I’m bullish on the stock and I said it was a FTSE 250 share I’d buy in May. Despite the Greggs share price being close to its all-time high, I’d still buy it now. The recent trading update simply confirmed my positive view of the company.
Greggs has seen a strong sales recovery in the weeks following the easing of lockdown restrictions in the UK. It’s worth nothing that 2020 was mostly a redundant period for the food retailer. Most of its shops were closed last year and so it makes sense to compare its recent sales numbers with 2019 pre-pandemic figures.
It appears that things are improving for Greggs. Like-for-like sales decreased by 13.5% in the 18 weeks to 8 May when compared to the same period in 2019. But the key item here is that sales only declined by 3.9% in the past eight weeks to 8 May.
This means that after non-essential shops were allowed to open in April, Greggs saw a huge improvement in revenue. The company admitted that this in part reflects the “pent-up demand in retail which has boosted high street footfall”.
So let me highlight the company’s performance in terms of total sales numbers. Greggs generated £352m in the 18 weeks to 8 May. This was an increase from £280m in the 2020 period and was just below the £373m booked in the same period in 2019.
I’m encouraged by these figures and it seems that business is returning to pre-coronavirus levels. The UK economy is not fully open yet so I’d expect sales to pick up even further when this happens. This should give another boost to the Greggs share price.
During the first 18 weeks of 2021, the food retailer opened 34 new shops, which includes 13 with its franchise partners. I think the main thing to note here is the location of its new stores.
Greggs is focusing on places “where performance has proved to be most robust”. This includes retail parks, as well as roadside and petrol filling stations. I reckon these could continue to benefit the company as the UK continues to emerge from the pandemic.
I’m also pleased that it’s closing underperforming shops. In the year so far, Greggs has closed 11 stores. It’s reassuring that costs are being well controlled. This should boost profitability in the long term.
Sales have recovered well and the board has said that “if restrictions continue to ease in line with current plans” then it expects “overall sales performance for the year to be stronger than previously anticipated”.
Profit guidance is somewhat unclear. But “the board now believes that profits are likely to be materially higher than its previous expectation, and could be around 2019 levels in the absence of further restrictions.”
This should act as a word of caution to investors like me. The Greggs share price is highly dependent on the the easing of UK government restrictions and no third wave. The stock is trading close to its all-time high. And so I’d expect the shares to fall in response to any Covid-19 setbacks.
Despite this uncertainty, I reckon the Greggs share price could climb from its current level. Hence I’d buy the stock.
Nadia Yaqub 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.