Greggs To Post 2020 Loss, Open More Shops Despite Pandemic; Shares Gain 9%

Shares of Greggs Plc rose more than 9% in UK trading even as the fast-food retailer said it expected to post an annual loss and doesn’t expect to see profits rebounding to pre-COVID levels until 2022.

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In a financial update, Greggs (GRG) reported that its 2020 total sales plunged about 30% to £811 million from the £1,168 million recorded in the year-ago period as the coronavirus pandemic led to shop closures. As a result, the retailer now expects to post a £15 million pre-tax loss in 2020. Meanwhile, in the fourth quarter ended Jan. 2, company-managed shop like-for-like sales averaged 81.1% of the equivalent 2019 level, which marked an improvement from levels seen in October.

Looking ahead to this year, the retailer is confident that it can maintain a “strong financial position,” whilst investing in digital channels and in the opening of around 100 new stores.

Greggs is a UK food-on-the-go retailer, with more than 2,000 outlets throughout the country. The bakery chain reported that in the fourth quarter, delivery represented 5.5% of company-managed shop sales. In total, 600 of the chain’s shops offer delivery services operated by Just Eat. Greggs now projects the figure to rise to around 800 shops in 2021.

“Whilst the impact of COVID-19 has been enormous, we have established working practices that allow us to provide takeaway food services under the different levels of restrictions we have experienced. We have resumed opening new shops where we see good opportunities, with those sites accessed by car performing particularly well,” Greggs CEO Roger Whiteside said. “In light of the recent government announcements significant uncertainties remain in the near-term. We have taken action to position Greggs to withstand further short-term shocks and are optimistic about our prospects for growth once social restrictions are lifted.”

During 2020, Greggs opened 84 new shops, including 35 franchised units, and shut down 56, taking the total to 2,078 stores. In addition, the retailer cut 820 employees in a move to lower costs. The bakery chain is scheduled to report its 2020 preliminary results on March 16.

Meanwhile, Shore Capital analysts reiterated a Sell rating on the stock amid expectations that the most recent government-imposed lockdown in the UK is poised to continue to take a heavy toll on Greggs’ earnings. (See GRG stock analysis on TipRanks)

“With a loss-making FY2020 in tow, a notable hit to full-year 2021 and the drag of working from home and all its effect thereafter, the grounds for Greggs’ equity to be structurally de-rated are, we are sad to say, strong,” Shore Capital analysts wrote in a note to investors. “We believe that the stock should trade on an ongoing earnings multiple of 12-13 times, which to us means very significant downside potential for the group’s shares.” Shares have lost 20% of their value over the past year.