UK: Big retailers report on Xmas trading and forecasts for 2023

The CEO of Tesco believes that the second half of 2023 will see a slowdown in food inflation, which reached a record high in December.

Ken Murphy was commenting after the largest retailer in the UK asserted that it was the only significant grocery chain to have increased its market share over the holiday season compared to pre-pandemic levels.

With the exception of the discounters Aldi and Lidl, Tesco claimed it stole customers from its rivals.

In its third financial quarter, which ended on 26 November last year, it recorded an increase in like-for-like sales of 4.3%, with a 7.2% increase occurring in the six weeks that ended on 7 January.

Market rival M&S reported that over the 13 weeks ending December 31, like-for-like food sales increased by 6.3% on a comparable basis.

M&S reported that its clothes and home offerings, which had previously been a drag on the group’s performance, now had the highest market share in seven years and sales that were up 8.6%.

But Tesco and M&S both stuck to their forecast for annual profits.

But Asos, an online fashion retailer, was one well-known company to disclose Christmas problems.

Due to an 8% decline in UK sales over the four weeks leading up to Christmas, it recorded a 3% decline in revenue for the four months ending 31 December.

It cited poor consumer confidence and earlier deadlines for Christmas deliveries as reasons for the delivery issues brought on by the Royal Mail strikes.

According to Asos, sales fell sharply before Christmas compared to the previous year.

The driving and cycling retailer Halfords also lowered its projected yearly profit range from £65-75 million to £50-60 million.

It cited weak bike and tyre demand as the cause. The business also forewarned that a shortage of qualified technicians will have an effect on the latter quarter of its fiscal year at its auto-centres division.

The businesses are the most recent to provide an update on their progress following a difficult holiday season for family budgets due to the energy-driven cost of living crisis.

Despite record food inflation exceeding 13%, as measured by the British Retail Consortium, the overall image for retailers’ performance ahead of Thursday’s trading updates has been one of resilience, suggesting that consumers were ready to loosen their purse strings for Christmas.

Retail organisations have expressed concern over customer demand in the coming months as a result.

While there is compelling data to suggest that as more people choose to eat at home, supermarkets will triumph at the expense of hospitality, the pub chain Mitchells and Butlers announced that like-for-like sales were up more than 10% in the 15 weeks leading up to 7 January.

In light of accusations of targeted discounting, particularly among the grocers, financial analysts have also questioned the extent to which firm profitability has increased in accordance with sales.

Retailers haven’t given much away on their margins and rise in sales volume, or the amount of items sold, even though inflation has generally fueled a surge in sales values in corporate updates to date.

However, on Wednesday, Sainsbury’s and JD Sports both revised their guidance for expected annual profits upward.

Last week, Next and B&M took similar action.

Another pattern that surfaced over the holidays was a decline in online sales that may have been entirely explained by the effects of the Royal Mail strikes, while more people were visiting physical stores to take the place of some of that retail space.

Tesco and Asos shares opened 1.5% lower, while M&S stock dropped 2.6%.

Halfords experienced a 12.8% decline.

Lead equities analyst at Hargreaves Lansdown Sophie Lund-Yates made the following comments regarding Tesco’s sales figures: “Despite all the advancement, there is still a problem. Discounting is crucial to success in a significant way. Price freezes and Aldi Price Match are two very effective strategies, but they can be detrimental for profitability.”

She added: “Before the epidemic, supermarkets had only lately found their footing after years of margin erosion brought on by an all-out price battle. History is being repeated as a result of rising inflation and the strain on consumer purchasing power. Profit projections have been restated because the struggle between pricing and volumes is obviously yielding positive results, but the situation is far from ideal for the major players in the industry.”

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