Earnings forecasts for Greggs PLC (LSE:GRG) for this year and next were cut by Barclays following weaker-than-expected trading and a recent unscheduled update, where the company had blamed hot weather for its poor performance.
Discussions with the company indicate that hot weather was the single largest reason for the downgrade, as the company had bemoaned. However, analysts noted that some investors had questioned this, as not all parts of the UK experienced a heatwave.
"Our analysis of previous Greggs trading updates during hot weather suggests that the heat wave is a credible explanation of weaker trading, but we believe that as the business sells more cold drinks vs much earlier in its history, the impact of warm weather has become less severe."
Raising broader concerns about pricing strategy, over-expansion, and dependence on a recovery in consumer spending, Barclays now expects FY25 LFL sales growth of 2%, down from 3% previously.
The broker noted a potential shift in consumer behaviour away from food-to-go and questioned whether recent price increases have softened volumes.
Earnings forecast for 2025 and 2026 were also cut by around 11% and 10% citing slower like-for-like sales growth, margin pressure, and increased finance costs. Profit before tax forecasts were cut to £171 million and £176 million, around 6-7% below Bloomberg consensus
However, the bank kept its 'overweight' stance, though analysts conceded their rating has been "far too optimistic", highlighting Greggs’ vertically integrated model, strong returns on capital in new locations, and long-term positioning as supportive of value for money.
The share price target was trimmed 14% to 2,145p, based on a revised FY25E P/E multiple of 17.5x.