Tesco lifts profit forecast after strong Christmas, and M&S beats expectations – business live | Business

City analysts are lauding Marks & Spencer’s performance over Christmas, after it reported an 8.1% increase in like-for-like sales over Christmas.

Richard Lim, CEO at Retail Economics, says:

“These are fantastic results delivered in a challenging market. Shoppers have fallen back in love with M&S, buying into the re-energised proposition that’s centred around a leading omnichannel service. It’s been a mightily impressive turnaround and there’s lots of momentum in the business heading into 2024.

“While the outlook remains challenging, they are well-positioned to navigate through these choppy waters.”

Robyn Duffy, senior analyst at RSM UK, says Marks & Spencer has bucked the trend with “stellar” Christmas results.

Duffy explains:

“M&S’s strong results in the food arm of the business support the notion that Christmas 2023 was all about time spent at home with friends and family for consumers. 2022’s acquisition of Gist – a deal geared to improve the food supply chain network of the business – has enabled M&S to be more competitive on pricing, a timely strategy considering food inflation is still over 9%. It could also be why M&S has seen a flurry of new customers and an increase in basket size with more customers doing their full shop in M&S food stores.

Clothing and home also performed strongly. Womenswear continues to be a success and is fast becoming a favourite for Millennial women. In addition to gearing the food business to be able to offer greater value to customers, M&S also put this ethos at the forefront of their Christmas ranges. One third of gifts were priced at £10 and under, and 70% at £20 or less. Christmas decorations were down 6% year on year and entry prices for Christmas trees were down 25%. Ultimately, M&S did everything they could to appeal to UK consumers amid cost-of-living pressures and it paid off.”

And here’s Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club:

“M&S has sustained good momentum over the Christmas period, especially in Food which delivered 7% volume growth, making M&S the top performing grocer over the Christmas period.

M&S also continued to gain share in Clothing and Home, supported by a good womenswear performance. This suggests the turnaround plan to revitalise the brand and reignite growth is very much on track.

The Clothing and Home division has been a problem child for M&S for many years. The new strategy, launched last year, aims to improve brand perception and designs, reduce discounting and improve the online offering, while taking a knife to costs and instilling a more entrepreneurial culture. Early signs are this plan is resonating with consumers.

While the UK consumer backdrop remains uncertain, there are more positive signs than this time last year, with interest rate cuts likely to relieve some pressure. Combine this with M&S’ self-help initiatives and execution that continues to impress, it suggests recent trading momentum could be sustained.”

Marks & Spencer has warned that it faces extra cost pressures, including on pay, and from business rates on its stores.

M&S told shareholders in its Christmas trading update:

As we enter the new year and FY25, expectations for economic growth remain uncertain, with consumer and geopolitical risks. We also face additional cost increases from higher than anticipated wage and business rates related cost inflation.

Nevertheless, the strong Christmas trading performance provides confidence that the results for the year will be consistent with market expectations.

The minimum wage is due to rise by almost 10% in April, from £10.42 to £11.44 per hour.

And although the government froze business rates for small firms in last year’s Autumn Statement, larger businesses will see a 6.7% rise in rates this year.

Here’s the details of Tesco’s Christmas trading:

And here’s Marks & Spencer’s report card:

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Tesco and Marks & Spencer have emerged as Christmas winners this morning.

Tesco, the UK’s largest supermarket chain, has raised its forecast for profits this financial year, after ringing up record sales in the weeks leading up to Christmas.

Tesco’s like-for-like sales in the six-week Christmas period across the UK and the Republic of Ireland were 6.4% higher than a year earlier.

That followed growth of 7.3% in the previous 13 weeks, to 25 November.

The group now expects to post operating profits of £2.75bn this financial year, above its previous guidance range of £2.6bn to £2.7bn.

Chief executive Ken Murphy says it was Tesco’s best Christmas ever, adding:

As part of our focus on value, we offered a full Christmas dinner for just £2.09 per person, helping to drive record sales in the weeks leading up to Christmas and further market share gains. We put a strong focus on quality and innovation too, with over 550 new and improved festive products. Over 18 million customers took the opportunity to treat themselves by shopping from our Finest range, which saw sales growth of nearly 17%.

Over the period we cut nearly 2,700 prices, with a further 150 prices cut just this week, cementing our position as the UK’s cheapest full-line grocer.

Tesco also reports it cut prices cut on nearly 2,700 products, with savings of around 10%, another sign that inflation pressures are easing.

Marks & Spencer has also posted solid like-for-like sales growth, up 8.1% across the UK in the last 13 weeks of the year. That’s better than expected.

M&S’s food sales increased 10.5%, with strong growth in meat, poultry, produce, grocery and in-store bakery products.

The recent turnaround in the clothing department continued too, with Clothing & Home sales increased 4.8%. M&S says its market share increased, led by the strong performance of womenswear.

Chief executive Stuart Machin says M&S enters 2024 “with a spring in our step, but clear eyed on the near-term challenges”.

Machin says:

We are determined to deliver our objective of driving 1% growth in market share in both businesses and to up the pace of our transformation: keeping a relentless focus on trusted value; accelerating our store rotation and renewal plans; doubling down on our supply chain programmes to improve availability and lower costs; and resetting our data, digital and technology strategy to unlock benefits in future years.

Our vision is to be the most trusted retailer, doing the right thing for our customers, with quality products at the heart of everything we do, and we are just at the beginning of what we can achieve. Lots done, lots to do, lots of opportunity ahead.”

Also coming up today

Hopes are building that the Bank of England could cut interest rates sooner than thought, after several economists predicted inflation could fall to its 2% target as soon as April.

Investors are watching for the latest US inflation figures, due this afternoon, which will influence how soon America’s Federal Reserve can start cutting borrowing costs.

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