At around 2,000p, the Greggs (LSE: GRG) share price is well below its January 2022 all-time high of 3,400p. Given that the long-term trajectory has been upward, this pullback might be a good time for me to buy Greggs shares for my Stocks and Shares ISA.
I should take a look at what makes Greggs great but also touch on some things that might leave a bad taste in my mouth before deciding whether or not to buy some shares.
Greggs is resilient
In 2021, Greggs reported its first annual loss since going public in 1984. It took a global pandemic to push Greggs into the red. By 2022, Greggs was back to reporting a profit again. Half-year numbers, released in August, showed revenue and pre-tax profits were up 27% and 0.5%, respectively, year on year. In the most recent quarter, sales were up again compared to last year.
Consider what Greggs has had to deal with this year. The war in Ukraine disrupted the supply of energy, wheat, and sunflower oil, forcing their prices to record highs. That’s bad news for a baker like Greggs. The company has raised prices twice this year to compensate. At the same time, its customers are going through a cost-of-living crisis. That should be a recipe for disaster. Yet, according to Greggs’ trading results, this is not the case.
Vegan sausage rolls
There are now 2,271 Greggs stores (1,860 are company managed, with 411 franchised) across the country. Recent openings have focused on underrepresented areas like central London and train stations and included some ‘drive-thru’ sites. Hot, high-calorie, savoury meat treats still dominate the menu at Greggs stores. But, the company has been innovating and widening its range and appeal. A vegan sausage roll was rolled out in 2019, closely followed by a vegan steak bake. The current autumn menu features a pumpkin-spiced latte.
Same-store sales growth was 36.9% and 11.2% for Q1 and Q2 of this year. That negates the idea that top-line growth only comes from opening new stores. The expanded menu offerings appear to be getting more customers through the doors or at least encouraging them to spend more. The new Greggs app and its click-and-collect and order customisation look to be helping in this regard, as does the option for delivery.
Is a Greggs share price rise on the menu?
I do have some concerns about Greggs. Its sausage rolls cost 10p more now than they did a year ago. But, on a base price of £1, that’s just a 10% rise. Some foodstuffs, like pasta, have risen by 60% in price. It’s either incredible cost-cutting by Greggs or a reluctance to pass on increasing costs to customers for fear of losing them. Greggs might see its margins squeezed if it’s the latter. We are not through the worst of the cost-of-living crisis, and Greggs might yet see its core customers cut back in earnest. While healthier options have been introduced, Greggs core menu remains a target for obesity taxes and the like.
But, on balance, I think the business has good prospects and that the Greggs share price should increase in the long term. I am planning to buy Greggs shares soon.
