Next and M&S in demand ahead of festive updates
Next, Marks & Spencer and Currys impressed during 2024 but will their success continue in 2025? A City bank has previewed January’s all-important Christmas updates.
2nd January 2025 13:38
by Graeme Evans from interactive investor
Positioning by investors ahead of retail’s Christmas reporting season today pointed to confidence that Next (LSE:NXT) and Marks & Spencer will continue their momentum of 2024.
Marks & Spencer Group (LSE:MKS) shares rose 10.6p to 386.1p and Next rallied 134p to 9,632p, whereas JD Sports Fashion (LSE:JD.), Kingfisher (LSE:KGF), former FTSE 100 stock B&M European Value Retail SA (LSE:BME) and the mid-cap pair of Dunelm Group (LSE:DNLM) and Currys (LSE:CURY) all struggled to make headway.
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Next is set to be the first of the retailers to report on Tuesday, having consistently delivered upgrades for sales and profitability throughout 2023 and 2024 on an almost quarterly basis.
In a note published before Christmas, Deutsche Bank said it expected a slowdown in fourth-quarter sales growth to 4.5% from the 7.6% reported in the third quarter.
It believes that this should be good enough to add another £10-15 million to the current annual pre-tax profit guidance of just over £1 billion.
Much of the interest will be on Next’s initial guidance for sales and profit in the forthcoming financial year, including the impact of increases in the minimum wage and National Insurance contributions and whether prices will have to increase as a result.
The City consensus points to a 2025-26 profit haul of £1.05 billion, which reflects risks to the downside given the conservatism likely to be presented by management at this early stage.
However, Deutsche Bank added: “With eight earnings upgrades in two years, the question will be whether the investors believe the cautious outlook!”
Like Next, Marks & Spencer shares endured a tougher December as consumer confidence and wider sentiment towards the sector suffered in the aftermath of the Budget.
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The retailer’s shares still rose by more than 35% across last year after it delivered two big earnings beats at annual results and November’s half-year presentation.
Chief executive Stuart Machin sounded an upbeat note heading into the festive season, telling investors at the interim results that “we have the best Christmas food range I’ve seen in my time at M&S and the most stylish seasonal clothing offer yet”.
Performances in both Clothing and Food were strong in the first half, although at the start of third quarter there was a slight divergence due to the impact of weather conditions.
Deutsche Bank expects a recovery in November and December based on its forecasts for clothing like-for-like sales growth of 3.5% and food at 8%. The bank sees scope for the City’s full-year profit consensus of £839 million to move closer towards its own £850 million estimate.
Marks & Spencer reports its figures on Thursday 9 January, the same day as B&M European Value Retail, Tesco (LSE:TSCO) and Greggs (LSE:GRG).
Discounter B&M will be closely watched, given that its shares fell 35% in 2024 despite only a 10% cut to forecasts. Now valued at 10 times projected 2025 calendar year earnings, the bank said the stock had been attracting interest from value investors.
The main issue for shares has been a negative UK like-for-like sales performance, which is expected to continue in the third quarter with a 0.5% decline.
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JD Sports Fashion investors will be hoping for a better start to 2025 than last year, when shares tumbled 23% due to a profit warning on 4 January.
The company also issued cautious guidance in a November trading update, having felt the impact of mild weather and elevated promotional activity in the previous month.
Deutsche Bank said recent commentary from peers pointed to continued challenges and the potential for downside rather than upside risk to fourth quarter like-for-like figures.
It believes these risk factors are largely in the share price and that the UK will show 1.5% growth as it laps softer comparatives alongside a flat performance in the US.
The bank expects the Currys update on 15 January will show the chain has maintained its turnaround momentum over the peak season, based on a forecast for like-for-like sales growth of 4%. The shares rebounded 87% last year.
Dunelm, which reports on 16 January, is seen delivering 4.5% growth in the October to December quarter, underpinned by like-for-like growth of 3%. Gross margin is forecast to be down slightly as cost tailwinds start to annualise.
The bank added: “Dunelm's proposition appears to be resonating with consumers, which is translating to positive market share momentum.”
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