Company of the week: Greggs
High-street bakers Greggs faces serious challenges, says Phil Oakley.
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 seeingit 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