Earnings: Greggs is a company with big ambitions and lagging profits

Greggs (LSE: GRG) shares were steady this morning as the food-on-the-go retailer released its preliminary full-year results report.

With the share price close to 2,731p, the FTSE 250 market capitalization of around £2.81bn. But this is a business run by a director with big ambitions. And if the expansion plans really go well, the company can one day grow big enough to take up the position FTSE 100.

Invest for growth

However, my case is that it will take years rather than months before such a promotion takes place. But I see the stock as a decent contender for a place in a long-term diversified portfolio aimed at growth and income.

Meanwhile, revenue looks set to rise this year, but profits will lag. And part of the problem is that businesses need to reinvest money to support expansion. The company said today that its supply chain investment is laying the foundation for its next phase of growth.

Last week I noticed that the Greggs share price looked like “up with the show“. And because much of what is in the report has now been shown in the fourth quarter update on January 5th. But on top of that, the stock has risen more than 50% since last October.

So, it is perhaps not surprising to find the full price. The forward-looking price-to-earnings times for the current trading year to January 2024 is just below 23. And City analysts have penciled in an increase in earnings of around 2%. Therefore, Greggs does not look like a high growth proposition in the short term.

I said in last week’s article: “Piraku will take a strong outlook statement next week to push the stock higher.”

The target is more than 3,000 stores

And chief executive Roisin Currie said in today’s report that Greggs is off to a good start to 2023. Like-for-like sales at company-run stores rose almost 19% in the first nine weeks of the trading year. And that’s the result “in line” with the director’s hope. However, it will probably take an ‘ahead of expectations’ statement to move the current stock price.

Furthermore, sales figures are compared to the suppressed period a year ago due to the Omicron variant of the coronavirus. And looking forward, Currie said cost inflation will continue to be a challenge in the year ahead. The main drivers will get awards and energy costs. But Currie “sure” in business prospects in 2023.

And looking beyond the current period, there “attractive” and “will” plans for next year. Currie believes that the business “It’s great to realize the opportunity to be a bigger multi-channel business”.

Greggs is opening 147 new stores in 2022, taking the total to 2,328 by the end of the year. And the target for 2023 is 150 new openings. But the director thinks there is a chance to get it “more important” from 3,000 UK stores over time.

In summary, I think the long-term growth story is intact. But the price may cause short-term stock price volatility.