Today’s results have seen the share price rise just under 5% at the time of writing. This was on the back of full-year results showing like-for-like sales down 36.2% versus 2019 and a swing from a £114.8m operating profit to a £7m loss.
The question now is, what next for the Greggs share price?
The bull case for the Greggs share price
Greggs is an ideal candidate for a Covid recovery stock, given how much of an impact the lockdown has had on its business. The comparisons next year to this year should be impressive and help the share price rise.
Another positive aspect to consider is that Greggs was doing well pre-Covid. When things normalise, it could be reasonably expected that Greggs will once again deliver for shareholders and customers.
Also, for now, it has the same leadership team that had grown the share price before the pandemic. The CEO and finance director have been in their posts for a long time and know the business well. I’d back them to get the food-on-the-go retail chain back on track. Although Sky News has reported that Greggs will start looking for a new CEO and Chairman, this isn’t expected to be a quick process and the experienced management team will stay in place to guide it out of the pandemic.
Greggs’ products are affordable and were hugely popular pre-pandemic. I feel it’s unlikely to be hurt by consumers cutting back in an economic downturn. The business model should prove resilient whatever comes next, although future lockdowns would be a blow.
One upside of shops moving online is that it should give Greggs the ammunition with which to negotiate rents with landlords. That could boost the financial comparison again between this year and next and will reduce costs.
Lastly, there’s the strong brand. Greggs’ marketing before the pandemic was a strength, for example the promotion around the launch of vegan sausage rolls. I think even after Covid it will have a strong physical presence, a well known brand and loyal customers. Repeat business is good for revenue and profit growth and is a major positive in my book.
The bear case
There are risks though. One of my big concerns going forward is that there may be permanently fewer office workers, which could dent demand for Greggs’ products from this very important customer group.
In its results, the company doesn’t seem to share these concerns though, stating that it will open 100 new outlets in 2021.
Digital channels also aren’t as yet anywhere near the scale to offset in-shop sales, so there’s potentially more management must do to strengthen its omnichannel offering.
Further rises in staff costs and food ingredient costs could also squeeze margins and delay the bounce-back, which might in turn see the shares slip again.
Would I buy the shares?
This is one I’ll be keeping my eye on as a Covid recovery opportunity. However, for now I still believe there are other companies that could bounce back stronger.
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Andy Ross owns no share 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.