Greggs serves up 'middling' update that could have been worse, say analysts

Greggs PLC shares advanced 7% following a Q3 update that, despite a challenging July, saw improved August/September performance and maintained full-year profit guidance of £176 million. However, analysts noted underlying volume concerns, with like-for-like sales growth slowing to 1.5% in Q3, and the company reduced its net store opening target from 140-160 to approximately 120, potentially reinforcing a 'peak Greggs' narrative. The market's positive reaction, partly driven by a significant short position, reflects relief that the statement wasn't worse, though strategic concerns persist among some institutional observers.

Analysis

Greggs PLC's shares experienced a 7% relief rally to 1,721p, moving away from five-year lows, after its Q3 update was not as negative as some market participants had feared. The positive reaction was supported by the company maintaining its full-year profit before tax guidance of £176 million and was likely amplified by the existence of a sizeable short position in the stock. However, a closer look at the fundamentals reveals significant pressure points. Like-for-like sales growth decelerated from 2.6% in the first half to 1.5% in Q3, which, given ongoing price increases, implies that underlying transaction volumes are negative. This core issue is compounded by a strategic revision downwards of the net store opening target for the year, from a range of 140-160 to approximately 120, a move that lends credence to the 'peak Greggs' narrative. Analyst sentiment is divided, reflecting this tension; while Peel Hunt flags strategic concerns and maintains a 'hold', Jefferies reiterates a 'buy' rating, framing the situation as a valuation opportunity with the stock on a 'decade low multiple'. The ability to meet fiscal year guidance now hinges on a strong Q4 performance, which analysts believe is achievable due to softer prior-year comparatives.

Key Decisions for Investors

• Given the 7% share price increase was partly a technical relief rally fueled by a sizeable short position, investors should evaluate whether the stock's decade-low multiple sufficiently discounts the fundamental weakness of negative underlying volumes.
• Closely monitor Q4 like-for-like sales performance, as hitting the maintained £176 million profit guidance is contingent on a strong result against easier comparatives, which will serve as a key test of consumer resilience.
• The reduction in the new store opening target to 120 is a critical strategic signal; investors must assess if this is prudent capital management in a tough environment or an early indicator of market saturation that could cap long-term growth.