Strong Christmas trading for Next and B&M European meant predictions of the demise of bricks and mortar retail were proven incorrect on Thursday.
B&M impressed, though Next was far and away the standout, despite somewhat cautious guidance for the year ahead.
‘The bricks and mortar retail channel is far from dead, judging by the latest round of retail sector trading updates... We’re now many months into a severe cost-of-living crisis, yet the latest figures would suggest that certain retailers can still draw in the crowds if the proposition is seen to be good value for money,’ commented Russ Mould at AJ Bell.
The FTSE 100 index was up 28.17 points, or 0.4%, at 7,613.36. The FTSE 250 was up 48.42 points, or 0.3%, at 19,439.49, while the AIM All-Share was down 0.68 of a point, or 0.1%, at 843.25.
The Cboe UK 100 was up 0.5% at 761.99, the Cboe UK 250 was up 0.8% at 16,951.96, and the Cboe Small Companies was up 0.5% at 13,367.35.
Gains in London contrasted with falls in mainland Europe. The CAC 40 in Paris was down 0.2%, while the DAX 40 in Frankfurt was marginally lower.
The CAC and DAX did not have gains from Next and other UK retailers to support it. Instead, the mood there was tempered by somewhat hawkish meeting minutes from the US Federal Reserve overnight.
The Federal Open Market Committee’s December meeting minutes indicated that further rate hikes would be ‘appropriate’ for the Fed to contain ‘unacceptably high’ inflation.
At its December meeting, the FOMC lifted the target range for the federal funds rate by 50 basis points to 4.25% to 4.50% - the highest since 2007 - from a previous range of 3.75% to 4.00%.
The central bank cautioned that a slowing of rate hikes should not be seen as a ‘weakening of resolve’ in the fight against inflation.
Investors will get more insight into the strength of the US economy when Friday’s jobs report is released. The precursor, ADP’s employment reading, is released at 1315 GMT.
Fed Chair Jerome Powell might ‘feel the need to provide the healing balm of a more relaxed monetary policy’ should the jobs data disappoint, AJ Bell analyst Mould said.
Stocks on Wall Street were called marginally higher ahead of the New York open. The Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite were all called 0.1% higher.
Still to come on Thursday’s economic calendar, the US publishes its unemployment insurance claims report at 1330 GMT ahead of a PMI print for its service sector.
Next was the best blue-chip performer in London at midday. The stock was up 7.0% after the firm lifted its profit outlook for the soon-to-end financial year, and said its Christmas sales topped expectations.
For the year ending in January 2023, Next increased its 2022 pretax profit guidance to £860 million, from £840 million. This would represent growth of 4.5% against the year prior, if achieved.
In the six months to December 30, Next said full price sales were up 2.2% against the previous year. In the three months to December 30, full price sales were up 4.7% against the year prior.
High street neighbours JD Sports and Frasers were up 3.3% and 2.6%, respectively, in a positive read-across. Superdry rose 5.3%.
B&M slipped into the red at midday after a strong early gains. The stock down 0.1%.
The retailer said revenue in the 13 weeks to December 24 was up 12% to £1.57 billion from £1.40 billion a year prior, despite a challenging macroeconomic environment.
As a result, full-year adjusted earnings before interest, tax, depreciation and amortisation are now expected between £560 million to £580 million, coming above current analyst outlook consensus of £557 million.
The anticipated adjusted Ebitda would be a drop of at least 6.3% from £619 million in financial year 2022, however.
Pearson gave back 4.4% and was the FTSE 100’s worst performer at midday, after Bank of America cut the education publisher to ’underperform’ from ’neutral’.
Among the FTSE 250, Greggs was up 0.3% as its sausage rolls and festive bakes were a hit over the Christmas period.
The bakery chain reported strong double-digit growth in fourth quarter sales, despite the impact of adverse weather and rail strikes, as 2022 drew to a close.
In 2022, total sales were up 23% to £1.51 billion, from £1.23 billion the year prior. Like-for-like sales for 2022 were up 18%.
‘This reflected a favourable trading pattern leading into the Christmas period and softer trading conditions in the comparable quarter of 2021 as a result of disruption caused by the Omicron variant of Coronavirus,’ the company explained.
Brent oil was quoted at $79.45 a barrel at midday in London on Thursday, up from $78.07 late Wednesday, though still below the US80 mark. Gold was quoted at $1,849.57 an ounce, lower against $1,857.48.
The eurozone’s construction sector ended the year on a negative note with the most pronounced fall in activity since May 2020, data released by S&P Global showed.
The construction purchasing managers’ index for the region dropped to 42.6 points in December, from 43.6 in November.
The latest reading marked the eighth consecutive month of contraction for the eurozone, indicative of a sustained drop in construction activity levels.
‘When excluding the pandemic, the reductions in total activity and new orders were the sharpest since March 2013 and September 2014, respectively,’ said Laura Denman, an economist at S&P Global Market Intelligence.
The euro stood at $1.0613, higher against $1.0598. Against the yen, the dollar was trading at JP¥132.41, higher compared to JP¥131.87.
The pound was quoted at $1.2020 at midday on Thursday in London, lower compared to $1.2054 at the close on Wednesday.
The UK service sector remained inside contraction territory in December, according S&P Global.
The S&P Global CIPS UK services purchasing managers’ index stood at 49.9 points in December, improved from a reading of 48.8 in November.
Though remaining below the 50.0 no-change mark for a third month in a row, December’s reading was the best since September and indicated a near-stabilisation of activity.
The print came below market expectations, as cited by FXStreet, which expected the index to hit 50 points.
‘UK service providers ended the year with another downturn in new orders as strong inflationary pressures and worries about the economics outlook sapped demand,’ commented Tim Moore, economics director at S&P Global Market Intelligence.
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