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Greggs’ shares have fallen by 10 per cent over the past month as investors reacted badly to normalising sales growth. But the sausage roll seller’s store expansion programme continues at pace as it bets on continued success despite lower inflation (having been seen as an affordable luxury when prices were rocketing).
In a third-quarter trading update this month, the company disclosed that like-for-like sales growth at its managed shops had slowed from 7.4 per cent in the first half to 5 per cent in the 13 weeks to September 28.
However, September was the strongest month of the quarter. Growth has been helped by menu changes (such as new iced drink ranges and pizza deals), the extension of evening trading hours and progress with delivery options.
Management is still aiming for “significantly more” than 3,000 shops, and supply chain investment means that 3,500 shops could soon be feasible. Greggs had 2,559 shops at the end of September and is on track to open a net 140-160 outlets this year.
Analysts at Shore Capital said that “quite when we see peak Greggs is an interesting question, but with the very material infrastructure expansion now well under way, the company is indicating that is not any time soon”.
Recent distribution centre work has added capacity to support another 300 shops. Capital expenditure is guided to come in at £250mn-£280mn this year, up from the £200mn spent in 2023.
Meanwhile, margins should be aided by softening cost pressures. Company guidance is now for annual cost inflation to come in at the lower end of a 4-5 per cent forecast range.
Despite recent weakness, Greggs’ shares have risen by almost a fifth over the past year. Chief financial officer Richard Hutton’s sale of £1.85mn-worth of shares on October 8 should be seen in that context.
The shares trade on 20 times forward consensus earnings, against a five-year average of 29 times.
Vistry directors rebuild their stakes
This summer, it seemed as though the only way was up for Vistry with the company announcing it was on track to deliver more than 18,000 completions and a year-on-year increase in profits. Then came the profit warning that sent shares tumbling.
In a short trading update on October 8, the housebuilder said that costs had been understated by about 10 per cent at nine out of 46 developments in its south division, resulting in a 20 per cent reduction in full-year profits to £355mn.
Shares fell by 33 per cent over the course of the morning as investors worried that the cost overruns might not be confined to nine sites. Vistry tried to reassure the market that the issues were confined to the one division, adding that “changes to the management team in the division are under way” and that it would be commencing an “independent review to fully ascertain the causes”.
Following the warning, directors began to buy in. Chief executive and chair Greg Fitzgerald went first, buying up £198,000 of shares on October 8. He was swiftly followed by Margaret Browne, who bought £75,000-worth of shares the following day. Browning West, an American activist firm whose founder, Usman Nabi, sits on Vistry’s board, bought £7.4mn-worth.
The hope will be that these dealings will help to soothe market fears about a wider problem with Vistry’s new model, which sees the housebuilder prioritise fixed-price contracts with private rental providers, registered providers and other institutional clients, over open-market sales. This model makes it harder to pass on cost increases to consumers, since the contracts are fixed in advance.
