The week ahead: Tesco, Sainsbury and Next offer insight into UK retail

1) US non-farm payrolls (Dec) – 09/01 – with the return of US economic data the November jobs report showed that hiring grew by 64k, while the unemployment rate edged up to 4.6%, from 4.4% in October, although 0.1% of this increase was down to an increase in the participation rate to 62.5%. The rebound in the jobs market wasn’t entirely unexpected given that November tends to be a strong month on the back of hiring increases that tend to occur in the leadup to Thanksgiving and the Christmas period. That said, the numbers for October saw a sharp decline of 105k, although the data for this month was skewed as a result of the US government shutdown. We also saw downward revisions to the August and September payrolls numbers of -22k, and -11k in clear signs that the US labour market, after a strong H1, has seen a sharp slowdown in H2. As we look towards the December payrolls report it is clear that the impact of the US government shutdown is continuing to impact the US economy, with the slowdown in the labour market also being reflected in the ADP jobs report which has seen similar weakness in recent months, with 3 of the last 4 months showing a decline in hiring.   

2) Next Q4 26 – 06/01 – this last quarter is likely to be a challenging one given the lead-up to the budget which took place at the end of November, and the prevailing gloom which has seen a sharp slowdown in consumer spending in the last few weeks. When Next reported back in October there was a degree of surprise that the retailer felt confident enough to upgrade its forecasts for full price sales for Q4 to 7%, adding £36m to its forecast. At the time the shares were trading at record highs but have seen a modest retreat since then on concerns perhaps that this last upgrade may have been an upgrade too far. The retailer has been a relative outlier over the past few quarters, consistently upgrading its profit and sales guidance despite a tough retail environment. When Next reported in Q3 full price sales rose 10.5% during the quarter, with UK sales rising 5.4%, putting it on course to comfortably beat its H2 forecasts of 1.9%. International sales also performed well, increasing by 38.8%, over 10% above forecasts, prompting the retailer to raise its forecasts for full price sales for Q4. Full price sales year on year are now forecast to increase by 9.7% to £5.55bn, with full year profits before tax now expected to increase by another £30m to £1.13bn. With the extra cash, Next says it plans to return some of this extra profit to shareholders in the form of a special dividend of £3.10 per share at the end of January 2026, on top of the 87p dividend which will be paid on 10^th January.    

3) Tesco Q3 26 – 08/01 – remains far and away the UK’s number 1 grocery retailer, the shares briefly hit their highest levels in 12 years back in November before retreating to current levels. When they reported in H1 numbers back in September, there was good news in the form of an upgrade to its full year guidance for operating profit to between £2.9bn and £3.1bn, up from £2.7bn and £3bn, while leaving its target for FCF unchanged at between £1.4bn and £1.8bn. H1 Group sales rose by 5.1% to £33.05bn and a 1.5% increase in group adjusted operating profit to £1.67bn. H1 revenue rose 3.6% to £36.03bn while profits before tax fell 6.3% to £1.3bn, largely due to costs related to the sale of Tesco Bank and other restructuring costs. The dividend was also increased by 12.9% to 4.8p per share. Tesco said that it had seen a good performance across all of its businesses with solid gains in LFL sales in the UK, +4.9%, Ireland 4.8% and Booker 1.7%. UK market share increased to 28.4%. Cost of sales saw an increase of over £1bn, with Tesco saying that the April tax increase cost it £235m while new packaging rules, which started this month, added another £90m. To offset some of these cost increases Tesco said its on track to make £500m savings elsewhere with the rollout of convertible tills, which can be used to staff or self-service  

4) Marks and Spencer Q3 25 – 08/01 – it’s not been a good 12 months for the M&S share price with the April cyberattack hammering its profits as well as its reputation. When the retailer reported in November, H1 statutory profit before tax slid from £413.1m last year to £184.1m for this half year, a decline of 55%. Operating profits did fall, but by £211.3m, as some of the impact to profits was offset by insurance income payout of £100m. The impact was most keenly felt in the General Merchandise part of the business which saw sales decline 16.4%, while a reduction in margins saw adjusted operating profit there slip to £46.1m. The most notable impact here was a 42.9% decline in online sales, while store sales also fell 3.4%. Food sales on the other hand rose 7.8%, helped by heavy discounting in move that saw operating profits fall 59%, but there was a gain of 10bps rise in market share, with margins there starting to see a return to normal, however the General Merchandising business appears to be taking a little longer to recover. While profits were lower, which was widely expected it is notable that despite the disruption revenue saw a 22.5% increase to £7.94bn. With the notable increase in revenues the retailer also had to deal with an increase in costs in the form of the Extended Producer Responsibility packaging levy, and higher national insurance which added over £50m. To deal with this M&S said it is looking to cut another £600m in costs to mitigate these increases in the form of cutting loss-making lines, and improving logistics with more boxed automation. M&S increased its interim dividend by 20% to 1.2p from 1p and said they expected H2 performance to be in line with last year in terms of profitability, despite an uncertain consumer outlook. 

5) Greggs Q4 25 – 08/01 – it’s been a difficult year for Greggs’ shareholders with the shares struggling since a profit warning almost a year to the day, and which saw the shares plunge after a poor Q4 2024. In the last 18 months the shares have almost halved, having managed to see a modest rebound from the recent lows at the end of November. When the bakery chain reported in September there was a welcome rebound in total sales for Q3, which saw an increase of 6.1%, with total sales year to date increasing 6.7%. In Q2 the bakery chain issued a profit warning due to a weak performance in Q2 due to the hot weather. On a like for like basis the sales growth was more modest, rising 1.5% in Q3. During the quarter the bakery chain opened a total of 130 new shops, and closed 73, a net increase of 57. This is expected to rise to 120 by year end, with the company saying that its outlook for cost inflation had improved for the rest of the year. Nonetheless the recent changes to NIC have still cost the business an extra £20m, which means that it will have to increase some prices by around 5%.    

6) Sainsbury Q3 26 – 09/01 – when Sainsbury reported in November the shares surged to their highest levels since 2014, and while we’ve seen a modest retreat since then the business appears to be performing well, sitting comfortably in the number 2 position for market share in the UK grocery market. The push to those recent peaks was the supermarket raising its full year guidance for underlying full year operating profit to £1bn, after reporting a solid performance across all of its business divisions, including Argos which saw sales growth of 2.3%. This Argos performance was helped by the warmer summer weather, with 80% of its sales now done online. This does rather beg the question in having spent so much money in integrating the business into its supermarket model that there is talk of selling it on. Group revenues rose 2.8% to £17.58bn. Grocery sales rose 5.3%, while GM and clothing saw sales growth of 3.3%. Fuel sales were down 11.3%. Statutory profit after tax rose 117% to £165m with the retailer announcing a further £150m share buyback and a 5% increase in the dividend to 4.1p. The increase in profits was partially driven by the proceeds of Sainsbury Bank, some of which will be returned to shareholders in the form of a £250m special dividend. Sainsbury also said it remains on course to cut over £1bn in costs by the end of 2027, which is expected to enhance the free cash flow to in excess of £1.6bn over the same period. Sainsbury also opened 6 new stores during H1, with sales there 20% ahead of expectations, and expect to open another 6 in H2 and 12 next year.