Greggs (LSE: GRG) is legendary for its Festive Bake pasty, which the corporate describes as “palms down probably the most Christmassy factor about Christmas“. I wouldn’t go that far, however I did get pleasure from one simply earlier than Christmas — a time once I additionally owned a number of Greggs shares.

On 24 December, the FTSE 250 inventory was buying and selling for two,774p. As I write, the share price has slumped to 1,795p — a fall of 35%!

This implies anybody who invested £10,000 into shares of the bakery chain on Christmas Eve would now have £6,500 on paper. Not a fantastic begin.

What’s occurred?

There have been a few key points which have hit Greggs lately. Firstly, the agency has skilled slowing development, with like-for-like gross sales in company-managed retailers rising 5.5% in 2024. The determine the 12 months earlier than was 13.7%.

Furthermore, like all retailers, Greggs is going through larger staffing prices this 12 months because of modifications in Nationwide Insurance coverage contributions. This has compelled it to boost the price of some meals, together with — shock-horror — sausage rolls.

Final month, CEO Roisin Currie summed up the challenges going through the enterprise: “Waiting for 2025, the macroeconomic panorama stays powerful. Inflation stays elevated, and plenty of of our prospects proceed to fret about the price of dwelling.“

File income

It’s not all unhealthy information although. Greggs topped £2bn in income for the primary time final 12 months, and remains to be focusing on between 140 and 150 new retailers in 2025. Administration says the long-term plan to open “significantly more than 3,000” areas stays on monitor.

In the meantime, the valuation now appears to be like fairly enticing. Based mostly on the present forecast for 2025, the inventory is buying and selling at round 13 occasions anticipated earnings. That’s not a demanding a number of, in my eyes, and considerably cheaper than current years.

Lastly, there’s a 3.84% dividend yield. Whereas not assured, the payout’s very properly supported by forecast earnings.

Impaired shopper spending

Greggs additionally continues to broaden its presence away from the excessive avenue, a lot of which is in terminal decline because of e-commerce and excessive enterprise charges.

The UK misplaced 37 retailers a day in 2024, based on the Centre for Retail Analysis. That determine is about to rise in 2025. Due to this fact, it’s constructive that the agency continues to focus on locations the place persons are on the transfer — airports, prepare stations, supermarkets, and so forth.

However my worry is that Greggs may simply be reshuffling its footprint fairly than really increasing over time. In different phrases, the brand new areas may merely finish up offsetting underperforming ones on the excessive avenue.

One other factor I’ve been mulling over lately is whether or not UK shopper spending will really get well at everywhere in the subsequent few years. Because the CEO noticed final month: “After years of financial anxiety, [customers] are still facing concerns about energy prices and increased mortgage and rent costs.”

Do I see vitality and hire costs coming down? Or sturdy financial development when companies — and probably employees subsequent 12 months — are going through larger taxes? Sadly, I don’t. And it will in the end be a problem for growth-oriented UK retailers like Greggs.

This fashioned the idea of my pondering once I offered my Greggs shares in early February. The agency has a fantastic model and is properly run, however I fear it’s going through financial challenges past its management.