With most of the big names in the retail sector having reported we can get a decent picture of how the sector fared in the run-up to and during the festive period. 

A weak trading backdrop for non-food retail in October and November, before Santa delivered a return to growth in December, a month that also witnessed a notable shift to online sales according to the latest data (17 January) from The Office for National Statistics (ONS).

The ONS’ latest official figures revealed a 0.3% drop in retail sales in December including a significant fall in food sales during the month, which seemed at odds with the record Christmas sales reported by some of Britain’s biggest supermarkets.

As the table later in this article shows, the stock market reaction to most of the festive updates so far has been pretty negative. Those to have bucked the doom and gloom include Next (NXT) and Currys (CURY), led by Simon Wolfson and Alex Baldock respectively, whose shares rose after both beat expectations for Christmas sales, while Topps Tiles (TPT) rallied after reporting (8 January) a return to sales growth for the first quarter ended 28 December 2024, buoyed by improved trading during the Christmas run-in.

Timing played a part with a raft of retail names reporting on the 9 January when concern about surging UK bond yields and a softer pound led to weak sentiment towards domestic-facing names.

The outlook for 2025 is decidedly downbeat, with retailers issuing cautious outlook statements across the board and bemoaning the incoming cost headwinds from the increase in employer national insurance contributions and a rising national living wage following Rachel Reeves’ October Budget. They’ll look to offset these through operational efficiencies and other savings as well as by passing on higher costs to shoppers by hiking prices.

An intriguing trend highlighted by Next was that consumers continued to ‘slightly shift their purchasing preferences, buying fewer entry-level products and more items at the middle and top end of our price architecture’. The FTSE 100 retailer clarified that consumers ‘are not necessarily spending more overall, but buying fewer, marginally more expensive items. We believe that this trend will continue into next year’.

NEXT DELIVERS THE GOODS

First out of the blocks on 7 January was Next, which raised full-year profit guidance yet again following better-than-expected festive trading with online sales growth accelerating in the fourth quarter.

Shares in Next, which has the knack of selling the right product at the right price point in the right format for its target customer base, met with a positive reaction on the day, but the stock has drifted down since as investors digested guidance for the year to January 2026, which came in below market expectations.

Next warned it expects UK growth to slow as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy.

Overall, this was a good Christmas for the retail bellwether, which saw full-price sales grow by 6% in the nine weeks to 28 December 2024, ahead of the 3.8% consensus estimate, albeit flattered by the timing of the end-of-season sale.

Growth was driven by online sales which were up 6.1%, more than compensating for a 2.1% decline in Next’s UK retail sales, while overseas online sales remained very strong with a 31.4% increase.

Begbies Traynor’s (BEG:AIM) Julie Palmer said Next ‘could have been forgiven for weaker figures following a pretty extensive period of volatile consumer confidence made worse by the Budget, but it has once again bucked the trend by announcing sales ahead of expectations’. Nevertheless, she described the drop in sales at Next’s retail stores as ‘concerning’, and yet another ominous sign for the health of the UK high street.

A BAD DAY FOR GOOD NEWS

Despite reporting resilient Christmas performance across the board, Tesco (TSCO) and Marks & Spencer (MKS) were unfortunate to report on 9 January, a day in which, as discussed, UK plc was out of favour.

Over the 13 weeks to 23 November 2024, Tesco’s UK like-for-like sales were up 3.8%, rising to 4.1% for the six-week Christmas period to 4 January, as the firm took market share and enjoyed switching gains ‘from all corners of the market’ to quote chief executive Ken Murphy.

Echoing Next’s observation that consumers were trading up over Christmas, sales of Tesco’s Finest range rose over 15%, and the company sold more than 1.4 million bottles of prosecco, with the week leading up to Christmas the busiest in its history in terms of overall sales.

Investors may have been disappointed by the lack of upgrades to earnings guidance, which may have reflected Tesco’s commitment to keeping prices low and having plenty of extra Christmas staff on hand in order to get people through the tills.

Retail bellwether M&S delivered ‘another good Christmas’ with sales records broken across the business as it gained market share in both food and clothing. However, shares in the high street stalwart fell on the day as management’s gloomy outlook statement stoked profit-taking.

