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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Mixed news for UK consumer, as sales fail to impress

13:48 9 January 2024

The festive season was meant to bring some cheer to the UK’s beleaguered retailers, but instead the British Retail Consortium reported that like-for-like sales, came in below expectations for December, rising 1.9% vs. 2.4% expected.

However, it was not all gloomy news. Grocery sales kept the retail ship afloat, however, the appetite for lavish Christmas gifts, including jewellery and expensive tech products was lacking this Christmas.

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Digging into the detail of the BRC report shows that total retail sales fell below their three-month average in December, which suggests that the UK consumer felt the pressure this festive season, as pandemic savings were drained, and the cost of credit was too much for some.

Food sales rose by 6.8% on a total basis in the three months to December, which is below the 12-month average of 8.1%. However, it is worth noting that most of the slowdown in growth is due to the fall in grocery price inflation in recent months, which is good news for the consumer, and the volume of sales was slightly higher compared with December 2022. Price deals on the ingredients of a typical Christmas dinner, helped to push the weekly volume of sales growth in the week leading up to Christmas, to its highest level since April.  

Food sales were the highlight of this report, with non-food sales falling by 1.5% over the three months to December, which the BRC notes is steeper than the 12-month average decline of 0.1%. The wet weather no doubt kept people from shopping for all but the necessities, while the warmer temperatures in December could have dented clothing sales.

M&S continues to trade like a tech stock

This report is an interesting precursor to the Christmas trading updates that are released later this week, including Tesco, Sainsbury’s, and M&S. There is a lot of expectation building around M&S’s Christmas sales report, after Next boosted its profit forecast. It’s share price has continued to climb in 2024 and has risen more than 100% in the past 12 months, which is more like a tech stock than a FTSE stalwart. It has significantly outperformed the FTSE 100 and deserves its spot back in the topflight equity index.

B&M misses analyst estimates

The discount variety retailer, reported that it saw like for like sales grow at 1.2% in the 14 week period through to December 30th. Although revenue growth was up by 5% on the quarter, it was below analyst expectations, at £1.65bn, vs. £1.69bn expected. It’s earnings guidance for the full year was also weaker than analyst expectations, it forecast earnings of £620mn - £630mn, which is less than the £634.3mn expected by analysts. This suggests that the weakness in spending on goods by the UK consumer, as reported by the BRC earlier, has been felt at B&M. The share price fallout could be limited, as the retailer announced a special dividend of 20p per share, to be paid on February 9th. It is also powering ahead with its expansion plans and is on track to open 76 new stores across the group in 2024.

Looking ahead, B&M’s outlook is mixed. Its executive team obviously has faith in the UK consumer and thinks that its offering could be enticing if the economy weakens, people have less to spend and wage growth slips. Usually that is when people flock to discount retailers. However, there is no doubt that people are still spending on services (fun) rather than goods, which could hurt B&M if this trend continues. Investora have reacted negatively to this news, and its share price is down by more than 2% at the market open. This suggests that the market will punish companies that don’t deliver on the earnings front.

Spending for fun (and Glasto) still on the cards

While a slowdown in UK consumer activity was inevitable, it’s worth noting that wage growth is strong, inflation is falling, and unemployment is at historic lows. However, the prospect of a weak economy is putting people off spending beyond their means on goods.

Spending for fun, however, is still on the cards, with spending on airline tickets up 20.2% year on year according to a report by Barclays. Entertainment spending was another bright spot, with spending up 12.3% vs. a 1.7% decline in November, led by bookings for Glastonbury and people flocking to the cinema to see new releases such as Wonka.

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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