Greggs Shares Plunged – Here’s Why

Shares of bakery chain Greggs (LON: GRG) tumbled 6% Friday after a Deutsche Bank report predicted significant cost increases due to the recent Budget.

The Financial Times first reported the news, citing Deutsche Bank analysts who downgraded Greggs from “Hold” to “Sell,” forecasting Greggs could face an additional £97 million in costs over the next two years as a result of the Budget measures.

According to Deutsche Bank, the measures, including a rise in National Insurance contributions and an increase in minimum wage, could cost Greggs a hefty £45.8 million in 2025 and £51.2 million in 2026.

They believe this could translate to a significant drop in pre-tax profits, with Deutsche Bank predicting a 23% fall in each of those years.

For context, Greggs reported a pre-tax profit of £188.3 million in 2023.

The FT noted that Deutsche Bank highlighted Greggs' vulnerability to these changes due to its large workforce of over 30,000 employees and its relatively low operating margin, which sits below 10%.

“We see this as upside risk rather than our base case,” Deutsche Bank noted in its research note.

However, the bank acknowledged that price increases could potentially mitigate some of the impact.

This Deutsche Bank note follows a trend of UK companies grappling with the financial implications of the recent Budget.

It was reported earlier this week that companies like Marks and Spencer, JD Wetherspoon, and BT said they would incur over half a billion pounds in additional costs combined.

While raising prices seems like an obvious solution for Greggs, Deutsche Bank expressed concerns about the effectiveness of this strategy.

“It is difficult to be confident [its rivals] will price-up,” the bank stated, particularly considering the recent slowdown in inflation.

Greggs posted a Q3 trading update on October 1, revealing a 10.6% year-on-year increase in total sales, but its sales growth slowed compared to a 13.8% increase in the first half.