I would need to look again properly but can vaguely recall a few factors:

Over the last few years there has been profitability hit from rising input costs that were not fully passed onto customers. They are very sensitive to raising prices. One of their core strategies is low prices. I do think that is true and a genuine competitive advantage along side large investment in production and distribution facilities. However, it does also demonstrate that it does not have a degree of pricing power that we might prefer. That said, it’s no different to McDonald’s but it’s not KO.

The above is one factor. There were a couple of other fairly large non recurring line items in the P&L like an insurance claim from COVID business interruption. I recall exceptional gain on the sale of supply chain assets. Those things may be making it look worse than expected. I recall being content they were making progress on profits but of course your point is correctly pointing out that they are adding new shops, so they should be growing profits.

It has been a fairly tough time for for a business like Greggs with food inflation and energy costs. Increases in minimum wages was another challenge.

From April 2025 the new national insurance increases will hit them particularly hard as a large employer.

You will no doubt look into historical P&Ls to get a better feel for what is happening. One margin improvement force will be economies of scale from the new distribution centre.

The share price took a significant 15% dive and bounced back a little today. Due to company warning on earnings due to extreme temperatures in June. I am hoping that is temporary but wonder if Mr Market is wondering if management are exaggerating as they also complained about cold weather in winter. Certainly my best guess is that the market it not impressed with the softening earnings. With the main concerns being cost pressures.

I remain optimistic as it’s not expensive and I also know they are expanding but still able to pay out a large portion of earnings in dividends and special dividends. I don’t think they are over investing in expansion capex. They are careful with that. But hey, it’s not Microsoft at 10 times earnings. My instinct is they will have flat earnings this year but eventually start to pass on cost pressures and a with a expansion and hopefully no further fiscal or makro pain, get back to modest growth and continue healthy dividends…

As I say this is from memory and a pretty shaky amateur understanding.