The week ahead – UK CPI, Marks & Spencer, easyJet and BT results

UK CPI Inflation (Apr) – 21/05 – While the recent decision by the Bank of England to cut rates by 25bps was widely expected the resultant splits on the MPC were less so, meaning that any benefit was completely negated by the move higher in gilt yields since then. While 2 members wanted to see a bigger cut of 50bps this was negated by two members who voted to keep rates where they were, with Catherine Mann, having previously called for a 50bps cut in February, voting to maintain the status quo, along with chief economist Huw Pill. These splits highlight quite starkly the challenges when it comes to setting policy in the current environment and rather than being criticised should be welcomed as it clearly shows that there are robust discussions taking place on how best to deal with the current challenges facing the UK economy. This absence of groupthink is most welcome, and is one of the major reasons the UK economy is in the mess that it is. The recent wages data is a case in point in that while wage growth slowed from 5.7% to 5.5% it was expected to come down more. We also saw unemployment rise to its highest level since 2021 for the 3-months to March at 4.5% as companies cut staff in response to the recent budget changes by the Chancellor of the Exchequer. Vacancy rates also declined in a sign that doesn’t bode well for the rest of the year, where we could see the unemployment rate head higher, which makes Catherine Mann’s comments about the “resilience of the labour market” a little puzzling given that Bank of England regional agents paint a gloomy picture of the UK economy. Nonetheless we need to look at this week’s April inflation numbers which are likely to reinforce the reasons behind the Bank of England’s apparent lack of dovishness in the short term. The last 3 months has seen the headline inflation rate slow from 3% at the start of the year to 2.6% for March which was broadly expected. The elephant in the room however has been what might happen in April, and while we’ve seen a welcome fall in petrol prices in the last couple of months these falls are likely to be offset by a myriad of price rises which are set to manifest themselves in these latest April numbers. With Broadband, council tax, energy and other utility bills all rising sharply, the UK consumer, as well as businesses, is facing a perfect storm of price rises which could knock the stuffing out of the UK economy in Q2. With so many moving parts when it comes to the April numbers, finger in the air forecasts for April inflation are likely to be just that. Anything between 2.6% and 3.1%, while core CPI is expected to remain well above 3%.   

UK Retail Sales (Apr) – 23/05 – The first quarter of 2025 has surprised on a number of levels when it comes to UK retail spending with the consumer proving to be much more resilient than thought. Since January UK retail sales have seen strong gains of 1.7%, 1% and 0.4% in a sign that after such a poor end of 2024, we’ve seen a modest bounce back when it comes to the willingness of the UK consumer to open their wallet. This has been borne out to some extent in some of the results of the major UK retailers, with decent numbers from the likes of Sainsbury and Tesco, while on the clothing front Next PLC posted a very strong Q1, although they also warned that a lot of this was down to the unseasonably warm weather which they believe brought forward spending from Q2, while DIY retailer Wickes also posted a strong quarter. The recent BRC retail sales monitor numbers also seemed to suggest a similar trend with the timing of Easter helping in this regard in a trend that could extend into May with the 80^th anniversary of VE day.   

China Retail Sales (Apr) - 19/05 – China’s economic numbers should always be treated with a huge pinch of salt, however the variances in them can point to an underlying trend when it comes to how well the wider economy is doing. In the first quarter of this year the economy grew by 1.2%, or 5.4% if you prefer, on an annualised basis. As far as the Chinese consumer is concerned there have been signs of an improvement in the last couple of months, with a strong March number of 5.9% which was the best month since December 2023, with gains across the board as sales of food, clothes, jewellery as well as sports and entertainment saw a strong performance. Can this be sustained into April with all the talk of trade wars or will we see a modest pullback having seen a strong start to 2025.  

Vodafone FY 25 – 20/05 – The Vodafone share price has continued to flatter to deceive the shares sliding to multi year lows in April in the aftermath of tariff liberation day in the US, although we have since seen a modest rebound. On the matter of its numbers there has been some improvement as CEO Margherita Della Vale tries to turn this particular telecom giant around, and streamline its operations. There has been some good news for Vodafone this financial year, signing a 10-year deal with Microsoft to integrate generative AI into its services to its 300m customers as it looks to focus on its core UK and Germany businesses, and the rollout of its 5G services as it looks to take on EE and O2. Having already got rid of its Spanish business it completed the sales of its Italian business to Swisscom for €8bn, while its merger with Three has now been approved. Its Q3 results also showed that group service revenue rose 5.2% to €7.9bn, although its German business continues to act as a ball and chain around its ankle as revenue there collapsed by 6.4% due to recent law changes related to pay TV. Full year guidance was reiterated at group adjusted EBITDA of €11bn and group adjusted free cash flow of €2.4bn.   

BT Group FY 25 – 22/05 – Unlike its sector peer Vodafone, the BT Group share price has moved steadily higher over the last 12 months with the shares up over 75% in the last 12 months and back at levels last seen in the summer of 2022. The gains have been slow and steady as new CEO Allison Kirby focussing on profitability with the Openreach fibre rollout continuing apace, with another 1m premises added to the FTTP build rate in Q3, bringing the total number to 17m with a view to reaching 25m by the end of next year. What was particularly notable was that revenues for Q3 were lower by 3% at £5.2bn, yet reported profit before tax was higher at £427m.  Nine months year to date is a similar picture of lower revenues but improvements in profitability as Kirby forges ahead with her £3bn cost cutting program as she looks to streamline the business down from 130k headcount in 2023 to between 75k and 90k by 2030. It also helps that BT is now free from the distractions of Patrick Drahi’s 24.5% stake, having been acquired by India’s Bharti Airtel, with talk circulating that the Indian company is looking to increase that stake further, taking it close to the 30% level which would be required to make an offer on the rest of the business. The company reiterated its full year guidance of a 1-2% decline in full year revenue, and EBITDA of £8.2bn, and free cash flow of £1.5bn.  

