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Key Messages

• Xmas reporting from retailers has surprised on the upside
• A number have reported 鈥榬ecord鈥� performance
• But huge caveats remain on interpreting Xmas trading statements
• Next and B&M both upgrade on profit guidance
• Full price sales at Next +4.8% y-o-y (vs guidance of -2%)
• Stores (+12.5%) out-performed online (+0.2%)
• B&M total sales grow +10.3% (+6.4% like-for-like)
• Aldi鈥檚 sales +26% y-o-y in Dec to surpass £1.4bn
• Greggs鈥� like-for-like sales surge +18.2% in Q4
• Boots sales up ca. +15% (+8.7% like-for-like)
• Some evidence of a flight to value, but not the whole story
• Not all retailer trading statements will be as strong as those to date
• Big miss-match between reporting and cost-of-living crisis narrative
• Inflation-induced gulf in retail sales values and volumes figures
• KF predicts volumes down ca. -6%, values up ca. +3% in Dec
• 鈥楻ecord鈥� levels of overall spend, but a 鈥榬ecord鈥� decline in products bought.

A big one in the eye for the retail doommongers 鈥� without exception, all retailers reporting on Christmas to date have produced stellar numbers. A huge number of caveats, of course, but those expecting and indeed clamoring for cost-of-living crisis misery have thus far had little to feed on.

As ever, the media have been far too quick and glib in their assessment of retail performance over the festive season, placing excessive emphasis on either spurious indicators or taking information wildly out of context. Footfall is far from the all-encompassing watertight measure it is made out to be and it is always dangerous to read too much into supposed 鈥榯rends鈥�. Quite simply, retail is not about how many people are visiting or walking around, it鈥檚 about what they buy and, above all else, much they spend.

The caveats

As I trot out every January: retailer Christmas trading statements are also notoriously unreliable, yet for some reason still seem to be treated as gospel by the media. There are four key limitations with them:

1. Unlike full year and interim accounts, the statements are unaudited.
2. They are basically a vehicle for retailers to put out any message they wish. Retailers have free rein to select whatever reporting period they want and this can massively          distort which numbers are released.
3. The statements are pre-occupied with sales and contain precious little information on profits.
4. Even the sales figures are gross rather than net. They will not take into account product returns, the proportions of which continue to escalate in a multi-channel retail world.

Rather than complete fabrications, retailer Christmas trading statements are a version of a multitude of nuanced truths. The media game of putting retailers into 鈥淲inners鈥� and 鈥淟osers鈥� enclosures over the coming weeks is likewise over-simplistic. Unless two retailers have exactly the same reporting period, you are again never going to be comparing apples with apples. One day鈥檚 difference either way can swing sales by +/- 20%.

As I always say, any assessment of retailer trading statements in the coming weeks needs to heed these very strong caveats.

Retail reporting to date

The word 鈥榬ecord鈥� has been a recurrent theme in many of the statements to date.

Aldi was typically quick of the mark, declaring 鈥榬ecord鈥� Christmas sales, with turnover during December up +26% year-on-year to top £1.4bn for the first time. Having opened ca. 50 new stores during the year, anything but 鈥榬ecord鈥� sales would, in fairness, have represented a total disaster. A like-for-like performance figure was not forthcoming in the release, which would have been infinitely more illuminating than the fact that it sold more than 48 million mince pies, 38 million pigs-in-blankets and more than 1,700 tonnes of sprouts鈥�

The first retailer of all to report was The Perfume Shop. It too celebrated 鈥榬ecord鈥� Christmas sales, selling a 鈥榬ecord鈥� 1.8 million bottles of perfume between 28 November and 24 December, while gift set sales surged 26% year-on-year in the week before Christmas.

Childrenswear retailer Mamas & Papas also reported (you guessed it) a 鈥榬ecord鈥� Christmas, with year-on-year sales increasing 16% in the eight weeks to 25 December. The business reportedly had its best-ever trading day on Black Friday, with 30 of its 52 stores setting new 鈥榬ecords鈥�. It stated: 鈥淲e鈥檙e delighted to be reporting such a strong performance as we head for a record-breaking financial year. Our digital business made a positive contribution, but footfall and store-based sales significantly surpassed pre-pandemic levels over the Black Friday and Christmas trading period, which is a clear sign of Britain鈥檚 love of the high street.鈥�

Definitely more edifying was the release from Next. The media made the usual mistake of referring to Next as a bellwether. It鈥檚 not - it鈥檚 an early reporter and out-performer, not a representative of wider market trends. Lazy semantics aside, Next鈥檚 figures were undeniably strong, albeit accompanied by typical conservatism. Full price sales rose +4.8% year-on-year in the nine weeks to 30 December, compared to ultra-conservative previous guidance of a -2% decline. For once, the store-based side of the business significantly out-performed online (+12.5% vs +0.2%). On the back of this, the business raised guidance on full-year pre-tax profit to £860m, up from a previous forecast of £840m.

