The Greggs (LSE:GRG) share price is up 7% this morning (20 May) after its Q1 results. And while the company isn’t back to where it was, there are clear reasons for investors to be positive.
After a very poor start to the year, performance has started to improve with the rate of sales growth starting to increase again. So is the stock now set for a recovery?
Headline news
The headline number from the latest trading update is 7.4%, which is the amount the firm’s sales grew during the first 20 weeks of 2025. By itself, that isn’t a bad result.
A significant amount of this, however, was the result of Greggs increasing its store count to 2,638. On a like-for-like basis, sales were up 2.9% – a little less impressive, but more on that later.
For the rest of the year, the company is planning to keep expanding rapidly by opening new stores. The firm’s target of between 140 and 150 (net) openings for the year remains intact.
In terms of inflation, the firm still expects a cost increase of around 6% for the year (also on a like-for-like basis). And management’s expectations for sales and profits remain unchanged.
Results in context
With companies like Greggs, I think the key metric is like-for-like sales growth. While the business can boost overall revenues in the short term by opening new stores, but this can’t go on indefinitely.
It’s probably fair to say expectations coming into the latest results were low. In March, Greggs announced that like-for-like sales growth had come in at just 1.7% in the first nine weeks of 2025.
Against that backdrop, the latest 2.9% growth is a move in the right direction (but it’s still short of the 5.5% the firm managed in 2024). And that’s why the share price has responded positively.
Management had put the disappointing start to the year down to poor weather. But despite the third sunniest March on record, the firm attributed the latest improvements to its product line.
Analysis
The beauty of Greggs as a business is in its simplicity. Low-priced baked goods should have a durable appeal and the firm’s scale means it’s going to be tough for anyone to compete on price.
The last few months, however, have highlighted how reliant the firm is on high street footfall. And the British weather can have a surprisingly large impact on this, which is something of a risk.
As the company’s store count continues to rise, the scope for future growth on this front inevitably diminishes. That’s why investors need to pay close attention to like-for-like sales growth.
This metric needs to outpace inflation over the long term, so signs of a recovery are extremely welcome. And with the stock down 30% this year, growth expectations are fairly low.
Should I buy?
A price-to-earnings (P/E) ratio of around 14 reflects some unusually low expectations for Greggs at the moment. And the firm is clearly showing signs of recovering from a disappointing few months.
Despite this, I think there are better opportunities elsewhere at the moment. With rising costs and modest like-for-like sales growth, I’m looking elsewhere for stocks to buy right now.
