Asos and Halfords are among the retailers who experienced a difficult holiday season due to a decline in discretionary spending, whilst Tesco and M&S gained market share due to robust sales growth.
The CEO of Tesco believes that food inflation, which reached a record high in December, will begin to decline in the second half of the year.
Ken Murphy said after the largest retailer in the United Kingdom claimed it was the only major grocery chain to have increased its market share compared to pre-pandemic levels over Christmas.
Tesco stated that it took the business from competitors except for Aldi and Lidl.
It recorded a 4.3% increase in like-for-like sales for the quarter ending 26 November and a 7.2% increase for the six weeks ending 7 January.
Competitor M&S reported that its like-for-like food sales increased by 6.3% in the 13 weeks leading up to December 31.
M&S reported that its clothing and home offering, which has long been a drag on the group’s performance, achieved its greatest market share in seven years, with sales increasing by 8.6%.
However, both Tesco and M&S reaffirmed their yearly profit forecasts.
Asos, an online fashion retailer, was one of the most well-known companies to report Christmas-related difficulties.
It recorded a 3% decline in revenue for the four months ending in December, due to an 8% drop in UK sales over the four weeks preceding Christmas.
It attributed negative consumer sentiment and earlier cut-off dates for Christmas deliveries to Royal Mail strikes, which caused delivery delays.
The automotive and cycling retailer Halfords reduced its annual profit forecast from £65m to £75m to between £50m and £60m.
It blamed the soft demand for tires and bikes. The company also cautioned that a failure to hire enough qualified technicians for its auto-centers sector would hurt its last fiscal quarter.
The companies are the most recent to report on their success following a difficult holiday season for family budgets, which were pinched by the energy-driven cost of living problem.
Tesco CEO predicts food inflation
The general performance of retailers before Thursday’s trading updates has been resilient, indicating that consumers were willing to loosen their purse strings for Christmas despite record food inflation of over 13%, as reported by the British Retail Consortium.
It has prompted retail groups to express skepticism regarding customer demand in the coming months.
While there is substantial evidence to suggest that supermarkets will prevail at the expense of the hospitality industry as more people choose to eat at home, pub chain Mitchells and Butlers revealed that like-for-like sales increased by more than 10% in the 15 weeks leading up to January 7th.
In addition, financial analysts have questioned the extent to which corporate profitability has increased in tandem with sales in light of claims of intentional discounting, particularly among grocery stores.
While inflation has generally led to a rise in sales values in the most recent corporate updates, retailers have largely maintained their margins and growth in sales volume – the number of items sold.
On Wednesday, though, both Sainsbury’s and JD Sports raised their annual profit forecasts.
Last week, Next and B&M did the same thing.
Another tendency that surfaced throughout the holiday season was a decline in online sales, which may be entirely explained by the impact of Royal Mail strikes, and an increase in-store visits.
Tesco and Asos shares opened 1.5% lower, while M&S shares slid 2.6%.
Halfords experienced a 12.8% decline.
Sophie Lund-Yates, the principal stock analyst at Hargreaves Lansdown, commented on Tesco’s sales results as follows: “Despite all of the advancements, there is an elephant in the room.
“A significant part of success is attributable to discounting. Aldi Price Match and price freezes are highly effective strategies, although they can be detrimental to profitability.”
“Before the epidemic, supermarkets had only recently regained their footing after years of margin erosion due to an all-out price battle.
“As a result of soaring inflation and pressure on consumer purchasing power, history is repeating itself. It is evident that the tug-of-war between price and volumes is creating a positive outcome, which is why profit estimates have been maintained, but the current situation is far from ideal for the industry’s major players.”
