Tesco and M&S delivered good market news ahead of the FTSE 100 open on Thursday, defying gloom about the UK consumer and the retail sector in general. Christmas was a robust trading period for both retailers, with M&S seeing growth in both food and clothing and homeware sales, and Tesco even raising its profit guidance.
While the discount retailers had record sales, results on Thursday show that the UK consumer is still willing to splash out on higher cost M&S products, and Tesco’s Finest range, which saw record sales in the week leading up to Christmas. These trading updates suggest that the UK economy was not all doom and gloom as some had expected for Q4.
It’s not just M&S foods that drove sales last quarter, but also M&S fashion and homewares.
Christmas trading updates continued on Thursday with good news from M&S. The upmarket retailer said that it in the 13 weeks to December 30th total food sales rose by 10.5%, with clothing and home sales rising 4.8%. This has bucked the trend elsewhere, Sainsbury’s reported on Wednesday that while food sales were strong, general merchandise was weak. M&S’s results show that its focus on fashion in both clothing and homewares is paying off, and the UK consumer is finally attracted to its sales offering outside of the chilled aisles.
M&S is also grabbing market share, with market share expanding by 1% in both its food division and its clothing and homewares division.
While it’s to be expected that M&S had strong food sales growth at Christmas time, the rise in its ex-food sales is the most interesting part of these results. The company said that the 4.8% growth in clothing and homeware sales was driven by reduced promotions at the end of the year, which helped to drive growth in the average selling price. This suggests that real demand, rather than discounting, is driving sales for M&S non-food items which is good news for the brand. The company also said that perceptions of style, quality and value are behind the rise in its womenswear sales. Advertising campaigns with the likes of Sienna Miller have obviously paid off, as the retailer tries to position itself as quality player in markets other than food.
The company commented that the outlook was clouded by additional cost increases in the coming months, due to higher than anticipated wage increases and business rates, which could put pressure on profit margins in the future. However, the strong sales growth means that M&S is confident that results for the full year will be consistent with market expectations.
This is a strong report from M&S, and its corporate turnaround is continuing to bear fruit even with an uncertain economic outlook and geopolitical tensions.
M&S: Not so dowdy any more as its share trades like a tech stock
M&S has traded more like a tech stock than a UK consumer stock in the past 12 months as its share price has surged by nearly 100%. It’s come under some downward pressure in recent days and its share price fell by the most in 3-months on Wednesday. However, today’s news may boost investor sentiment as it bucks the market trend for weaker general merchandise sales, which adds a special shine to trading for Christmas 2023. However, while this was a strong trading report, concerns about wage costs could keep a lid on the upside for M&S's share price, as margins may be constrained in the future.
Tesco was the surprise of this earnings season, raising its profit outlook for this year, from £2.6bn – £2.7bn to £2.75bn. This was due to the 9.2% growth in sales in the 4-weeks to Christmas.
The UK led the way for sales growth, with sales in the Christmas period rising by 6.8%. It also boosted overall grocery market share to 27.9% in the 4 weeks to Christmas. Tesco saw strength in fresh food sales and stated that its food inflation was less than its key competitors. For its ‘Finest’ food product range, Tesco reported record Christmas week sales.
Tesco’s outlook was upbeat, especially compared to some of its competitors, with no mention of economic downturns or geopolitical risks. Instead, it focused on the increase to its profit guidance.
Tesco’s share price has risen by 20% since August 2023, although it has experienced some weakness in recent days. However, after Thursday’s increase to its profit guidance, investors have something to cheer.