Despite the recent difficult trading conditions, FTSE 250 listed bakery chain Greggs (LSE:GRG)’s share price has been moving upwards towards pre-pandemic levels.
Today at over 2,000p per share, it has certainly improved from the September 2020 low, when it was less than 1,200p per share.
The company appears to be in a relatively stable position at the moment with regards to cash, and has even paid off the loan previously given to it by the government to help with Covid-19 business disruption.
A recent partnership with Just Eat means that customers can have their baked goods delivered, and in turn this has helped make up for some of the lost business due a lack of footfall in the company’s stores.
Sales have been steadily improving since the initial lockdown of March 2020, and the fourth quarter trading update mentions that like-for-like sales in company-managed stores in the fourth quarter to early January this year were an average of 81.1% of equivalent 2019 levels.
However I note in the same report that the CEO Roger Whiteside also talks about how he thinks that it would be at least 2022 before company profits return to pre-Covid levels.
Even though the pandemic and subsequent lockdowns have been painful, Greggs has still been opening new stores and has plans to continue to do so during 2021.
I like the fact that the company seems adaptable and proactive, such as offering the delivery service and the introduction of new menu items. I remember seeing the news when customers were queuing around the block for the new vegan steak bake!
Food for thought
Continuing to increase the number of outlets does show commitment to future growth. However, it is happening at a time of great uncertainty in both the high street and the wider economy in general.
Also, given that most of Greggs’ bakery stores seem to be located on the high street or in retail parks, its target customers would appear to be those who are out shopping or who are at work.
I do wonder if the number of customers could start to decline in the long run if the work from home model were to continue, and if shoppers were to move to more online purchases, rather than hitting the high street.
Once the lockdown is lifted and shops and restaurants reopen, it is difficult to know if the number of takeaway delivery orders will continue at the current rate. This is something for me to consider given this has helped to maintain sales for the business so far.
Even though the share price has been climbing for this growth stock, I think at the moment there is just too much uncertainty for me to invest and therefore I will be happy to sit this one out and watch what happens from the sidelines with my savoury treat in hand.
