Ongoing round-up of this week’s Christmas trading statements – The Good, The Bad, The Indifferent, The Ugly. And official ONS retail sales data for December, Q4 and FY 2018 – completely at odds with all media narrative and out-of-kilter with other supposed key retail indicators, notably footfall and the BRC Retail Monitor.

With the usual caveat of the dangers of reading too much into retailer Christmas statements and limitations of retailer comparisons, unless they are reporting on exactly the same trading period, here goes…

The Good

• Stellar figures from some of the fashion retailers. Primark eased pre-Xmas fears by reporting a 4% increase in sales for the 16 weeks to 5 Jan (with the UK +1%). JD Sports underlined its credentials as one of the UK’s best retailers, reporting “significant progress” during the Christmas trading period, maintaining margins and saying that earnings predictions would be at the higher end of expectations. Lifestyle brand Seasalt had a record Christmas, with overall sales up 35% in the five weeks to 5 Jan (online +39%, stores +31%, like-for-like +9%). Moss Bros’ figures were more modest (total retail sales +1.9%, like-for-likes +0.1%) but showed a considerable turnaround on last year, as well as an improving trend.
• In a slightly more revealing release that its compatriot Aldi, Lidl reported an 8% increase in Christmas sales (6 weeks to 30 Dec). Seven new stores were opened over the festive period. At the very opposite end of the market, Fortnum & Mason had a record-breaking Christmas, with total sales up 12% in the 5 weeks to 30 Dec. In the week before Xmas, sales were up 23%. The business was also keen to stress that growth was being driven primarily by domestic, rather than overseas demand. Premium food operator Booths reported a 3.3% increase in sales and 4.5% uplift in profits for the 3 weeks to 5 Jan as its turnaround gathers pace.
• Upholstery retailer DFS recorded a 10% rise in gross sales over the last five months and maintained FY profit guidance. Specialist toy retailer The Entertainer posted a 22.4% uplift in total sales in the 5 weeks to 29 Dec. Total like-for-likes grew by 13.5%, driven by a 13% surge in store like-for-likes and a 17% increase in online sales. More niche Games Workshop saw sales increase by 14% in the 6 months to 2 Dec, while operating profit rose 7% to £41m.
• Excellent figures from Boohoo were disproportionally interpreted as a further triumph for online pure-plays. The business reported a 44% increase in group revenue for the 4 months to 31 Dec. All brands and geographies achieved good growth and this resulted in an upgrade to FY expectations. A triumph for a great retail business, rather than the channel it espouses (cf. a profit warning from ASOS, worryingly hefty losses at Missguided and underperformance at other online specialists such as N Brown)…

The Bad

• Mail order turned online specialist N Brown saw a 1.6% decline in sales in the 18 weeks to 5 Jn. Product sales fell 6%, with power brand sales rising just 0.1%. Simply Be and Jacamo sales rose by 1.6% and 5.5% respectively, but JD Williams fell 3.3%.
• Fashion retailer Quiz has issued a fresh profit warning on the back of heavy discounting in the run up to Christmas. Sales were up 8.4% in the 6 weeks to 5 Jan, but this was below expectation and driven by hefty mark-downs. 

The Indifferent

• The experience of Quiz mirrored much of the fashion market – a very soft November in the face of unseasonably warm weather, followed by frantic discounting to prop up sales figures in December. This was also reflected in Matalan’s figures. Top-line sales growth was ostensibly strong (+4% in the 5 weeks to 29 Dec) but full-price sales fell 0.5%. FY earnings are expected to be £100 - £102m, down from £104.5m last year.
• Value stationery and book retailer The Works toasted  a “record” Christmas, with like-for-like sales growth of 4.5% in the 11 weeks to 13 Jan. However, the business posted a statutory pre-tax loss of £7.9m in the first half of the year, albeit profitability is very seasonal and weighted towards the second half.
• Computer game specialist Game saw group like-for-likes increase by 2% in the 7 weeks to 5 January, although this was driven by a far stronger performance in Spain (+4.8% like-for-like) than in the UK (-0.3% like-for-like).

