M&S is big winner in Christmas retail sector boom

5th January 2022 13:24

by Graeme Evans from interactive investor

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Investors took heart from new industry figures that show how well some retailers performed during a very busy December.

Resurgent Marks & Spencer (LSE:MKS) shares were near a fresh two-year high today as encouraging signs on Christmas trading triggered a flurry of buying across the retail sector.

The rally for M&S shares came after the latest Kantar grocery figures showed joint venture partner Ocado (LSE:OCDO) as the only retailer to increase sales in the run-up to Christmas.

Ocado shares rose 6% to recover all yesterday's losses, but the positive mood extended across the grocery sector after Kantar reported that sales hit £11.7 billion during December as people shunned hospitality venues in favour of hosting celebrations at home.

The overall figure was only marginally down on last year's record level, but benefited from a rate of food price inflation not seen since January 2018 at 3.5%. The report also revealed the busiest month in stores since panic buying at the onset of the pandemic.

Tesco (LSE:TSCO) was one of the biggest beneficiaries of this trend after growing its market share by 0.6% to 27.9% in the 12 weeks to Boxing Day, the best level since January 2018. Its shares continued their recent improvement to lift 1% or 2.3p to a one-year high of 296.25p.

Second-largest grocer Sainsbury (LSE:SBRY)’s, which now holds 15.7% of the market, rose 2.2p to 279.6p amid wider relief that the industry weathered several storms in the run-up to Christmas.

The trading season began with supply chain worries about the availability of turkeys, pigs in blankets and other festive staples before the Omicron variant led to a spike in Covid-19 cases.

As it turned out, food and drink spending peaked as usual on 23 December and shoppers got the message that shelves were likely to remain well stocked. Individual retailers still found it challenging to secure year-on-year growth over the Christmas period following the 2020 highs, but every major grocer increased sales compared with the final 12 weeks of 2019.

Online sales fell in December by 3.7% against 2020 and accounted for 12.2% of sales but Ocado bucked the trend by growing sales by 2.5%. This meant a positive read-across for M&S shares, based on its food business now having a 50% joint venture with the delivery company.

M&S shares rose 9.3p to 247.8p, taking the stock close to December's two-and-a-half year high. The widely-held retailer rose more than 75% in 2021, buoyed by recent upgrades to profit forecasts and increased City confidence in the turnaround plans led by chief executive Steve Rowe and chairman Archie Norman.

M&S, which has scrapped dividend payments to boost short-term flexibility, has established a more focused core range of clothing and homeware products and the joint venture with Ocado has given the food business a strong e-commerce outlet.

More details on its progress are expected when the retailer posts its usual post-Christmas trading update on 13 January, the same day as ASOS (LSE:ASC), Tesco and Dunelm (LSE:DNLM).

Next (LSE:NXT) and Greggs (LSE:GRG) kick off the reporting season tomorrow, but the absence of any unscheduled updates so far should come as a relief for investors after a number of profit warnings in the run-up to Christmas.

They included electricals retailer Currys (LSE:CURY), which warned on 15 December that its market was softer even before the emergence of Omicron. This echoed online rival AO World (LSE:AO.) a month earlier, while updates from Boohoo (LSE:BOO), Joules (LSE:JOUL) and Made.com (LSE:MADE) also hit their shares in December.

As we reported last week, analysts at Peel Hunt are backing Next, JD Sports Fashion (LSE:JD.), Dunelm, Hotel Chocolat (LSE:HOTC), Halfords (LSE:HFD) and DFS (LSE:DFS) to have performed well over the Christmas season.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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