Whitbread shares jumped on Thursday despite a slight dip in quarter-on-quarter occupancy to 84.9% as the UK’s largest hotel business’s income rose 39% above pre-pandemic levels in Q3.

Whitbread’s shares were up 3% at the time of writing on Thursday.

Whitbread’s Premier Inn achieved an 11% surge in total accommodation sales, driven by robust demand in both London and the regions.

The total revenue per available room exhibited 9% growth and an outstanding 39% increase compared to FY20, marked by high occupancy rates and robust pricing.

“But there were a few signs that Whitbread is having to work a little harder to keep its room full. Quarter-on-quarter occupancy fell over a percentage point to 84.9%. And whilst London room rates only nudged down a fraction, compared to the second quarter, they dropped by 11% in the UK regions. In Europe, expansion of the German business is continuing to plan, and Germany’s expected to hit the break-even point at some point in 2024,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

Nevertheless, “Whitbread looks to be well on track to meet forecasted operating profit growth of nearly 25% in the current financial year, but going forward, the comparatives will be a lot tougher,” added Nathan.

Meanwhile, in Germany, total accommodation sales soared by an impressive 61% compared to FY23, aligning with Whitbread’s guidance of a pre-tax loss between £30 million and £40 million for FY24.

“Our teams have delivered another strong set of results,” said Dominic Paul, Chief Executive of Whitbread. “In the UK, we continued to see robust demand for our hotels, driving high levels of occupancy and strong pricing. Our focus on delivering a high-quality proposition at a great price has meant that Premier Inn UK has continued to outperform the M&E market. In Germany, we performed well in what is an important trading period with a large number of leisure and business events; we remain on course to break even on a run-rate basis during the calendar year 2024.”

“We continue to execute against our strategic priorities at pace, and given the structural shift in UK hotel supply, positive current trading, a clear commercial plan, and our ongoing focus on driving cost efficiencies, we remain confident in the outlook,” Paul added.

Looking ahead, “cost growth guidance of between 3 and 4% for next year doesn’t provide too much cause for concern and should allow some flexibility in pricing. A slowing economy may present some challenges,” said Derren Nathan.

“But Whitbread is a best-in-class operator with the financial strength to take advantage of growth opportunities while supporting dividend payments and the current share buyback plan,” he added.

Marks & Spencer shares fell on Thursday after the company reported strong sales growth but didn’t increase profit guidance. The decision to leave profit guidance unchanged gave a cautious tone to an otherwise robust update.

As we noted in our Marks & Spencer festive trading update preview, today’s update was crucial for Marks & Spencer’s shares after a year of strong performance for the stock.

For shares to maintain the rally, investors would have to be convinced momentum in Marks & Spencer’s sales growth continued through Christmas and could continue into the new year.

Evidently, investors were not convinced of this, and Marks & Spencer shares were down over 5% at the time of writing on Thursday.

In our Marks & Spencer update preview, we said:

“Many investors will consider food sales growth the most important metric in the upcoming trading statement. Anything close to first-half growth of 14.7% will be seen as a win for M&S. Revenue for Q3 2023 was £3.6bn, and investors will hope this exceeds £4bn in Q3 2024.“

Unfortunately, total food sales grew by just 10.5% in the 13-week Christmas trading period, a big step down from food growth in prior periods. Sales for the period were £3.85bn.

Marks & Spencer investors book profits

Today’s announcement would always test the UK consumer’s propensity to splash out on expensive groceries during the festive season. Given the ongoing cost-of-living crisis, Marks & Spencer has done a ‘Remarksable’ job bringing shoppers through the door.

“In Food, M&S led the market on volume growth every month over the final quarter of 2023, with a 7% increase across the period. Larger stores performed particularly well as more customers turned to M&S for their full shop. And with cost-of-living pressures weighing on consumers at a historically expensive time of year, the group’s Remarksable value range has come into its element, with sales growing by an impressive 18%,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

Chiekrie also noted a respectable performance in M&S’s clothing business amid an effort to revitalise the unit:

“In Clothing & Home, less stock has been making its way to the sale rack, resulting in higher average selling prices and a 4.8% rise in like-for-like sales. The group’s improving style credentials are partly to thank for this, pulling more shoppers through the door over the festive season. As is the group’s reshape programme, which looks to pivot stores to new locations and refresh existing stores to create a more productive estate.”

