The shares of British fast food and bakery chain Greggs rose by 11.5% on Wednesday to 1,790p, topping the FTSE Mid-Cap index. This was after the company reaffirmed their full-year guidance despite a slower growth in underlying sales during the third-quarter.
The stock was up about 7% by 9:10am, but had lost some gains.
Like-for-like retail sales in its stores managed by the company increased just 1.5% over the last 13 weeks, down from 2.6% in the first six months of this year.
The total sales of the third quarter increased by 6.1%.
Greggs, on Wednesday, said that despite the unusually hot temperatures in July which impacted trading, conditions improved during August and September.
Analysts question the store opening expectations but maintain profit guidance
Greggs’ board said that its expectations of the year-end outcome have not changed, assuring investors worried by slowing sales.
The analysts at Jefferies considered the report as encouraging and noted that they expected like-forlike sales to increase into the fourth-quarter.
Although they disagreed with the narrative, they added that Greggs’s reduced store opening expectations for this year would likely increase concerns about its growth potential.
Greggs expects to close around 120 new stores in 2024. This is down from the 140-160 shops that they had previously predicted.
Roadside shops have outperformed city centres, as the chain opened 57 new net stores in 2018.
Ross Broadfoot, an analyst at RBC Europe said that “Greggs’s slow shop rollout is a continuing concern”, even though it said the UK bakery chain’s pipeline of openings remained strong until next year.
Broadfoot stated that the group’s guidance for this year is in line with the consensus of 187 million pounds. However, he said there will be further minor downgrades to many.
Inflation to drive price increases
Roisin currie, the chief executive of the company, told Reuters that the prices would be raised on a small number products in the coming week. This will mark the first price adjustment since the beginning of May.
She said, “It’s a very small quantity of product, but we are going to be receiving it this week.”
According to market research firm Worldpanel data, UK grocery inflation was 4.9% in the month of September. This puts further pressure on consumers’ spending.
Investor sentiment and market reaction
Greggs stock is still down 39% despite Wednesday’s increase. This is due to investor concerns about slowing growth in sales and the speculation that Greggs may be at its “peak Greggs”, given the number of stores it has across the UK.
This view has been rebutted by the company, which touts new formats as well as roadside expansion.
Retailers remain cautious as they await the budget of the Government on 26 November. The government may raise taxes and the jobs market might weaken, which could impact the trading during the critical festive season.
Analysts and investors will closely monitor Greggs’s ability to stabilize performance during the next quarter while managing cost and store expansion in a prudent manner.
As updates are made, the post Greggs Stock Soars On Profit Guidance But Analysts Split on Growth may be updated.
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