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Greggs’ share price has fallen 10% in the past month as investors react poorly to the normalization of sales growth. But the sausage roll retailer’s store expansion program remains on track, betting on continued success despite falling inflation – seen as an affordable luxury at a time when prices were soaring. It continues at this pace.
In its third quarter trading update this month, the company revealed that underlying sales growth at its operated stores slowed to 5% in the 13 weeks to September 28, from 7.4% in the first half.
However, September was the strongest month of the quarter. Growth was driven by menu changes (including a new iced drink range and pizza sale), extended evening trading hours and advances in delivery options.
Management still aims for store numbers to be “significantly more than” 3,000, and with investments in the supply chain, 3,500 stores could soon become a reality. Greggs had 2,559 stores as of the end of September, and plans to open 140 to 160 stores this year.
Analysts at Shore Capital said: “It’s an interesting question when Greggs will peak, but with very important infrastructure expansion now well underway, the company has indicated it won’t be anytime soon.” said.
Recent construction at the distribution center has added the capacity to support an additional 300 stores. Capital investment this year is expected to be between £250m and £280m, up from £200m in 2023.
Meanwhile, profit margins need to be supported by easing cost pressures. The company’s current guidance is for annual cost inflation to be at the lower end of its forecast range of 4% to 5%.
Despite recent weakness, Greggs’ share price has risen by almost a fifth in the past year. Chief financial officer Richard Hutton’s sale of £1.85m worth of shares on October 8 should be seen in that context.
The company’s stock trades at a forward consensus P/E ratio of 20 times, compared to an average of 29 times over the past five years.
Vistry directors restructure shares
This summer, Vistry announced that it was on track to achieve more than 18,000 completions and year-over-year profit growth, and it looked like there was only one way forward for Vistry. Then came the profit warning and the stock price plummeted.
In a short trading update on October 8, the company announced that costs had been underestimated by around 10% on nine of 46 developments in its southern division, resulting in a 20% fall in full-year profit to £355m. did.
Shares fell 33% in the morning as investors worried that cost overruns were not limited to the nine locations. Vistry sought to reassure the market that the problem was isolated to one division, adding that “changes in the division’s management are underway” and launching an “independent investigation to fully determine the cause.” Then he added.
After receiving this warning, directors began to buy in. Chief executive and chairman Greg Fitzgerald was the first to act, buying up £198,000 of shares on 8 October. Margaret Brown soon followed, buying £75,000 worth of shares the next day. American activist firm Browning West, whose founder Usman Nabi is a director of Vistry, bought the company for the equivalent of £7.4 million.
The deal is expected to ease market concerns over broader issues with Vistry’s new models. Vistry says it is prioritizing fixed-price contracts with private rental providers, registered providers and other institutional customers over open market sales. This model makes it difficult to pass on increased costs to consumers because the contract is locked in upfront.
