Food-on-the-go retailer Greggs (LSE: GRG) is due to release its full-year earnings report on Tuesday 7 March.
But we already know the FTSE 250 business had a good year of trading in 2022 because of January’s fourth-quarter update. The headline said: “Strong quarter ends a year of encouraging strategic progress.” And it added: “Robust financial position supports growth plans”.
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The figures were good. In 2022, total sales rose by 23% year on year. And like-for-like sales moved almost 18% higher. The fourth quarter itself was strong with like-for-like sales growing by just over 18%. And the directors said that outcome arose because of a “favourable trading pattern” leading up to the Christmas period.
A strong bounce since last autumn
But conditions were tougher for the business a year earlier. And that was because of the disruption caused by the omicron variant of coronavirus. However, the history of the share price seems a little out of step with conditions on the ground.
A year ago, the stock was around 2,533p. And that’s just a whisker below today’s level near 2,718p. But along with many other shares, Gregg’s plunged last autumn to find a bottom just below 1,700p. Such are the vagaries of investor sentiment.
However, investors brave enough to buy some of the shares last autumn have done well. And the stock has bounced back by just over 60% from its lows. So the big question now is, will there be anything in the coming full-year results report to drive the stock higher?
But before attempting to answer that, let’s consider the longer-term story. And that tale is one of sustained and steady growth. For example, even in troubled 2022, Greggs managed to open 186 new shops and close 39 for a net gain of 147 new retail outlets. And at the end of the year, the company had 2,328 in total.
That’s not all though. There was also “Strong growth in digital and early evening sales”. And in January, chief executive Roisin Currie said the business entered 2023 with a strong financial position. And that will enable further investment in shops and supply chain capacity.
Growth on the agenda
It’s clear that further long-term growth remains on the agenda. And the company’s expansion is backed by a well-financed balance sheet and a decent financial record. Indeed, Greggs scores well against traditional quality indicators such as return on capital and operating margin. And the firm’s cash flow performance over the years has been impressive.
Meanwhile, in valuation terms, the share price looks like it’s up with events. So my guess is it will take a robust outlook statement next week to push the stock higher. Right now, City analysts have modest single-digit percentage increases pencilled in for earnings in 2023 and 2024. And with the forward-looking earnings multiple running just above 22 for 2024, there is some risk that the shares could fall on results day on a simple “in line” statement.
Sales have been growing, but earnings need to catch up. And there’s some risks involved here for investors because of the uncertain cost environment faced by many businesses.
Nevertheless, Greggs looks set to succeed over the long term. And that’s worth bearing in mind next week when the results arrive, no matter what happens to the share price.
