Expanding Stores And Digital Ordering Will Offer Promise Amid Risks

Key Takeaways

• Expansion into new convenience channels and digital platforms positions Greggs for sustained revenue growth without eroding its existing customer base.
  
• Strategic focus on value, innovation, and supply chain efficiency supports market share gains, cost control, and enhanced profitability amid challenging consumer environments.
  
• Stagnant demand, rising input costs, limited market presence, climate risks, and shifts in consumer preferences threaten Greggs' growth, margins, and long-term relevance.

Catalysts

Operates as a food-on-the-go retailer in the United Kingdom.

• Greggs is actively expanding its store estate into underrepresented high-convenience channels such as drive-thrus, retail parks, supermarkets, and transport hubs-these locations align with rising demand for food-on-the-go and busy urban lifestyles, providing significant headroom for future revenue growth without cannibalizing the existing estate.
  
• The accelerating adoption of digital ordering, delivery platforms, and loyalty app engagement (now at 25% of shop visits) enables Greggs to grow incremental sales, boost frequency of visits through personalized marketing, and potentially lift average transaction values, with positive implications for both revenue and earnings.
  
• Continued focus on value positioning and affordability, particularly in a weaker consumer environment, allows Greggs to defend and potentially grow market share as consumers seek budget-friendly options, supporting stable or rising revenues even in tough macro conditions.
  
• Enhanced vertical integration and supply chain investments, including new automated logistics and manufacturing hubs, are expected to deliver improved operational cost efficiency and productivity from 2025 onward, providing a catalyst for margin expansion and higher profitability.
  
• Ongoing menu innovation with new product launches (healthier, plant-based, and snacking ranges) and new store formats (e.g., bitesize outlets) keep the brand relevant and enable Greggs to capture emerging trends, which should support growth in both like-for-like sales and gross margins over time.

Greggs Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Greggs's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.0% today to 5.4% in 3 years time.
• Analysts expect earnings to reach £138.9 million (and earnings per share of £1.38) by about September 2028, down from £144.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as £153 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, up from 11.2x today. This future PE is greater than the current PE for the GB Hospitality industry at 16.9x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.51%, as per the Simply Wall St company report.

Greggs Future Earnings Per Share Growth

Risks

• Greggs' like-for-like volume growth has shown signs of stagnation, with negative volume trends and reliance on store expansion rather than robust underlying demand, which threatens long-term revenue growth if consumer footfall remains weak.
  
• Persistent cost inflation, particularly from labor, food, packaging, and regulatory levies (e.g., the extended producer responsibility levy), has outpaced like-for-like sales growth and pressured gross and operating margins, raising the risk of continued margin erosion if wage and input pressures persist.
  
• The business remains heavily concentrated in the UK and dependent on physical locations, especially high streets, which may face long-term decline due to increased online food delivery services and a secular shift toward home consumption, limiting future topline and same-store revenue growth.
  
• Weather volatility (i.e., very hot conditions) has an increasingly material impact on trading performance, with significant sales/margin reductions during warm spells, suggesting that climate trends could further destabilize revenue and gross profit predictability over time.
  
• Despite innovation efforts, the core offering is still exposed to secular shifts toward health-conscious consumption and supermarket meal deals, raising the risk that Greggs' traditional product range loses relevance or faces intensified competition, potentially capping growth in revenue, transaction values, and brand differentiation.

Valuation

• The analysts have a consensus price target of £20.656 for Greggs based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £30.6, and the most bearish reporting a price target of just £13.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.6 billion, earnings will come to £138.9 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 9.5%.
• Given the current share price of £15.99, the analyst price target of £20.66 is 22.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.