At the start of last year, it wasn’t at all certain that the Greggs (LSE:GRG) share price would push on. Many high-street retailers were feeling the pinch. High inflation and soaring interest rates could have derailed growth and expansion.
However, the bakery chain successfully navigated these challenges and the stock ended the year 11% higher. That was comfortably ahead of the 4.4% return served up by the FTSE 250.
A resilient year
I’d say last year showcased the company’s resilience. In its Q3 trading update (covering the 13 weeks to 30 September), the firm’s total sales jumped 20.8% year on year. On a like-for-like basis, they rose 14.2%.
Also impressive was that it had opened 82 net new shops by the end of September. And it expected to finish 2023 with between 135 and 145 new locations. That would push its portfolio towards 2,500 shops, with 482 franchised and the rest company-owned.
This reminds me that the best businesses often take market share from rivals during difficult times. With its budget-friendly menu and iconic brand, Greggs appears to be in a very strong position today.
Another theme from 2023 was the extension of opening hours into the evening. Indeed, evening trade represented 8.8% of company-managed shop sales during the last quarter.
Finally, 13% of shop transactions were scanned on the Greggs app in Q3. I’d imagine that figure will only head higher over time, which should encourage customers to keep coming back.
Looking ahead
Analysts expect revenue to grow 17% to around £1.8bn in 2023. Net profit is not expected to increase as fast, though most of last year was one of stubbornly high food, packaging, and wage inflation. So this is understandable.
However, the rate of cost inflation is now easing, so that’s on the company’s side moving forward. That said, any unexpected uptick in inflation would again create headwinds for the business.
The stock looks fairly priced, trading at around 19 times this year’s forecast earnings. And there’s a well-covered 2.4% dividend yield.
Plus, the balance sheet is in great shape, with no debt worries.
An impressive company
Even prior to last year, Greggs has always impressed me. It has a knack for creating uber-popular food items such as its vegan sausage roll, Steak Bake, and Yum Yum. And it’s not afraid to move with the times, building out its loyalty app, menu innovation, delivery partnerships, franchising, and drive-throughs.
Plus, the firm employs a quirky humour, as evidenced by its Primark X Greggs clothing collaboration and a recent pop-up Bistro Greggs gourmet restaurant.
Importantly, it also looks after its staff. The year before, it shared £16.6m with employees, which represented more than 10% of its 2022 profit. That saw each staff member receive an average bonus payment of £700.
I do like to see such recognition, as it can foster loyalty and increase employees’ motivation.
Hoping for a market-beater
I finally became a Greggs shareholder last year. I’m happy to see that holding is up 11% already, though it’s still very early days.
I’d encourage investors to dig in and possibly consider the stock for inclusion in their own portfolios.
As is the Foolish way, I’m intending to hold my shares for the long term to maximise my chance of beating the market.
