High street bakery Greggs (LSE:GRG) today released its third-quarter trading update, which was generally positive but with some realistic market worries. Unfortunately, the share price has fallen on the news and is down over 10% as I type.
With a market cap edging closer to £2bn and a very low debt ratio of 4.5%, there is a lot to be confident about with this company. Earnings per share are 74p and it serves investors a dividend yield of 1.77%.
The latest trading update for the FTSE 250 favourite saw an increase of 7.4% in like-for-like sales at its company-managed shops. This is more than double the same period in the year before, which returned 3.2%. Although good, it is slower than its first-half growth for 2019 of 10.5%, which is most likely why the share price is in decline. The report also said its total sales have risen 12.4% in the past 13 weeks.
In the year to date, Greggs has opened a staggering 90 new shops. Some of these new shops are franchised, which gives owners the opportunity to choose their own menu options and set their own prices. It’s now preparing to open a new store in Belfast city centre, its ninth in the city, which will bring 10 new jobs to the area. Greggs has also closed 34 shops this year.
The chain has been stockpiling ingredients and equipment in preparation for Brexit disruption and has experienced pressures on both its food input and labour costs.
I really like the proactive nature of the chain, testing new initiatives, and listening to customer feedback. One trial project it has begun is opening shops later in the evening, with a range of post-4pm deals, such as a £2 pizza plus drink offer, a pumpkin spice latte for autumn, and a hot food meal deal for £4. It has also started delivery service trials and is encouraged by the customer demand for them.
Considering current market conditions, I think Greggs is doing all the right things. Brexit has dragged on so long, yet still offers no sure outcome. The company seems to be preparing for it is as much as shareholders could hope for.
Vegan sausage rolls
Greggs has been both revered and ridiculed recently for its vegan sausage rolls, but the sales figures speak for themselves – they’re proving to be a mighty fine selling point. Although not specifically mentioned in the latest trading update, they are regularly discussed by Piers Morgan and all over social media, a clear sign of their success.
Greggs takeaway products are popular and affordable and unlikely to disappear anytime soon. The UK Food To Go Market report for 2019 says this market is set to grow by £2bn over the next three years, and Greggs appears well placed to take full advantage.
The latest trading update confirmed full-year expectations remain unchanged, therefore I consider Greggs a good company to buy shares in.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.