Greggs (LSE: GRG) shares are in the limelight. The company posted its first ever loss earlier this week. The stock has continued to soar during the pandemic. The shares are now expensive, but I’d still buy at these levels. Here’s why.
The results
Greggs total 2020 sales fell 31% to £811m, while profits swung to a £14m loss. This compared to a pre-tax profit of £108m the previous year.
As I mentioned, this was Greggs first ever loss but I don’t think the results are that bad. In fact, I think given how challenging the pandemic has been, the numbers are resilient. I reckon this is because of the management team’s quick and decisive actions.
Last year was all about cash preservation and Greggs did exactly this. It cut its dividend like most other companies and made costs cuts. The FTSE 250 firm made over 800 redundancies.
Strong brand
I reckon Greggs has a strong brand and product offering. To me, it’s a leading UK food-on-the-go retailer and has over 2,000 outlets. Before the pandemic, the company was doing well. So I expect this to continue, in time, once government restrictions have been fully lifted.
In terms of the products, let me be frank, they are very affordable and offer good value. So even if economic conditions worsen and unemployment soars, I think most consumers could splash out on one of Greggs’s pasties. I can’t forget to mention how popular the vegan sausage rolls were pre-coronavirus.
Improving customer service
I think what has helped Greggs shares is the company’s multi-channel approach. The click-and-collect service across the entire store estate has been beneficial. Greggs also has a partnership with Just Eat. I reckon this delivery agreement has somewhat softened the impact of the coronavirus crisis on the business.
The bakery chain also offers its customers a rewards loyalty scheme to entice them back. Repeat business is good for revenue and profitability. I expect this, along with the existing customer service initiatives, to continue after the pandemic. Although once the stores are fully opened, I question whether many consumers will be using the Just Eat delivery option at the same rate as seen during the pandemic.
Store estate
I don’t think it’s a surprise that the stores affected by falling sales have been those in city centre locations and in transport links such as train stations. Once out of the pandemic, my concern is if office workers start to work from home permanently then these outlets may be impacted. This is clearly an important demographic for Greggs.
Stores in retail parks or where shops could be accessed by car fared better. What I like about Greggs is that the stores are based in a broad range of locations, which should help the business weather the storm.
But my other concern is further rises in staff and food ingredient costs. This could place pressure on profitability as well as the share price.
My view
I’d expect Greggs shares to rally in the short-term based on the continued roll-out of the vaccine across the UK. As a long-term investor, I’m optimistic on the outlook for Greggs shares and would buy the stock.
