What is the outlook for UK retail stocks in 2025? From Investing.com
Investing.com — It’s been a tough start to 2025 for U.K. retail stocks, with U.K. budget worries spilling over to businesses and consumers. On Friday, data revealed that UK retail sales fell in December despite expectations for a jump over the festive period.
UK consumers cut back on spending, with retail sales falling 0.3% in December, well below the consensus of 0.4% growth. However, Jefferies analysts are “cautiously optimistic” for the rest of the year.
In their “Real-time Retail Round-Up” note, Jefferies analysts said “the slower trend in Christmas trading has become evident.”
Key retailers like Greggs (LON:), Dunelm, JD (NASDAQ:) Sports, M&S Clothing/Home and B&M missed expectations in either like-for-like sales or profit.
Although these omissions did not significantly affect earnings estimates, the market reaction was highly significant.
The company said softer sales trends in the fourth quarter of 2024 were reflected in their retail trend barometers, which showed an average rate of movement of -4% through 2023, slowing to -9% in the third quarter of 2024 and a further decline to – 13% in the last quarter of 2024.
Looking ahead, Jefferies maintains a cautiously optimistic outlook for 2025.
“While we recognize that the sector has challenges to face (opex/NIC, consumer confidence), particularly in the short term, we believe that positive demand and a cyclically increased savings ratio should support a more positive 2025 than the market is forecasting.”
Jefferies also highlighted the valuation aspect, noting that the sector trades at approximately 11x multiple, a 15% discount to its long-term average.
They recommend “selectively adding exposure” and have identified their top picks for 2025 as Premier Foods (LON:), Frasers and DFS.