could quickly change once energy inflation starts knocking on consumers’ doors.
If the UK’s already financially squeezed population is hit with another wave of rising expenses, Greggs’ recent growth bounce could reverse, extinguishing any hopes for continued near-term recovery.
The company’s decision to expand internationally provides some welcome diversification from relying solely on the weak UK consumer. However, this expansion’s very much in its early days and fraught with execution risk.
So what’s the verdict?
The trajectory of Greggs is encouraging, even if its shares have yet to reflect the underlying progress. However, with several near-term headwinds looming, I’m not ready to become a shareholder today. But it’s a stock I think investors should be watching very closely.
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Zaven Boyrazian does not hold any positions in the companies mentioned.
