Does Greggs plc have investment potential after it reports sales growth of 7% in Q4?

Could Greggs plc (LON:GRG) (GRG.L) deliver improving share price performance?




Greggs
Greggs

The Greggs plc (LON:GRG) (GRG.L) share price has risen by over 7% today after the company released a fourth quarter trading update.

Total sales during the period increased by 7.2%, with company-managed shop like-for-like (LFL) sales rising by 2.9%. This is an encouraging performance in my view, and shows that the company has been able to remain relatively popular at a time when consumer confidence is weak.

Greggs reported performance that was upbeat across its operations, which it believes reflects the strength of its freshly-prepared food and drinks, as well as the strategic changes that have resulted in an increased focus on food-on-the-go.

During the year, the company opened 149 new shops, while closing 50 stores. It had 1,953 shops trading as at 29 December 2018, while it is forecast to open a net 90-100 stores over the next 12 months. It expects to record full year underlying pre-tax profit of at least £88 million for 2018.

The company will continue to execute the supply chain change programme which is a key part of its growth plan. This could help to make it more efficient, with it already having benefitted from the investments that have been made in systems and in staff training. It will also refresh its product range through innovations such as a vegan-friendly sausage roll. It has proved popular with customers thus far.

In my view, the outlook for Greggs could be challenging. Consumer confidence is expected to remain weak, and this could hurt the performance of a variety of consumer stocks. But with its focus on value for money, it may be able to outperform a number of its sector peers over future months.

For me, though, the stock lacks a margin of safety at the moment. It has a P/E ratio of 22, which is significantly higher than a number of shares across the consumer goods and services industry.




About Robert Stephens 5430 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email info@investomania.co.uk or use one of the other contact methods available on the 'Contact Us' page