Retail giants Marks & Spencer and Tesco have sounded the alarm over Britain’s ‘uncertain’ economic outlook and tax hikes even as they revealed strong Christmas trading.
M&S reported £4.06billion in sales for the three months to 28 December, which was up 5.6 per cent on a year earlier.
But its shares fell sharply as worries over growth, inflation and interest rates threaten to dampen future prospects.
And Tesco said there was ‘no doubt’ of increased pressure on costs – but insisted it would do its best to not increase prices.
Both retailers have been clobbered by the Chancellor’s raid on National Insurance contributions, which will cost M&S £60million a year and add £250million to Tesco’s tax bill.
The pair were among a series of firms delivering a mixed series of updates on Christmas trading yesterday. Markets, already in a febrile mood amid a bond market sell-off, were unimpressed, prompting shares to fall across the beleaguered sector.
Retailers are fearful that Rachel Reeves’s tax grab will damage the sector and that seemed to tarnish even the sparkling figures of M&S and Tesco.
Marks’ sales were driven by food halls, with 1.2 fresh turkeys sold every second in the run-up to Christmas and 600,000 packs of pigs in blankets gobbled up.
Clothes, including velvet dresses and tuxedos, also flew off the shelves as the group cemented its return to style.
Celebrity tie-ups with Sienna Miller and Hannah Waddingham have helped M&S shake off its previously dowdy reputation.
But boss Stuart Machin said its turnaround was a ‘marathon not a sprint’.
The group warned: ‘The outlook for economic growth, inflation and interest rates is uncertain and the business faces higher costs from well-documented increases in taxation.’
Shares fell more than 8.4 per cent, or 31.5p, to 345.3p.
Chris Beckett, the head of equity research at investment manager Quilter Cheviot, said: ‘Overall, it was a good Christmas, but management remains cautious in its outlook, and the stock has de-rated accordingly.’
Meanwhile Tesco hailed its ‘biggest-ever Christmas’ as it said it was on course for £2.9billion annual profits.
Sales in the UK rose 4.1 per cent over the six weeks to January 4 compared to the same period the year before, Britain’s biggest supermarket said.
And consumers have been ‘switching from all corners’, including from discounters Aldi and Lidl, said boss Ken Murphy.
But he added: ‘There’s no doubt the Budget has impacted the cost of doing business, particularly for retail. That said, we have a good track record for managing costs.’
Murphy conceded that higher costs would have to be passed on.
‘What I won’t say is there will be no inflation, but we’ll do our very best to minimise the impact,’ he said. Tesco shares fell 0.5 per cent, or 2p, to 368p.
AJ Bell’s head of financial analysis Danni Hewson, said: ‘It doesn’t matter that Brits were merrily gobbling up the finest pigs in blankets, it’s how consumers are feeling in the cold light of January that really counts.
‘The reality of a turgid economy, the impending increase to labour costs, rising bond yields and a shaky pound must all be factored in.’
- Shares in discount store B&M tumbled 8.5 per cent, or 29.7p, to 318.9p after sales fell. It generated £1.4billion in revenues between October and December in the UK – 2.8 per cent higher than the same period a year ago. But, when compared like-for-like, which strips out sales from its new stores, it marked a 2.8 per cent decline.
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