Uncertain inflation and cost outlook weighs on Tesco and M&S shares

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Uncertainty over inflation and increasing costs weighed on the shares of leading retailers despite Tesco reporting it delivered its “biggest ever Christmas” and food sales at M&S growing by nearly 9 per cent over the festive period.

Tesco’s like-for-like sales, excluding VAT and fuel, rose 3.1 per cent in the 19 weeks to January 4, helping the company to achieve its highest market share since 2016 of 28.5 per cent, according to industry data from Kantar. Its upmarket Finest range performed strongly over the period, with sales rising 15.5 per cent.

“What we’re not saying is ‘there will be no inflation’,” Tesco chief executive Ken Murphy said. “What we’re saying, ‘we’ll do our best to mitigate the impact’,” he added as the UK’s top retailer maintained its full-year guidance of £2.9bn in retail adjusted operating profit, its preferred metric.

He confirmed the £250mn hit a year from additional national insurance costs following the Budget in October but he insisted that Tesco would work hard not to pass inflation on to shoppers.

Shares were down 2.7 per cent to 359p in morning trading.

Murphy said consumer sentiment was “balanced” after a year of steady improvement in confidence although he expected shoppers to focus more on value in January after Christmas spending.

M&S shares fell 6.4 per cent to 352p as the company warned the outlook for the year ahead remained “uncertain” as the business faced higher costs “from well-documented increases in taxation”.

This was despite higher than expected like-for-like food sales, which rose by 9 per cent in the 13 weeks to December 28. Analysts had expected growth of just under 8 per cent.

“Sales records were broken across the business, with food recording its biggest day and clothing, home & beauty online its biggest week,” chief executive Stuart Machin said, adding that “core category sales grew strongly as more customers ticked off their whole shopping list at M&S”.