The share price of the UK-based bakery retailer Greggs PLC (GB:GRG) slumped by around 7% yesterday, despite the sweet treats of revenue and profit growth in its first-half earnings for 2023. Along with an encouraging performance, the company warned that inflation was still impacting profit margins.
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The decline in the share price after the results appeared puzzling at first glance. Analysts feel there was no reason in the results for the share to fall. Nonetheless, the company maintained its full-year guidance numbers, and the lack of any upgrade could have hurt investors’ sentiments.
Overall, the stock has traded up by 17.5% YTD.
Greggs is a British retail chain that provides bakery items such as sausages, rolls, sandwiches, doughnuts, etc. The company has over 2000 outlets in the UK and caters to around six million customers on a weekly basis.
Higher Revenues, But Pressure Remains
In the 1H earnings, the company disclosed a 21.5% increase in its revenues, reaching £844 million compared to the £694.5 million reported during a similar period last year. The pre-tax profits of £63.7 million were 14.2% above the previous year’s number of £55.8 million.
Even though the company has benefited from reduced inflation in food and energy, the higher labor costs have impacted the margins. The net profit margin fell by 50 bps to 7.5%. However, moving ahead, the company is optimistic and anticipates a decline in inflation from 11% in the first half to 7% in the second half.
In terms of its estate, the company opened 94 new shops during the first half, along with the closure of 44 old stores. For the full year, the company is targeting to open 150 stores, with diversification offered through the addition of new locations at airports and underground stations.
The company also announced an interim dividend of 16p per share, which is 1p above last year’s dividend.
Are Greggs’ Shares a Good Buy?
According to the TipRanks Smart Score, Greggs stock has earned a “Perfect 10”, implying its potential to outperform the market. The Smart Score tool rates stocks on a scale of one to ten, offering insights into a stock’s ability to exceed the overall market returns. The assigned score is calculated based on eight different factors, including hedge fund activities, fundamental analysis, analyst ratings, and more.
According to TipRanks’ analyst consensus, GRG stock has a Moderate Buy rating backed by two Buy and two Hold recommendations.
The average share price forecast is 2,987.5p, which is 16.5% higher than the current price level. The price target ranges from a low of 2,500p to a high of 3,450p.
