Retailers fear sticky UK inflation despite Christmas boost

 

Bloomberg

Two of Britain’s best-known retailers celebrated strong sales in the run-up to Christmas but warned that stubborn inflationary pressures are still darkening the outlook.
Marks & Spencer Group Plc’s high-end grocery business enjoyed its best ever market share for the festive period as shoppers indulged in festive treats despite the worst cost-of-living crisis in a generation.
Meanwhile Tesco Plc said that its Christmas sales were up 7.8% like-for-like, with increases of more than 8% in fresh food and its Finest premium range.
Still, shares in both companies initially fell as they held profit guidance in the face of ongoing economic headwinds. Ken Murphy, Tesco’s CEO, warned that inflation may get worse.
“We’re not sure it’s peaked just yet,” Murphy said on a call with journalists. “We would hope that by the middle of the year it will have peaked.”
Murphy said the war in Ukraine, energy price and harvest yields were all part of a number of variables that could delay a recovery.
Britain’s largest supermarket had already reduced its profit guidance in October, saying that retail adjusted operating profit will be between £2.4 billion ($2.9 billion) and £2.5 billion this year, lowering the upper range from £2.6 billion.
Nonetheless, Murphy said Tesco — the UK’s biggest grocer — had seen its biggest ever day for sales on December 23, 2022 and was also given a lift in the preceding weeks by the World Cup.
M&S also got a lift in the weeks before Christmas. It’s like-for-like food sales rose 6.3% with strong demand for turkeys and other seasonal classics. The company said its value brand boosted volumes but added that sales of “top tier” products rose more than 20%.
There had been fears that UK grocers could suffer as sales of typical Christmas treats such as panettone rose at German discounters Aldi and Lidl. “Each competitor has their moment in the sun,” Murphy said, arguing that the budget stores’ strong performance “shouldn’t be a guarantee of future success.”
Consumers have been turning to credit cards to cope with higher prices, spending £1.2 billion in November 2022 — triple October’s rate. Data from Office for National Statistics showed a further increase in use of credit and debit cards last month.
Like its rivals, Tesco is having to invest in boosting employee pay and reducing prices while input costs are rising.

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