 

The Ugly

• Nothing particularly ugly in the Christmas reporting, but the prospect of further CVAs looms large. Jack Wills’ lenders have reportedly called in advisors to assess the fashion retailer’s financial position, while stationery retailer Paperchase has reportedly hired KPMG to explore restructuring options. Debenhams’ plight has taken turn for the worse over the last week through a boardroom coup which puts it in the farcical situation of having a CEO who doesn’t actually sit on the board.

Stephen Springham, Head of Retail Research:

Oh the irony. After months of frenzied speculation as to how retailers would fare over Christmas, the official retail sales figures for December were released by the ONS today. Yet barely an acknowledgement in many quarters of the media.

But maybe that is a blessing, given that those that did cover them predictably got the wrong end of the stick and majored on the month-on-month stats rather than the meaningful year-on-year ones. I’m guessing many were already content with the far weaker, earlier-released BRC ones and the convenient summation that ‘2018 was the worst Christmas in a decade.’

It wasn’t. Retail sales values in December increased by 3.1% (Knight Frank forecast +3.0% to +3.5%). This rate of growth was lower than last year (+4.4%) but higher than four of the preceding years over the last decade (the nadir was definitely in 2015 when retail sales values in December declined by -0.3%).

For Q4 as a whole, retail sales values grew by 3.5% (KF forecast +3.5% to +4.0%). But on both counts, retail volumes (i.e. sales net of inflation) surprised slightly on the upside – in December +2.6% (KF forecast +1.5% to +2,0%), in Q4 +2.9% (KF forecast +2.0% to +2.5%). In other words, the quantity of goods bought was higher than expected, although this was not wholly a good thing, as I will go on to qualify.

To complete the set, retail sales values for 2018 as a whole were up 4.2% (KF forecast +4.2%) and volumes were up 2.8% (KF forecast +2.8%). So, retail sales volumes are likely to have grown at twice the rate of the overall economy (+1.4%). Not bad for a sector that is supposedly dying.

The discrepancies between the ONS and BRC figures (zero retail sales value growth, like-for-likes down -0.7%) are huge, as they have been for months. The ONS covers a much larger sample size (ca. 95% of retail operators, big and small), but it does raise question marks over the constituents of the BRC Sales Monitor and whether there is too much weighting on larger, underperforming players (e.g. M&S and Debenhams).

Be that as it may, the overly negative narrative is even more perplexing. Sure, the BRC has a number of agendas (e.g. promoting retailers’ interests on business rates, Brexit policy etc etc), but leading on the headline that retailers had their worst Christmas in a decade hardly seems to further the retail cause in any shape or form. 

Whatever the media may say, the ONS figures aren’t bad. But as I’ve said on many occasions over the last few weeks, the state of the UK retail market is about so much more than the numbers. And while the retail sales figures themselves aren’t disappointing, they are hardly a triumph and there are still major causes for concern.

As already mentioned, volume growth was higher than forecast and the gap between value and volume growth has narrowed considerably. The obvious conclusion – lower inflation.

While this may be a cause for celebration amongst economists, it is actually a more worrying portent from the retail coalface. In simple terms, retailers discounted deeply and promoted heavily in the run up to Christmas, so a large proportion of sales growth was ‘bought’. Good for sales, very damaging for margins and profitability. And this is where so much of the structural pressure on the high street is at the moment. Hardly what was needed.

Ordinarily, month-on-month comparisons are disingenuous, but the broad trend last year is still telling. Overall retail sales spiked in November (try telling that to the fashion retailers), although there was also a very last minute surge too just before Christmas.

The worrying conclusion to take from this is that Black Friday played far too dominant a role, disrupting sales patterns and merely displacing spend rather than generating incremental growth. As well as undermining industry margins and setting a negative tone for pricing over the whole festive period.

Where does that leave us? In all honesty, in pretty much the same position as we were before. Christmas was decent, rather than outstanding. But the structural challenges remain and Christmas was not never going to alleviate or aggravate wider pressures on its own.

But even if it wasn’t just about the numbers, the media should at least get the numbers right.