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Tesco and Marks and Spencer warned that rising costs and tax hikes would hit business this year, sending shares in the UK’s two biggest retailers tumbling on Thursday morning.
Shares in M&S fell 6 percent in morning trading in London, while Tesco fell 2.7 percent before a partial recovery, as the sector faces a gloomy economic backdrop and higher taxes after United Kingdom Budget in October.
Share prices fell despite Tesco recording its “biggest Christmas ever” and food sales at M&S rising by almost 9 per cent over the festive period.
M&S warned that the outlook for the coming year remains “uncertain” as the business faces higher costs “due to well-documented tax increases”. Retailers are faced with increased employers’ National Insurance bills and a rise in the country’s living wage.
Both Tesco and M&S warned of higher inflation this year but said they would try not to raise prices. Food price inflation rose to 3.7 percent in December — the highest level since March 2024, according to industry data from Kantar this week.
“We will do our best to mitigate the impact,” Tesco chief executive Ken Murphy said, as the UK’s biggest retailer maintained its full-year guidance of £2.9bn retail-adjusted operating profit, its preferred indicator.
M&S chief executive Stuart Machin echoed Murphy’s comments on Thursday, saying he was “absolutely keen to minimize aisles [inflation] to consumers in both food and clothing”.
Although there was “cautious consumer confidence”, he warned that “cost headwinds are blowing our way”.
Finance chief Jeremy Townsend said the retailer would try to “keep our clothing prices as flat as possible” and indicated it would raise food prices less than inflation.
Tesco’s Murphy confirmed the retailer would pay an extra £250m a year into National Insurance after the Budget, but insisted Tesco did not want to pass this on to customers.
Consumer sentiment was “balanced”, he said, after a year of steadily improving confidence, although he expected shoppers to focus more on getting value for money in January after Christmas spending.
TescoLike-for-like sales, excluding VAT and fuel, rose 3.1 per cent in the 19 weeks to January 4, compared with the same period a year earlier.
Asked about the drop in the share price, Murphy said “we’re not reading too much into it.” Analysts at Jefferies said the supermarket’s decision not to raise profit guidance despite a strong performance over Christmas was likely to be “excessive caution” by the group.
M&S shares fell as much as 6.4 percent to 352p. This was despite higher-than-expected like-for-like food sales, which rose 9 per cent in the 13 weeks to 28 December. Analysts expected growth of just under 8 percent.
“Sales records were broken across the business, food had its biggest day and clothing, home and beauty online had its biggest week,” Machin said, adding that “core category sales were up strongly as more customers ticked off their entire shopping list in M&S”.
Separately, shares in discount retailer B&M fell 12.3 percent on Thursday morning after it reported a 2.8 percent fall in comparable UK revenue growth in the third quarter, compared with the same period a year earlier.
