Marks & Spencer sees slowdown in sales growth, Tesco delivers profit upgrade and Taylor Wimpey sticks with guidance

“Despite a barrage of corporate updates, the main thing on today’s agenda for markets is the latest inflation reading from the US,” says Russ Mould, investment director at AJ Bell.

“The consensus forecast is for the monthly rate of consumer price inflation to edge up from 0.1% in November to 0.2% in December and for the year-on-year figure to move from 3.1% to 3.2%. Core inflation (which excludes energy and food) is expected to stay static at 0.3% and dip slightly on a year-on-year basis from 4% to 3.8%.

“Hotter than expected inflation would go down badly with the market as it would give the Federal Reserve more reason to keep interest rates high. It would certainly pour cold water on the idea that rates could be cut as soon as March.

“Equity markets don’t appear to be panicking over the prospect of an inflation shock given that Wall Street enjoyed another decent showing last night and Asian and European shares pushed ahead on Thursday.

“The FTSE 100 advanced 0.5% to 7,690 thanks to strength in miners and industrials. Bullish broker comment on Antofagasta put the copper miner at the top of the FTSE 100 leader board, closely followed by Whitbread whose latest quarterly results pleased the market. Its Premier Inn hotel chain continues to be a storming success and it is on track to hit break-even on a run-rate basis this calendar year for German operations.

“Among UK mid-caps, Trustpilot soared 17% to a two-year high after saying full year adjusted earnings before interest, tax, depreciation and amortisation would beat market expectations and that it would buy back £20 million worth of shares.”

Marks & Spencer

“Marks & Spencer has enjoyed a good Christmas with another strong showing in food, and its clothing and home arm trucked along nicely during its third quarter. Dig deeper and you’ll see that both divisions saw a slowdown in the pace of growth versus its first-half period.

“Consumers are still being cautious about their spending so much of the headwinds are out of Marks & Spencer’s control. But that hasn’t stopped the company from doing its best to keep the tills ringing.

“You only have to look at some of the other big fashion sellers to see that it’s been a tough time to sell clothes. Nearly all the big brands have reported a slowdown in the pace of growth so Marks & Spencer’s results must be viewed in the context of difficult market conditions. Its clothing and home arm grew sales ahead of the market and less stock had to be marked down in price, which the company must take as a big win.

“Food has consistently been a strong point for Marks & Spencer for years and its decision to sell certain core products at cheaper prices has been a wise decision. It has broadened the potential customer base and enabled it to attract cost-conscious individuals who are looking for value for money products deemed to be of decent quality. The only problem is that Sainsbury’s has been travelling a similar path with great success, meaning competition is still intense in the sector.

“Shares in Marks & Spencer rallied in the days before the results as investors looked at strong updates from Aldi and Lidl, plus a resilient showing from Next, and concluded that M&S could also do well.

“The shares have given back some of those gains on the trading update as investors with a ‘better to travel than arrive’ mindset bank some profits. There are also enough words of caution in the update to stall momentum in the share price.

“Chief executive Stuart Machin has echoed previous statements that more work is needed to transform the business. The latest update would suggest the company’s turnaround programme remains on track but it is understandable that the boss wants to manage expectations and not let anyone assume it’s going to be an easy ride from now on.”

Tesco

“Tesco’s latest update was always going to be compared with that of Sainsbury’s and on this basis it scores well as, unlike its rival, it has delivered a profit upgrade after a record Christmas.

“While Sainsbury’s is preaching ‘food first’ under its new management, Tesco is living it.

“Sainsbury’s has, thanks to Argos, a chunky general merchandise arm. Tesco has already narrowed its focus and, while it does sell items like clothing, homeware and toys in-store, there is no doubt that its core focus is groceries.

“The company has worked hard to compete with the German discounters and its Clubcard price offers have helped build loyalty among weekly shoppers – to such an extent that others have followed in its wake with giving better prices to loyalty card holders.

“The only worry there is the regulator has its eyes on this practice and whether it might be anti-competitive.

“Some of the inflationary pressures are easing, which should make it easier for Tesco to remain competitive on pricing. The company is also not seeing any impact from disruption to shipping routes through the Red Sea.

“The strong performance of its Finest range hints at Tesco benefiting from traditional Waitrose customers trading down but still wanting quality produce – matching the trend seen at Sainsbury’s with its Taste the Difference brand.”

Taylor Wimpey

“Housebuilder Taylor Wimpey has a familiar grumble in its latest missive to the market as it bemoans planning delays. The industry is often quick to point out it is at the mercy of regulation and under-resourced local planning departments when it comes to delivering projects.

“The company seems to be focusing on margins rather than volume as it pulls back on completions – and notably the average selling price on new-build properties was up materially year-on-year.

“The hopeful sign for Taylor Wimpey and its rivals is the recent improvement in mortgage availability as this is likely to help revive demand in what had become a fairly moribund property market.

“The company is not getting carried away by any recent improvement in the backdrop and remains notably tight-lipped on the immediate outlook – beyond a somewhat encouraging reference to a ‘good level’ of enquiries at the start of the year. 

“The order book is lower and while the company still has an enviable cash pile, it is dwindling. At some point it will need to see an improvement in trading if it is to continue paying its generous dividend.

“Taylor Wimpey will hope its longer-term prospects can be supported by the dynamics of a UK housing market which remains undersupplied.”

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