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In January, Storm Éowyn wreaked havoc across the UK, forcing Greggs (LSE: GRG) to close over 200 stores. It foreshadowed what came next, as the bakery chain’s shares have been battered by a relentless wave of selling all year long.
At the start of 2025, Greggs was priced at 2,786p per share. Now, it’s trading for just 1,571p – or 43.6% lower!
What has gone wrong?
Greggs has ambitious plans to extend its store estate to 3,000-plus over time. And growth was strong halfway through 2024, with total first-half sales 13.8% higher, and like-for-like (LFL) sales up 7.4% in company-managed shops.
Those figures were ahead of market expectations, meaning the growth story was very much intact. Indeed, one year ago the share price was flirting with an all-time high.
Fast-forward to this year’s interim results, however, and Greggs was highlighting “a challenging start to 2025“. Total first-half sales were up 7%, but company-managed shop LFL sales were just 2.6% higher. The weather didn’t help (both snow and sun).
Pre-tax profit fell 14% to £63.5m, and management sees full-year profit being lower than last year. Not what investors wanted to hear.
And while this year’s plan to open 140 to 150 net new shops is on track, some are now questioning whether we’ve reached ‘peak Greggs’. The FTSE 250 firm ended June with 2,649 shops.
The stock is much cheaper
Last year, the business was priced as a growth stock, at around 20 times earnings. Now? Just 11 times!
Greggs highlights what can go wrong when things turn as stale as last week’s sausage rolls.
That said, a falling share price means a higher dividend yield, all else being equal. And that’s what we see here, with Greggs now sporting a 4.4% yield.
That actually looks pretty attractive, given that the firm’s lower earnings are still expected to easily cover the payout. Nothing is guaranteed, of course, especially when profits are under pressure. But Greggs does have a solid track record of paying out dividends.
City price target
According to the consensus among City analysts, the average one-year price target is 2,104p. That’s 34% higher than the current level.
Based on this, Greggs shares could turn £5,000 into roughly £6,700. Pair this with the 4.4% dividend yield, and that would be a very solid return. It suggests the selling might have gone too far.
However, it’s important to remember that forecasts aren’t set in stone, and this target could quickly be revised downwards if trading is weak at Greggs in the current second half.
On the sidelines
Greggs reminds me a bit of Diageo, the FTSE 100 spirits giant whose share price has also struggled badly in recent times.
Diageo had set a medium-term target of 5%–7% organic net sales growth, but the operating results weren’t backing this up. The firm has now scrapped these targets and there’s been a hard reset in investor expectations.
As for Greggs, it still plans to grow to 3,000 or more shops, but the market isn’t buying the ambition. So the company needs sales growth to pick back up soon to regain trust.
Investors confident in Greggs’ turnaround potential might want to consider the stock while it’s cheap and offering a 4.4% yield. Personally though, I’m going to watch things from the sidelines.
