Two of Britain’s best-known retailers celebrated strong sales in the run-up to Christmas but warned that stubborn inflationary pressures are still darkening the outlook.
(Bloomberg) — Two of Britain’s best-known retailers celebrated strong sales in the run-up to Christmas but warned that stubborn inflationary pressures are still darkening the outlook.
Marks & Spencer Group Plc’s high-end grocery business enjoyed its best ever market share for the festive period as shoppers indulged in festive treats despite the worst cost-of-living crisis in a generation.
Meanwhile Tesco Plc said Thursday that its Christmas sales were up 7.8% like-for-like, with increases of more than 8% in fresh food and its Finest premium range.
Still, shares in both companies initially fell as they held profit guidance in the face of ongoing economic headwinds. Ken Murphy, Tesco’s chief executive officer, warned that inflation may get worse.
“We’re not sure it’s peaked just yet,” Murphy said on a call with journalists. “We would hope that by the middle of the year it will have peaked.”
Murphy said the war in Ukraine, energy price and harvest yields were all part of a number of variables that could delay a recovery.
Britain’s largest supermarket had already reduced its profit guidance in October, saying that retail adjusted operating profit will be between £2.4 billion ($2.9 billion) and £2.5 billion this year, lowering the upper range from £2.6 billion.
Tesco shares were up 0.3% at 10 a.m., with M&S down 1.1%. Both had traded lower earlier in the session.
World Cup
Nonetheless, Murphy said Tesco — the UK’s biggest grocer — had seen its biggest ever day for sales on Dec. 23 and was also given a lift in the preceding weeks by the World Cup. Sales of beer soared 44% on the day that England beat Wales in Qatar at the end of November, he said.
M&S also got a lift in the weeks before Christmas. Its like-for-like food sales rose 6.3% with strong demand for turkeys and other seasonal classics. The company said its value brand boosted volumes but added that sales of “top tier” products rose more than 20%.
There had been fears that UK grocers could suffer as sales of typical Christmas treats such as panettone rose at German discounters Aldi and Lidl. “Each competitor has their moment in the sun,” Murphy said, arguing that the budget stores’ recent strong performance “shouldn’t be a guarantee of future success.”
Consumers have been turning to credit cards to cope with higher prices, spending £1.2 billion in November — triple October’s rate. Separate data from the Office for National Statistics published Thursday showed a further increase in the use of credit and debit cards last month.
Wages and Prices
Like its rivals, Tesco is having to invest in boosting employee pay and reducing prices while input costs are rising. The grocer is freezing prices on more than 1,000 products until April 10, extending a previous price lock which ran from October until the start of this year. Tesco already matches prices with Aldi across hundreds of basic items.
J Sainsbury Plc, the country’s second-largest grocer, also held its forecast steady this week but guided to the upper side of its range. At a time when customers are hunting for deals “you would expect me to be cautious about the year ahead,” said Chief Executive Officer Simon Roberts on Wednesday.
Read More: Rising Costs And Stiff Competition Cloud Outlook For Sainsbury
Rising food inflation is taking its toll on shoppers. Consumers spent a record £12 billion on groceries in December due to higher prices even as sales by volume fell 1%, Kantar data showed last week.
Even as retailers including Next Plc report bumper Christmas sales and raise their profit outlooks, the focus is shifting to the mood for consumers this year. Shoppers are likely to become more cash-strapped as bills arrive for their festive spending and mortgage rates rise.
On the Upside
Nonetheless, some analysts believe retailers such as M&S can weather the storm.
“M&S is doing the right things where it has control, and with better externalities brighter times should be ahead,” Shore Capital analyst Clive Black wrote in a note.
Shore Capital is M&S’s house broker. The stock lost almost half its value last year.
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