Christmas sales have gloomier tale to tell

Customers simply swallowed 2022’s inflation pill

Christmas Day in the workhouse? Not quite. The sales of big UK retailers over the festive season were better than expected. But the frothy sales figures of many January updates will lose some fizz when flagging profits join the mix in later announcements.

There is certainly no shortage of bumper figures. Grocer Tesco reported Christmas sales up 7.8 per cent, just ahead of rival Sainsbury’s. Marks and Spencer led the pack with a 9.7 per cent jump. Its garments business — for many years a more popular debating subject than shopping destination among Britons — staged one of its intermittent recoveries.

Over at hotelier Whitbread and pubs group Mitchells & Butlers, food and beverage sales rose 8.4 per cent and 13.3 per cent respectively. 

The reporting periods are different, but in general retailers seem to have brought home the bacon. Trouble is, that is not evidence of consumers splashing out. Customers simply swallowed last year’s inflation pill so as not to cancel Christmas. 

Despite forking out more at supermarket tills, they still brought home less than last year. Kantar, a consultancy, estimates that December sales across the sector rose high single digits, below inflation of nearly 15 per cent. 

Volumes are unlikely to have fallen as much as the differences might suggest. Consumers have traded down, choosing own-label baked beans above the pricier branded offerings, for example. Still, there will have been some pockets of volume growth — notably at discounters Aldi and Lidl, which continue to take share. 

It is doubtful whether retailers were able to maintain margins. Tesco and M&S kept full-year profit guidance unchanged. This suggests they struggled to pass enough costs on to shoppers. 

None of this bodes well. Consensus estimates already indicate no net profit increase for any of the three big listed retailers before 2025. Without any earnings growth, share prices would have further to fall. Despite the cheery headline figures, this is not a good time for investors to shop on the UK’s high street.

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