High street upbeat after festive cheer

Christmas trading was more buoyant than many commentators and economists had predicted.

Not only were Majestic’s like-for-like sales up by nearly 12% in the nine weeks to 4 January (partly because of custom from former First Quench patrons), but also all the supermarkets reported solid trading with beers, wines and spirits playing a prominent part in their results.

Tesco’s like-for-like sales were up by 6%, Sainsbury’s by 3.7% and the Co-op’s by 4.8%. Overall, according to the British Retail Consortium, business in December grew at the fastest rate for eight years, with food retailers reporting strong sales of premium lines and luxuries (including wines and spirits).

At the anecdotal level, some UK shippers of premium Champagne marques ran low of stock and had to request late extra orders from France to meet demand from retailers. They were relieved to receive extra shipments despite the French lorry drivers’ strike and the appalling weather in the last few days of the Christmas campaign.

The strong general sales figures no doubt reflect consumers bringing forward some planned spending ahead of the VAT rise on 1 January, so optimism needs to be tempered, especially as the increased tax rate is likely to have had only a marginal effect on generating sales of drink in comparison with larger household items; a more meaningful comparison will be to look at this month’s sales against January last year.

However, the upbeat tone on the high street suggests that the UK economy may well have started to grow again in the fourth quarter of last year, but that does not mean it will now be a smooth path to recovery. There are plenty of pitfalls ahead and sales at US retailers fell unexpectedly by 0.3% in December compared with November, casting uncertainty over the recovery of the US economy and underlining that confidence is fragile and volatile.

Indeed, that fragility was evident in Pernod Ricard’s half-year trading statement issued yesterday evening. US sales, it said, “have not benefited from the economic recovery”. In the six months to the end of December the group’s worldwide organic net sales fell by 3%, with the worst part of that decline between July and September. In the three months to Christmas the decline was pegged to 2%. Asia performed reasonably well throughout the half year, as did the duty free market but Europe “remained difficult”.

The financial implications of these sales figures will become clear next month when Pernod RIcard presents its half year results, but the tone of its statement suggests that consumers, notably in the US, are continuing to trade down from premium brands. For its financial year to the end of June, Pernod Ricard continues to predict organic profits growth of between 1% and 3%.

The key words in the previous sentence are “profits growth”. Any company that can add to its bottom line when margins are under pressure is doing well.

Finance on Friday, 15.01.2010