Shares in Marks & Spencer (M&S), Greggs, Sainsbury’s and B&M have all taken a hit today as investors reacted nervously to warnings of a slowdown in consumer spending over the next year. Despite Sainsbury’s results due to be announced on Friday, all companies reported solid earnings updates this morning.
M&S saw an 8.7 per cent increase in festive food sales, while B&M reported a 3.5 per cent rise in group revenue year-on-year. Greggs also informed markets that total sales had grown by 11.2 per cent, as reported by .
However, by mid-afternoon, shares across the retail sector had fallen, with M&S down by 7.1 per cent, B&M dropping 8.75 per cent, and Greggs plummeting nearly 15 per cent. Even Tesco, which announced a 4.7 per cent boost in sales and claimed control of almost a third of the grocery market, experienced a two per cent slide in its share price in early trades, softening later in the day to trade down 0.72 per cent.
The sharp sell-off seems to have been sparked by warnings from grocery bosses about the weak outlook for the º£½ÇÊÓƵ economy and a downturn in consumer spending this year. Richard Hunter, head of markets at interactive investor, commented: "[M&S and Tesco] have been busy making hay while the sun shines... unfortunately, investors have chosen to slam both stocks in early trade amid the raft of economic challenges to come, while taking some profits after their strong recent rally."
‘Glass half empty market’
The broader context of soaring º£½ÇÊÓƵ gilt yields and a slump in the pound "did nothing to help" sentiment towards domestic stocks, according to Russ Mould, investment director at AJ Bell.
"The glass half empty market seized on any traces of negativity," added Mould.
Analysts attributed Greggs’ 12 per cent drop to slightly softer-than-expected results, particularly comments about lower footfall from CEO Roisin Currie. Darren Shirley, Equity Analyst at Shore Capital, said Greggs "was not immune" from the gloom surrounding the º£½ÇÊÓƵ retail sector.
"Management talks of consumer confidence being subdued through [the second half of] 2024, which weighed on industry-wide customer visits and expenditures," Shirley added.
Consumer confidence is key
M&S’s decline was due to a "reliance on discretionary spend" and the "gloomy tone adopted in the outlook statement", according to Mould. "While understandable given the impact of the Budget changes, sticky inflation and higher for longer rates, the comments chime with the current bleak mood around the º£½ÇÊÓƵ’s economic prospects," Mould added.
The Budget has triggered numerous warnings from businesses about the impact of a higher tax bill on thin profit margins, leading to threats of price hikes in the year ahead. Investors are therefore sensitive to any sign of a slowdown in consumers’ desire to spend.
Chris Beckett, head of equity research at Quilter Cheviot, commented on the financial landscape, saying "rising National Insurance costs and broader cost-of-living challenges are expected to eat into measures designed to boost margins."
The Autumn budget has indeed increased national insurance contributions – a tax employers pay on staff wages – from 13.8 per cent to 15 per cent, and also lowered the threshold at which employers must start paying the tax from £9,000 to £5,000.
Is this a buying opportunity?
Additional indicators such as falling discretionary spending or high street footfall could lead to further market declines. However, analysts today expressed confidence that M&S, Tesco, and Greggs have the capability to weather these challenges.
"Greggs has proven its ability to navigate tricky times in the past and, with cash on its balance sheet, great brand awareness, and an entrepreneurial management team, there are reasons to be optimistic despite the headwinds," remarked John Moore, senior investment manager at RBC Brewin Dolphin.
Peel Hunt analysts praised M&S's adaptability, stating that the company "continues to evolve its range skillfully... we see the weakness in the absence of an upgrade as a clear buying opportunity."
Interactive Investor’s Richard Hunter echoed the sentiment for M&S, noting that the "market consensus" for the retailer was still "a strong buy... reflect[ing] hope all round that this success story can continue."
As for Tesco, Hunter observed that it "still rules the roost".
