Company of the week: Greggs

Greggs (LSE: GRG) has had a tough year, with profits falling sharply. Last week, it said that Christmas sales were 3.1% higher than a year ago, which boosted its shares. That said, the business still faces serious long-term challenges.

Greggs has found itself caught in the high-street bloodbath caused by shoppers buying more stuff over the internet. This has meant fewer visitors to its shops, a trend the company is trying to reverse.

It’s moving away from its bakery roots and turning itself into what it calls a “food-on-the-go” retailer. This is seeing it close shops on high streets and open new ones in places such as service stations and garage forecourts.

This looks like a sensible move, but the market for takeaway food remains fiercely competitive, with lots of places beckoning the lunchtime pound.

All these changes cost money and will stop profits growing for a couple of years. Greggs will probably be a better business once it has finished the job, but with the shares on 15 times forward earnings, a lot of the benefits look priced in.

Verdict: stay clear

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