Greggs Faces Share Decline Amid Slowing Consumer Growth

Greggs Experiences Significant Share Price Decline

Greggs (LON: GRG) recently faced a notable decline in its share price, dropping more than 10% after a trading update indicated slowing growth in its like-for-like sales. This downturn reflects ongoing challenges in the consumer landscape, highlighting broader issues affecting the retail sector.

Sales Growth Slows Down

The company reported a modest 2.5% increase in like-for-like sales for the fourth quarter, which is a stark contrast to the more robust growth rates of 5% in the third quarter and 7.4% during the first half of the year. This downward trend raises concerns among investors about the future performance of the bakery chain.

Broader Consumer Challenges

Analysts suggest that the recent sluggish performance may be indicative of a more profound problem affecting consumer spending. Research done by Jefferies indicates that the softer trading conditions experienced in July and August are likely part of a continuing trend rather than a short-lived dip.

Market Conditions Affecting Performance

Greggs' recent report highlighted how lower consumer confidence has adversely influenced foot traffic on the high street, impacting overall industry visits and expenditures. Despite the challenges, the company has managed to maintain its market share, suggesting that the issues are more widespread within the industry rather than isolated to Greggs.

Optimism for Future Growth

Despite the recent slowdown, Greggs remains optimistic about achieving its full-year expectations for 2024. The company is pursuing an aggressive expansion strategy and plans to open between 140-150 net new stores before the year ends. This includes a noteworthy total of 226 gross new openings, indicative of the brand's long-term growth plans.

Future Expectations and Cost Considerations

Looking ahead, Greggs anticipates that rising employment costs will contribute to further inflation in overall expenses. However, the company believes that wage increases could bolster consumer support. Analysts from Jefferies have expressed concerns that the challenges faced in the fourth quarter may continue into the early part of 2025.

Revised Profit Growth Estimates

In light of the slowing consumer activity, consensus estimates for profit growth in 2025 might need downward adjustments, potentially aligning closer to 5% or even lower. This reality check underscores the difficulties stemming from reduced consumer spending and confidence.

Industry-Wide Trends Affecting Greggs

RBC Capital Markets analysts noted that while Greggs has retained its market share amidst these tough conditions, the current economic data indicates a consumer base that is more resilient than it may appear at first glance. However, consumer confidence remains a significant concern that could affect future growth prospects.

Frequently Asked Questions

Why did Greggs shares drop significantly?

Greggs shares dropped due to a trading update indicating a slowdown in like-for-like sales growth and broader consumer challenges impacting the retail sector.

What are the future expectations for Greggs?

Greggs remains optimistic about meeting full-year expectations for 2024, with plans to open 140-150 new stores as part of its expansion strategy.

How has consumer confidence impacted Greggs?

Lower consumer confidence has led to decreased foot traffic and overall spending in the retail sector, affecting Greggs and its competitors.

What is the long-term growth strategy for Greggs?

Greggs aims to solidify its market position through aggressive store openings and a focus on maintaining market share amid challenging economic conditions.

What are analysts predicting for Greggs' profit growth in 2025?

Analysts suggest that profit growth estimates for 2025 may need to be revised down to about 5% or lower due to ongoing challenges in consumer spending.

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