UK Retailers Brace for Possible Decline After Next's Holiday Results

British shoppers continued to spend during the holiday season, despite inflation and economic concerns. Next Plc and B&M European Value Retail SA both saw increased sales. It is unclear, however, if this spending will continue into the new year.

Next raised its annual profit forecast Thursday after strong Christmas sales. B&M and baker Greggs Plc also reported recent revenue growth. Next week, results from a range of retailers will show how widely consumers spread the cheer.

Analysts are predicting a 23% decline in M&S's adjusted pretax earnings for the year ending March, according to data from Bloomberg. Asos will also be giving a business update on January 12, and analysts are predicting a decline of more than 50% in the online fashion retailer's annual earnings for its current fiscal year.

It's encouraging to see that UK consumers are still spending at Next stores despite rising prices, soaring energy bills, and transport strikes. However, the coming months are going to be tough, with credit card bills coming due and mortgage rates rising. The Bank of England doesn't forecast inflation to peak until later in the year, so things are likely to get worse before they get better.

Even though Next forecast a 8% decline in pretax profit through January 2024, the shares rose as much as 9.3%. This is because expectations for UK retailers are so low. Next sees inflation peaking in spring-summer this year and receding in autumn, providing some guidance for when shoppers may finally see prices start to stabilize.

"I hope inflation comes down," Greggs CEO Roisin Currie said on a media call Thursday. "I don't think we'll move into a deflationary environment, though."

Some positive news came in the form of Next's update in a sector that has been dismal for months as consumers pull back on non-essential spending. Online furniture brand Made.com and fashion chains Joules and M&Co entered insolvency in recent months. Some retailers are having to turn to alternative lenders for support, with household and garden retailer Wilko securing a credit facility from Hilco Capital Ltd. and Superdry Plc getting a loan from Bantry Bay Capital.

Boots, a UK drugstore chain, said on Thursday that early indications suggest a very strong Christmas period, with sales growth of around 15%. Gifts, beauty products, and perfumes seem to be selling well, along with cold medications.

Next week, Tesco and J Sainsbury Plc will reveal how their Christmas sales fared against discount rivals Aldi and Lidl. According to Kantar data released this week, both Tesco and Sainsbury saw slower sales growth than the German retailers in the 12 weeks leading up to Christmas. This is likely due to shoppers seeking to save money on groceries by patronizing Aldi and Lidl.