Shore Capital raises questions about sustainable growth at Greggs

(Sharecast News) - Shore Capital has kept a 'hold' rating on Greggs after the bakery chain's interim figures showed "very challenging trading", raising questions about whether UK high streets have reached "peak Greggs". In the 26 weeks to 28 June, Greggs reported on Tuesday that pre-tax profit fell 14.3% to £63.5m, with total sales up 7% to £1.03bn. Operating profit declined to £70.4m from £75.8m in the same period a year earlier.

Like-for-like sales at company-managed shops rose 2.6%, while franchised shop LFL sales were ahead 4.8%.

Shore Capital said that, in the face of easing like-for-like sales momentum and with 2,600 stores and rising, Gregg's future investment thesis could be jeopardy from evolving dietary trends, such as the rise of appetite-suppressant drugs such as GLP-1 for high-calorie intake customers.

With certain customers increasingly cutting back on fast-food dining, and regular breakfast and lunchtime spending becoming costlier due to inflation, Shore Capital remains cautious.

"The volume performance of Greggs rightly or wrongly raises the question as to whether its core markets are evolving against the long-term interests of the firm, and/or whether or not the brand has reached its peak potency," Shore Capital said.

The broker forecasts "anaemic EPS growth" over 2024 to 2027, expecting the stock to "tread water over the short to medium term".

Shares were 3.6% lower at 1,586p by 1141 BST.