Marks and Spencer FY 25 - 21/05 – The recent cyber-attack on Marks and Spencer has served to take the gloss off the recent strong performance in the share price, with the retailers’ problems in the past few weeks likely to have taken a toll on its retail and financial performance, as it looks to report its latest full year numbers. Since the shares hit their highest levels in 9 years in April, at 417p, we’ve seen a modest pullback but have so far remained above the lows for the year at 319p. When M&S reported in January the retailer reported a solid set of Christmas trading numbers with food sales rising 8.7% to £2.58bn, while clothing also saw a rise in sales of 1% to £1.3bn. Like for like sales were also better, rising 8.9% and 1.9% respectively. Like for like sales for the group saw an increase of 6.4% with CEO Stuart Machin reporting the retailer's best Christmas ever for food sales. Management did strike a cautious note on the rest of the year, pointing to an uncertain outlook when it comes to growth, inflation and interest rates, while keeping full year guidance unchanged. While M&S has been at pains to assure that no bank account details were accessed it is still not clear how many customer details were hacked, and how much the breach is likely to have cost the business, not only financially but also in terms of future sales. With no online orders currently being processed the costs to revenues is likely to be high, but could well prompt significant readjustment to the company’s revenue and profits outlook for 2026.   

JD Sports FY 25 – 21/05 –. Back in April the JD Sports share price dropped to its lowest point since the Covid lows set in March 2020 at 61p, in the wake of a profits downgrade in early January. Since then, we’ve seen a modest rebound to just shy of 100p as improvements in the retail outlook have helped fuel a recovery. In April the retailer posted a steady set of Q4 numbers as well as announcing that it would be closing 50 underperforming stores mainly in Eastern Europe, as well as opening up to 100 new stores worldwide. On current trading the company said that full year organic revenue was up 5.8% and that profit before tax would be in line with the recent guidance downgrade of between £915-£935m. For 2026 total revenue is expected to be higher by about 10% largely due to the addition of new retail space/capacity with full year profit before tax for 2026 will be between £878m and £920m based on an FX rate of 1.3100, although this might change due to recent disruption caused by tariffs.

easyJet H1 25 – 22/05 – The first half of the year usually tends to be one of limiting one’s losses before making them up in H2. When easyJet reported in January the headline loss was one of £61m, which was a significant improvement on the £126m loss reported in the same quarter a year ago. The same is expected to apply when it comes to Q2. Passenger growth saw a 7% increase year on year in Q1 with group revenue for Q1 seeing a 13% increase to £2.04bn, up from £1.8bn. At the time forward bookings saw Q2 57% sold, with Q3 26% sold and Q4 13% sold. The easyJet holidays business is expected to see a further 25% customer growth with H2 45% sold when the airline reported in January, although this still remains low relative to its core business. Holiday’s revenue in Q1 was £247m, up from £181M. Load factors have continued to lag behind the likes of Ryanair at 88% in Q1, although that was higher than the 86% seen in Q1 of 2024.   

Target Q1 26 – 21/05 – Having seen Walmart post a fairly strong set of numbers in their latest Q1 update, attention now shifts to Target which has had a more difficult time of late when it comes to keeping track of its bigger retail peers. A lot of that will be down to its sales mix given that food sales are a much lower percentage of its footprint compared to Walmart, 23% for Target compared to 60% Walmart when comparing like for like in the filings. Location also plays a part with Target more susceptible to what they euphemistically called “shrinkage” or theft to you and me. When Target reported its Q4 numbers back in March the retailer reported revenues of $30.9bn, and that comparable sales rose 1.5%, with digital adding 8.4%. The revenue numbers, while better than expected, were still $1bn down from the same period a year ago, along with the profits number. Profits came in at $2.41 a share, yet the shares still slipped back and have continued to slide, after Target said it only expected sales growth of 1% which was below consensus of 2.6%. In April the shares briefly hit a 5-year low. Target also said it expected to see pressure on profits in Q1 due to downward pressure on margins. Profits are forecast to come in at $1.71 a share. 

Home Depot Q1 25 – 20/05 – The US answer to B&Q is always a good bellwether of the US consumer and DIY market and its performance share price wise relative to its UK and European peers since Covid could not be starker. While the likes of UK and European DIY retailers have struggled, the share price of Home Depot in the US has seen its share price almost double. So why is that given that these retailers have faced the same challenges of high interest rates as well as high prices as companies this side of the pond. Up until the most recent quarter Home Depot had seen 8 straight quarters of comparable sales declines. Q4 revenue came in at $39.7bn, a 14% increase on the year before, which was ahead of forecasts, while profits came in line with expectations at $3.02 a share, or $3bn. Comparable sales rose 1.3% year on year, helped perhaps by a pickup in spending due to damage caused by Hurricanes Milton and Helene, helping to push annual revenue to a record $159.5bn. For 2025 Home Depot says it expects total sales to grow by 2.8% and for comparable sales to increase by 1%, although these estimates may well get revised in light of the recent turmoil that has not only hit stock markets this last quarter, but which has seen the US economy slow as a result of the recent turmoil over tariffs.