Today’s Falling Knife: Greggs Plc To Refocus Business As Profits Dive

The shares of Greggs (LSE: GRG) were slammed by 7% to 411p  this morning after the FTSE 250 mid-cap revealed its first-half profits had slipped to £11m, amid falling like-for-like sales and a depressed outlook statement.

After Greggs blamed the difficult weather conditions for its poor first-quarter sales, shareholders grimaced as the bakery chain accused the recent summer heatwave of damaging its most recent trading.

In his first half-yearly report as chief executive, Roger Whiteside laid out his plans to refocus the business on its core ‘Food on the Go’ offering. He is ditching plans to roll out Greggs’ experimental chain of coffee shops and has scrapped the planned opening of a new £30m savoury-products factory. Instead, Greggs will focus on refitting its existing shop base, with over 220 stores planned for refurbishment this year.

Commenting on the results, Mr Whiteside added:

“Greggs is a strong brand that has the ability to grow shareholder value over the long term.  Our focus for the future will be on winning in the growing food on the go market.  As a consequence we will spend the next two to three years reshaping the business as we build the platform for long term sustainable profit growth for the benefit of shareholders, employees and the wider community.”

With a market cap of £411m, Greggs’ shares trade at 12 times expected earnings, and offer a prospective dividend yield of 4.4%.

Of course, whether that valuation, today’s results and the future prospects for the bakery industry all combine to make shares of Greggs a ‘buy’ remains your decision.

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> Mark owns shares in Greggs.