Merry Xmas for retailers but expectations were not high and

Retailers have enjoyed a better than expected Christmas it seems from the sounds emanating from the sector so far, though in part that may be because targets were set low.

This morning, J Sainsbury PLC (LSE:SBRY), JD Sports Fashion PLC (LSE:JD.) and Dunelm Group PLC (LSE:DNLM) all upped their profit guidance as they revealed solid numbers for the festive period. 

Sainsbury’s said it now expects profits of at least £720mln for the year to the end of March, up from its previous guidance of £660mln, after its grocery business performed better than expected over the festive period.

Like-for-like sales grocery sales were up 0.8% in the six weeks to Christmas, and 7.7% higher compared to two years ago, with strong sales volumes and cost savings more than offsetting higher costs, investment in marketing and a weaker performance for general merchandise sales, including its Argos arm.

JD Sports, meanwhile said it was confident pre-tax profit for the year to 29 January 2022 will be at least £875mln, much higher than market expectations of £810mln, and also issued guidance for the new year, saying it expects PBT to be “in line with the current year”.

Total like-for-like sales for the 22-week period to 1 January were up 10% on a year ago with the company saying its buying and merchandising strengths offset industry-wide supply constraints.

Over at Dunelm, management said full-year profits will be “materially ahead of market expectations” after sales rose 13% in the third quarter to £407mln.

The homewares retailer said growth was across nearly all product categories, with a very strong performance in furniture and helped by stores being fully open, with industry data showing the group continued to gain market share in both homewares and furniture.

Conservative guidance

Perhaps more retailers are learning from the king of the beatable guidance, Next PLC (LSE:NXT), which last week delivered another masterclass, while also warning of the effects of rising inflation.

UBS retail analysts said JD Sports’ new January 2023 guidance was conservative and “may be slightly below market expectations” based on recent conversations with institutional investors, which suggested at least £900mln was being looked for.

“Investors generally view JD guidance as conservative,” informed UBS’s Olivia Townsend, though the fact that solid guidance had come so early in the year, particularly given ongoing supply chain disruption and tough comparatives in the US, “is likely to be reassuring”.  

As for Sainsbury’s, UBS colleague Sreedhar Mahamkali said he believes its upgrades “are unlikely to flow through” to subsequent years, as demand for food at home is seen as likely to ease as we come out of the pandemic while the cost pressures “continue to build”.

Broker Peel Hunt was impressed with Dunelm, where guidance for…