12 January 2023
If you are covering Tesco’s or Marks & Spencer’s trading statements, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Just like Sainsbury’s yesterday, Tesco and M&S both delivered solid statements today, highlighting that the UK grocery market held up over the Christmas period, despite fears around the cost of living squeeze. However, when you dig into the detail, much of this increase in revenue has come about due to price rises, rather than rising volumes.
“That said, clearly customers were prepared to spend more money on food in the run up to Christmas. The worst case scenario with the UK consumer has not yet been realised as the cost of living squeeze has hit but not necessarily altered behaviour drastically. Whether or not this was people simply prioritising Christmas before tightening their belts will be a crucial question in future statements from the pair.
“Both retailers have reiterated their profit guidance, in part thanks to rising inflation, but this does also present a risk. Costs have gone up and this has eaten away at profits. Tesco and M&S have had to put wages up to attract and retain staff and as such this will have an impact on the bottom line.
“For M&S, it says it delivered its best clothing and home best numbers since 2015 and there are definitely signs of stabilisation after a difficult few years. It has also seen a success with its shift out of town centres and into out-of-town retail parks and we expect them to continue with this activity.
“Retailers have enjoyed a successful run since the economic volatility of September and October and most outlooks are getting more positive. However, given how far valuations have come and the lack of earnings upgrades from them, they will be interesting to watch over the next six months when we expect the next leg of the cost of living squeeze to bite.”
