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The Greggs share price falls despite solid trading. Time to buy?

A Greggs doughnut and hot drink sit on a table

The Greggs (LSE: GRG) share price was down in early trading this morning. That’s despite the company issuing a largely encouraging trading statement and confirming a special dividend. Let’s take a closer look at what’s going on.

Ahead of expectations

Notwithstanding “tough trading conditions“, total sales rose almost 52% in the last financial year to £1.23bn. While this growth isn’t completely unexpected considering that many of the firm’s shops were closed for a time in 2020, it also eclipses sales seen in 2019 (£1.168bn).

This is not to say that Greggs isn’t still being impacted by Covid-19. In company-managed sites, like-for-like sales were up just 0.8% in the final three months of 2021, compared to the same period two years ago. They were also down 3.3% for the full year. The emergence of the Omicron variant, supply chain issues, and staffing disruptions were all blamed. 

Nevertheless, it’s clear Greggs still managed to shift an awful lot of mince pies and festive bakes. And having kept costs in check, it announced today that full-year results in March would now be slightly ahead of its previous expectations. 

New boss

In a separate announcement, the food-on-the-go retailer confirmed that CEO Roger Whiteside would be retiring. Current retail and property director, Roisin Currie, will take up the reins in May.

As sad as it is to see Whiteside depart (he helped increase the Greggs share price from below 500p in 2013 to 3,300p yesterday), I see this appointment as a good thing for two reasons. First, it shows some decent succession planning on the part of the board. The last thing a company needs is for investors to get skittish because it hasn’t got someone in mind for the top job.

The fact that the new CEO is an internal candidate is also encouraging. While fresh blood/ideas from an external applicant can sometimes be exactly what a business needs, I really don’t think that’s the case here. 

Not cheap

As good as today’s update is, Greggs did warn that inflationary pressures are likely to “remain elevated” in 2022. This needs to be borne in mind, considering that the stock was trading at almost 29 times forecast earnings before the market opened.

That doesn’t strike me as an absurd valuation, considering the quality of the business. However, it is arguably getting a little frothy for a sausage roll seller. Moreover, Greggs did say the next few months would probably be “challenging“. 

Still, it can be suggested that the FTSE 250 stock’s growth strategy makes up for this. Roughly 150 net new stores are expected to open in 2021. The business also plans to extend its trading hours and push its digital offer.

With a war chest of almost £200m at its disposal, Greggs certainly has the cash to implement this strategy. Actually, it now has more money than it knows what to do with! Today, the £3.4bn-cap announced that £30m-£40m would be returned to shareholders at some point over the next six months. 

Solid hold

Having done so well last year (+86%), it’s inevitable that the Greggs share price will let off steam. The threat of an earlier-than-expected interest rate rise in the US isn’t helping market sentiment either.

Nevertheless, I have no hesitation in sticking with the stock for now. I may even buy more if the sell-off continues.

The post The Greggs share price falls despite solid trading. Time to buy? appeared first on The Motley Fool UK.

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Paul Summers owns shares in Greggs. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.