Supermarkets may be celebrating a record Christmas, but the markets remained thoroughly unimpressed by retail stocks on a busy Thursday of trading updates.
Tesco delivered its ‘biggest ever’ festive season, with like-for-like food sales rising by 4.7% in the six weeks to 4 January, while M&S boosted sales in its grocery operation by 8.7% in the 13 weeks to 28 December. And both boasted of volumes and market share gains.
So, it was surprising to see the share price in the red for the Christmas winners.
Tesco shares ended the day down just 0.5% to 368p (the stock declined by as much as 3% in early trading), but M&S plunged 8.4% to 345.3p. Sainsbury’s, which reports its own December update tomorrow morning, was also dragged down 3.2% to 263.2p on the gloomy sentiment.
A lack of any profit upgrades from either retailer on the back of such stellar trading periods certainly sapped investors of any festive cheer. But the markets will also be playing it safe as consumer sentiment looks markedly depressed given the wider economic malaise. And the barrage of tax and labour increases coming down the line will also be front of mind.
“The wider backdrop of surging UK gilt yields and a slump in the pound was doing nothing for sentiment towards domestic stocks,” noted AJ Bell investment director Russ Mould.
“In this context the more modest share price decline at Tesco feels like a bit of a win for the supermarket chain – even if it feels equivalent to coming out on top in a fastest snail competition,” he added.
“The lack of upgrades to sales and earnings guidance may have reflected Tesco’s commitment to keeping prices low and having plenty of extra Christmas staff on hand to get people through the tills and build loyalty to the brand – all costing money. If so, this looks like a sensible strategy of foregoing a short-term boost to derive a long-term benefit from an enhanced competitive position.”
Shares at M&S were already at eight-year highs after gifting the markets with a series of outperformance and upgrades in 2024.
Hopes of another lift to forecasts were stymied by what CEO Stuart Machin referred to as “a few growing pains” as the group took on the challenge of delivering record volumes through some of its smaller stores. It left M&S with higher seasonal markdowns to deal with in early 2025 as it sold off remaining tins of biscuits and other festive treats on the cheap.
And pessimistic noises around the outlook for economic growth, inflation and interest rates uncertainty and higher taxes from Machin also seemingly spooked shareholders.
Mould said the gloomy tone was “understandable given the impact of the Budget changes, sticky inflation and higher for longer rates” and chimed with “the current bleak mood around the UK’s economic prospects”.
Jonathan Pritchard of Peel Hunt reckoned the share sell-off at M&S was “overdone” and the stock remained one of the broker’s top picks for the year.
“LfL remains extremely impressive,” he said. “The shares have enjoyed a strong run, and we see the weakness in the absence of an upgrade as a clear buying opportunity.
“The 3Q comparative was very tough, but M&S hurdled it with ease: we were expecting 5% LfL for 2H as a whole, but in 3Q LfL was 9%, a quite stellar effort.”
Elsewhere, shares at B&M European Value Retail sank by 8.5% to 318.9p as the discounter reported a 2.8% decline in like-for-like UK sales over the third quarter to 28 December. And Greggs tanked by 14.9% to 2,234p as the bakery chain blamed subdued footfall on the high street for weak like-for-like growth of just 2.5% in its final quarter of the year.
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