Food-on-the-go retailer Greggs (LSE: GRG) has been a steady ongoing growth story since joining the stock market in 1984. And despite the many decades of success with its expansion, the company remains hugely ambitious.
Why I’m holding Greggs shares
Greggs has a “strong” new shop-opening pipeline. And there’s also a “significant” opportunity to improve the quality of the store estate via relocations and shop refits. The company’s website declares a goal to expand to “at least” 3,000 shops as its next target.
And to put that in perspective, today’s third-quarter trading update confirms the business has just over 2,200 retail outlets across the UK. Of that total, around 380 are franchise partners.
Meanwhile, I’m encouraged by the figures in the report. It leads with the headline: “Trading in line and full-year expectations unchanged.” And City analysts following the firm had pencilled in modest single-digit percentage advances in earnings for 2022 and 2023.
In the 13 weeks to 1 October, sales increased by just under 15% year on year. And like-for-like-sales in company-managed stores rose by just under 10%. It seems the business is in good health and that has surprised the market a little. The stock is playing catch-up this morning. And it’s up more than 9% as I write.
Over the past year, the general market malaise has pulled down Greggs shares. And the current share price close to 1,886p is around 33% lower than it was this time last year. However, the forward-looking earnings multiple for 2023 is just above 15. And I’d describe that valuation as fair rather than cheap.
Steady, profitable growth
Nevertheless, the absence of a bargain-basement valuation doesn’t dampen my enthusiasm for the long-term growth prospects of the business. So far this year, Greggs has opened a net 90 new shops. And the directors’ expectation of achieving 150 openings for 2022 is unchanged.
Looking ahead, the company expects the full-year outcome to be in line with expectations. So, despite all the scary macroeconomic and geopolitical headlines, Greggs has been grinding on as normal. And to me, that means steady, profitable growth from a well-loved brand.
I’ve been impressed by the way it has evolved its expansion strategy to find new markets. It now has a thriving delivery and click-and-collect operation. And it’s been making huge strides penetrating suburban locations and places where people “travel, work and/or access by car”.
These days, it seems we can find a Greggs almost anywhere. But I’m not worried that the company may be getting close to saturating its markets. And I don’t think it faces realistic competition from more upmarket brands. It has a good-value proposition and I reckon there will always be a strong market for that.
Despite my bullishness, it’s possible for the shares to disappoint me in the long term. Any business can face operational challenges from time to time. However, the business has just demonstrated its resilience during difficult times. And I’m optimistic the stock can turn out to be my investment of the decade.