Chris Beckett, head of equity research at Quilter Cheviot, noted that while Marks & Spencer has achieved profit growth, there are headwinds ahead. ‘Rising national insurance costs and broader cost-of-living challenges are expected to eat into measures designed to boost margins,’ warned Beckett. ‘Overall, it was a good Christmas period for M&S, but management remains cautious in its outlook, and the stock has de-rated accordingly. While the company is clearly on a positive trajectory, external pressures may weigh on its ability to sustain upgrades in the near term.’

A soft third quarter update (9 January) from B&M (BME) was poorly taken by the market, despite little change in the discounter’s full-year 2025 EBITDA guidance range and some early evidence of an improving trend, with investors clearly troubled by the ongoing decline in B&M UK like-for-like sales.

Second-placed UK supermarket group Sainsbury’s (SBRY) posted an upbeat third-quarter trading statement on 10 January calling out its ‘biggest-ever Christmas’ – over half of the retailer’s big Christmas baskets included a Taste the Difference product, helping premium sales rise 16%. Like Tesco however, Sainsbury’s stock fell on the day after the retailer left its full-year operating profit guidance unchanged at £1.01 billion to £1.06 billion, representing growth of around 7%.

UPGRADES & DOWNGRADES

Among the clear Christmas winners so far has been Currys, whose shares sparked higher (15 January) after the electricals retailer delivered yet another full-year profit guidance upgrade following a strong festive period.

In fact, the TVs-to-laptops purveyor delivered like-for-like sales growth in both the UK and Nordics over the 10 weeks ended 4 January 2025. Benefiting from a technology replacement cycle that is driving consumer demand for new AI-enabled computers, Currys also delighted investors with news it plans to reinstate the dividend off the back of strengthening cash generation. Currys now expects to achieve adjusted pre-tax profits of £145 million to £155 million for the year to April 2025, comfortably ahead of the £140 million consensus estimate.

‘In an environment where consumers continue to watch every penny,’ said Russ Mould, investment director at AJ Bell, ‘it’s impressive that Currys has managed to report a good festive trading period. It’s clear that electronic devices were popular choices to put under the Christmas tree in 2024. Currys has also cemented its reputation as the go-to place to get help when technology goes wrong.’

Another winner was Card Factory (CARD), which generated 4.7% revenue growth across November and December, driven by higher average basket value, which reflected the cut-price greeting card seller’s expanded ranges as well as sales of gift and celebration essentials.

On the negative side of the ledger, the recent downward momentum in JD Sports Fashion (JD.) continued after the self-styled ‘King of Trainers’ stumbled in (14 January) with another year-to-January 2025 profit guidance downgrade. This followed slower sales over the Christmas period for the FTSE 100 tracksuits-to-football shirts seller, which has seen weak trading in the UK and US and warned it is ‘taking a cautious view of the new financial year’ accordingly.

Also in the doghouse with investors was UK homewares leader Dunelm (DNLM), which delivered a rather mediocre festive trading update (16 January). Investors were hoping for more for Dunelm, which should have done well with people looking for good value homeware products to give as Christmas presents, yet the sofas, cushions and curtains seller’s sales growth slowed in the second quarter to 28 December in ‘challenging’ market conditions, and investors were also rattled by management’s rather vague language around the outlook. Against a backdrop of rising costs, Dunelm still expects pre-tax profit for the year to June 2025 to be ‘within the range’ of the £207 million to £217 consensus is calling for, which leaves wiggle room for earnings to come in at the lower end of guidance.

Sofa seller DFS Furniture (DFS) enjoyed better-than-forecast orders in the half to 29 December 2024 and as a result, expects to deliver first-half pre-tax profits in the £16 million to £17 million range, nearly double the £9 million delivered last year. Yet despite this impressive first-half profits recovery, management is still conservatively guiding to full-year 2025 profits of £22.7 million, in line with consensus, management mindful of a weaker post-Budget consumer environment and the additional incoming costs from Budget changes.

Disclaimer: Aj Bell, referenced in this article, owns Shares magazine. The author (James Crux) and editor (Tom Sieber) own shares in AJ Bell.

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