Despite the upgrade, Next stated it would 鈥渞emain cautious in [its] outlook for the year ahead鈥� and gave guidance that full-price sales for the year to January 2024 are likely to be down -1.5% and pre-tax profits down -7.6% compared with the current year. Given the retailer鈥檚 track record of significant understatement, few would bet that these projections will be comfortably surpassed. In the absence of bad news in the trading performance, most of the dog-with-a-bone media headlines sadly majored on the fact that Next expects that cost price inflation on like-for-like goods to peak at around 8% in the Spring Summer collection.

Boots posted an +8.7% increase in like-for-like sales for the three months to November. The health and beauty retailer marked its seventh consecutive quarter of sales growth and market share gain, on top of +16.3% growth last year, which it credited to its focus on value and a record-breaking Black Friday. The retailer said while December results will be reported in the spring, early indications show that it had a strong Christmas season, with sales growth of around +15% against December 2021. Boots said footfall continued to recover ahead of the market, up 8% ahead of retail footfall in the UK, while online sales have doubled from pre-pandemic levels and now account for 18% of total retail sales.

Characteristically strong figures from value-based operator B&M. UK like-for-like sales rose +6.4% and total sales rose +10.3% in the third quarter to 24 December 2022. Full-year adjusted EBITDA is expected to be between £560m and £580m, ahead of previous consensus of £557m. Revenues for the group, which also operates in France, rose +12.3% year-on-year to £1.57bn.

Greggs鈥� like-for-like sales surged +18.2% in its fourth quarter. For the full year ended 31 December total sales were up +23% to £1.51bn, with like-for-like up +17.8%. CEO Roisin Currie stated: 鈥淲hile market conditions in 2023 will remain challenging, our value-for-money offer of freshly- prepared food and drink is highly relevant as consumers look to manage their budgets without compromising on quality and taste.鈥�

As previously caveated, it would be wrong to read too much into any of these trading statements. Some have interpreted them as a cost-conscious flight to value (Aldi/B&M/Greggs) and while there may be a degree of truth in that, it probably does not tell the whole story. Others have pointed to out-of-town retailers outperforming their town centre counterparts, usually drawing on footfall data trends. This conclusion seems tenuous at best.

The truest interpretation is that the retailers reporting to date are some of the strongest and best operators in the market. They traded well over the festive season because their brands are strong and they are good at what they do. As simple as that.

Some perspective

We won鈥檛 get the official ONS retail figures for December/Q4 until Friday 20 January. Ahead of that, we will get something of a steer from the British Retail Consortium鈥檚 (BRC) December figures, which will be released next Tuesday (10 January). As ever, the irony is that by the time the official numbers come out they are 鈥渙ld news鈥� and get limited coverage in the media.

I expect the general miss-match between retailers鈥� trading figures and the 鈥榙oom and gloom鈥� wider narrative to continue. Of course, not all retailers will report stellar trading figures in the coming weeks and there is definitely truth in the old adage that bad numbers take longer to count. But the underlying picture is unlikely to be quite as disastrous as most are predicting.

Whatever transpires, Christmas 2022 will be a 鈥榬ecord鈥� on two completely contradictory levels. Retail sales volumes (i.e. product bought) will show an unprecedented decline, probably in the order of -6% y-o-y (by far eclipsing the previous December lows of -1.9% in 1991 and 2010). A 鈥榬ecord鈥� bad Christmas on this count. But retail sales values (i.e. actual money spent) will probably grow by around +3%. Expressed another way, we actually spent more money last month than in any month in history. A 鈥榬ecord鈥� good Christmas on this count. Such is the almost schizophrenic economy we now find ourselves in.

Largely to fit the 鈥榗ost-of-living鈥� narrative, the overriding focus in both the economist and media community has switched to retail sales volumes (supposedly 鈥榬eal growth鈥�). But the slew of Christmas trading statement has highlighted the limitation of this focus. Retailers themselves always report their equivalent of value growth 鈥� total sales, or better still, like-for-like sales. There is never any reference to volumes. And this reflects how they think 鈥� cash rather than any notional measure of 鈥榬eal growth鈥�.

Maybe - just maybe - this new-found obsession with volume growth is painting an overly bleak picture, slightly detached from a reality that is undeniably still extremely challenging?