FTSE 100 rises on retail’s ‘Super Thursday’, Marks & Spencer clothing sales impress, Tesco working hard to stand still, Halfords slumps on new profit warning and ASOS shares soar on turnaround hopes

“On a ‘Super Thursday’ for Christmas trading updates, the FTSE 100 maintained its recent momentum to trade higher,” says AJ Bell Investment Director Russ Mould.

“So far it feels like retailers are doing better than feared – with some notable exceptions. How far you extrapolate this resilience depends on your view of whether households have already faced the worst of the impact of mounting bills and rising interest rates.

“However, with many people still to roll off cheap fixed-term mortgage deals and further increases in the energy price cap to come, there is certainly no room for complacency.

“Later on, US inflation figures are released. These could determine whether the relatively positive sentiment seen so far in 2023 can be maintained, given the influence this data point has on the Federal Reserve’s interest rate policy.

“Higher energy prices are not bad news for everyone – with Centrica once again upgrading forecasts. How much credit the business itself can take for its revived fortunes is an open question but, for now, financial performance is undoubtedly strong.

“Persimmon shocked no-one by following in its peer Barratt Development’s footsteps and giving a gloomy assessment of the housing market. The big questions which remain are how bad it might get and how long the slump in property prices will last.”

Marks & Spencer

“Marks & Spencer is the latest name in the UK retail sector to offer robust Christmas trading with clothing sales topping expectations. Given all the gloom around in the background this is clearly good news.

“It suggests the Marks & Spencer proposition is resonating with shoppers and that is evident in the market share gains the business is making. Marks has undoubtedly gone through some tough times but it has endured where other rivals – Debenhams and BHS, among others – have fallen by the wayside.

“The company has progress to make in its digital business but its joint venture with Ocado already seems to be serving the food side of the business very nicely. Food did particularly well in the peak Christmas period – suggesting people were still willing to splash out for a bit of festive cheer.

“However, these market share gains didn’t come free, particularly on the food side, as Marks cut prices to get people through the door. Like nearly everyone else the company is also facing a significant increase in costs.

“When it comes to the elements which it can control, Marks seems to be doing a really solid job with the improvement in the clothing and homewares arm, long an Achilles heel for the group, particularly notable.”

Tesco

“The UK supermarket sector remains cut-throat so Tesco’s ability to protect and even build on its market-leading position is impressive. However, with sales growth running behind inflation it seems Tesco has had to indulge in heavy discounting to keep the tills ringing and fight off the challenge from the discount operators Aldi and Lidl.

“The company’s Clubcard scheme – which shoppers have to use to access most of its big discounts – is clearly driving loyalty and its Booker wholesale operation is demonstrating its ability to pass on cost increases to customers.

“However, the outlook remains very difficult and the pain being felt by households is a long way from being finished, something which is reflected in management’s cautious outlook.

“Now people’s Christmas splurge is out of the way, Tesco may need all of its retail smarts just to stand still in the coming months.”

Halfords

“Just when it looked as if Halfords was turning a corner and leaving its problems in the rear-view mirror, along comes another bundle of issues which knock its earnings trajectory off track.

“The key problems are weakness in cycling and consumer tyres along with a shortage of skilled technicians hurting its motor service.

“The latter is a frustrating situation for the company. Demand for motoring services is very strong, but to not be able to capture all the potential business due to labour issues is frustrating.

“To Halfords’ credit, it already has an apprenticeship programme and last year opened this up to the over-50s to try and fill its skills gap. This aptly named ‘Retyrement Plan’ is aimed at bringing individuals back out of retirement and getting them trained up to help keep older vehicles on the road.

“The cycling market has slumped since a boom period in the early stages of the pandemic when people were desperate to buy any form of two-wheeled bike they could. Children’s bike sales continue to be resilient, but adult bike demand has suffered from the cost-of-living crisis where people are thinking twice about big-ticket items.

“It’s also the case that many people who bought bikes in the pandemic have now lost their desire to meander along the country’s roads and thus the second-hand market is awash with cut-price products.”

ASOS

“The rapid growth days of ASOS seem long gone as the fashion retailer deals with a multitude of internal and external issues.

“The latest update shows a further decline in sales, but investors have taken a positive view, bidding up the shares in the belief that the new boss is swiftly taking action to sort the business out.

“Chief executive José Antonio Ramos Calamonte doesn’t want to go back to the old days where the key focus was sales growth. His focus is now on profitable growth and generating good returns from the money invested in the business.

“It’s good to have a plan and a vision, but achieving it is another matter. ASOS is still sitting on too much inventory and is having to slash prices to clear these stockpiles. Sales continue to decline in most of its geographical locations.

“The market reaction would suggest ASOS is now a pure recovery story and faith is being put in the new boss to achieve a positive outcome and investors don’t appear to be troubled by the latest weak sales and margin metrics, hence the 14% share price jump on the news. However, the market will only wait so long to see the fruits of ASOS’ labour with regards to the turnaround efforts.

“The current market backdrop is not favourable to retailers of ‘nice to have but not essential’ products, so ASOS is by no means out of the danger zone.”

These articles are for information purposes only and are not a personal recommendation or advice.