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The UK retail industry suffered its worst start to the year since 2013, according to the monthly BDO High Street sales tracker.

BDO found in-store high street sales dropped -0.2% in January from a growth of 0.6% in the same period last year, as deep-seated discounting failed to prevent a lacklustre start to 2019.

January’s decline marked the twelfth consecutive month without growth for in-store like-for-like sales and the worst January since 2013, the research found.

This poor performance follows the high street’s worst year on record as in-store sales reported negative growth every month from February to December during 2018.

Heavy discounting produced good results in the first week of January with total in-store like-for-like sales increasing by 5.1% from growth of 1.5% for the equivalent week last year.

However, weeks two to four saw like-for-like sales dip into negative territory. With concerns about the general economic outlook close to hitting levels not seen since the crash in 2008, the deterioration in consumer confidence offset the potential impact of lingering discounts as shoppers reined in in-store spending.

Though both fashion and homeware in-store like-for-like sales were marginally up by 0.6% in January, lifestyle suffered the cruellest decline with in-store sales falling by -2.0% in January. This result marks the twelfth consecutive month of negative results for in-store lifestyle like-for-like sales.

Despite a poor start to the year for the high street, non-store like-for-like sales grew by 19.1% this month.

Sophie Michael, head of retail and wholesale at BDO said: “It has been a calamitous start to the year for the high street. Deeper and earlier discounts may have enticed consumers to shop in early January but this soon disappeared and has put increasing pressure on retailers that are already being stretched paper thin.

“While some reports have referred to an uptick in consumer spending, it’s clear that this is not being seen by the UK high street especially in non-food spending. Looking ahead, innovation will be key in creating an attractive shopping experience and embracing retail theatre to lure consumers back in store.”

Morning update

US cereal giant Kellogg’s (K) has recorded a fourth quarter loss as the investment in its turnaround and achieving sales growth hit the bottom line.

Fourth quarter earnings per share fell $0.24 from a rise of $1.20 in the fourth quarter a year ago, while reported operating profit in the final three months of 2018 fell 16.5% to US$326m.

Net sales grew by 4.2% year on year in the quarter to US$3.3bn, but this was primarily driven by a 7 point contribution for acquisitions while on an organic basis the group’s net sales fell by 0.6%.

Kellogg’s said investments in new snacks and cereals had improved sales, but the expense of creating recipes for healthier cereals and producing more single-serve snacks had affected profits.

Fourth quarter profits were also hit by restructuring charges related to the sale of its cookies, fruit snacks, pie crusts and ice-cream cone businesses as well as preparing for Brexit.

The group said European profits in particular, which were down 16% in the fourth quarter, were hit by unusual costs related to a Brexit contingency plan for its supply chain.

Full year reported earnings per share increased 7%, benefiting from US tax reform, while full year reported operating profit increased 23% due to lower restructuring charges and the impact of acquisitions.

Full year sales increased by 5.4% to US$13.6bn, primarily driven by acquisitions, and were flat on a like for like basis.

For 2019 Kellogg’s expects currency neutral net sales growth of 3%-4% and organic net sales growth of 1%-2%.

Operating profit on a currency neutral basis will be flat, while adjusted earnings per share is expected to decline by 5%-7%.

CEO Steve Cahillane commented: “2018 was an important year for us, in which we pivoted to growth after successfully reducing our cost structure in recent years.

“We still have a lot of work to do, but we have made great strides toward reshaping our portfolio toward growth, revitalising key brands and developing capabilities. Our stabilisation of a declining net sales trend and our improved in-market performance around the world are clear signs of this progress.

“This investment and progress will be evidence again in 2019, setting us on a path for sustainable, profitable growth over time.”

Kellogg’s shares fell 5.6% yesterday to $55.84.

In this week’s issue of The Grocer there is analysis of Unilever’s acqusition of Graze, Burton’s Biscuits’ deal for Thomas Fudges, two meat crowdfunding campaigns, rising costs eat into Yeo Valley profits and more.

See The Grocer’s finance page later today for full details.

On the markets this morning, the FTSE 100 is up 0.3% to 7,112.2pts so far today.

Early risers include Bakkavor (BAKK), up 2.9% to 144p, Ocado (OCDO), up 1.3% to 884.8p and Nichols (NICL), up 1.2% to 1,466.7p.

Fallers so far include McBride (MCB), down 3.4% to 130p, Greencore (GNC), down 2.2% to 191.7p, Devro (DVO), down 1.6% to 157.4p and Cranswick (CWK), down 1.5% to 2,550p.

Yesterday in the City

The FTSE 100 dropped 80 points yesterday to close at 7.094pts after persistent worries over global trade between the US and China and a downgrade of UK economic growth prospects hit the market.

Cranswick shares slumped to a two year low of 2,340p on Thursday after issuing a profits warning due to weak pig prices and costs related to its new poultry factory. Third quarter like for like sales fell 2% compared to 1.1% growth in the first half, while it guided towards lower margins next year.

Peel Hunt commented: “We already knew that volume growth was slowing and that the lack of material new business wins would result in a duller LFL performance. However, we were not expecting volumes to actually decline in Q3.”

The shares had recovered to 2,590p by close of trade, which represented a daily fall of 12.6%.

Ocado continued its falls from Wednesday as investors count the cost of the fire in its Andover CFC, with the online supermarket falling 9.8% to 873.8p having been over 1,000p on Tuesday.

Other fallers included DS Smith (SMDS), down 5.5% to 333.2p, Just Eat (JE), down 3.6% to 704p, C&C Group (CCR), down 3% to €3.08, Nichols Beverages (NICL), down 2.4% to 1,450 and Hilton Foods Group (HFG), down 2.3% to 934p.

Compass Group (CPG) jumped 3.7% yesterday to 1758p after revealing its organic revenue for the three months to 31 December 2018 grew by 6.9% driven by new business wins.

Other risers included Diageo (DGE), up 1.4% to 2,965p, Tate & Lyle (TATE), up 1.3% to 685p, AG Barr (BAG), up 1.2% to 749p and Imperial Brands (IMB), up 1.2% to 2,565.5p.

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