Marks & Spencer has achieved an astounding recovery over the past year, but signs that the growth rate is slowing have pushed some to book profits in shares that gained ahead of today’s announcement.

“Shares in Marks & Spencer rallied in the days before the results as investors looked at strong updates from Aldi and Lidl, plus a resilient showing from Next, and concluded that M&S could also do well,” said Russ Mould, investment director at AJ Bell.

“The shares have given back some of those gains on the trading update as investors with a ‘better to travel than arrive’ mindset bank some profits. There are also enough words of caution in the update to stall momentum in the share price.”

Tesco, the UK’s largest grocer by market share, enjoyed record sales during the festive period and increased its profit guidance for the year as a result.

In many respects, Tesco is the winner of this year’s round of FTSE 100 supermarket festive trading updates.

Group retail sales combining Tesco’s Q3 and Christmas trading periods rose 6.4% as the grocer successfully fought off the discounters and grew market share by 15bps.

Tesco cut prices on 2,700 products and attracted shoppers with low prices through schemes such as price matching with discounters and Clubcard prices.

In addition to strength in value ranges, Tesco will be delighted with sales performance at the other end of the product range. Tesco Finest range sales rose 16.7% in the UK, achieving a record Christmas trading week as Tesco marked the 17 consecutive period of stealing higher-end spending away from other premium retailers.

Booker sales edged higher as both the catering and retail units produced mid-single digit sales growth.

Profit guidance increased

Robust performance across all of Tesco’s food-focused businesses resulted in a slight increase in profit guidance for the year. Tesco now predicts retail adjusted operating profit of £2.75bn, above its previous guidance range of £2.6bn to £2.7bn.

The increase in guidance is small yet significant. In an environment where peers such as Sainsbury’s have maintained guidance, shareholders will see an increase in guidance as a major positive.

In early trade on Thursday, Tesco shares were little changed, gaining 0.7%.

Given the upbeat release, holders of Tesco shares may have expected more of a reaction. Still, they will be satisfied the stock has gained substantially ahead of the results, and the market reaction to the festive trading update was materially better than peers Sainsbury’s and Marks & Spencer.

“Tesco has managed what Sainsburys couldn’t quite muster, which is a profit upgrade for the full year. The tills were chiming away over Christmas, and the slightly conservative previous estimates, coupled with lower exposure to General Merchandise, means there’s room for expectations to be inflated. Investors will be especially pleased to hear of the £2bn in retail free cash flow due to pump round the business this year, helping to underpin the group’s ability to invest in staying competitive, and helping sustain the not insubstantial prospective dividend yield,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“Of course, there are no rainbows without rain. The wider pivot to value offerings, including in Europe where Tesco has a substantial footprint, could keep a lid on progress in the face of a consumer slowdown and volume weakness. The strong value proposition means Tesco is exposed to consumers who are feeling the pinch economically, so keeping them shopping with Tesco and at the right price points, is a big task. “

Lund-Yates concluded by touching on the dynamics in consumer spending amid the cost of living crisis that may support Tesco’s earnings through the rest of the year.

“The other side of the coin is that it’s increasingly clear that consumers are choosing to treat themselves at home. A restaurant might be too much of a stretch, but that translates into being willing to spend a few extra pounds on a special meal in, and Tesco can certainly taste that difference.”

Although losses weren’t overly severe, the FTSE 100 was lower again on Wednesday as investors await further insights into where interest rates will go in the near future and Sainsbury’s dragged on the index after a mixed Christmas trading update.

The FTSE 100 was down 0.2% at the time of writing.

“The FTSE 100 dipped on Wednesday off the back of downbeat sessions from Asia and the US last night,” said AJ Bell investment director Russ Mould.

“The market is still trying to work out if central banks are going to under-promise and over-deliver on interest rates cuts or if they really mean it when they say any such move is still some way off.”

Markets will digest the latest round of US CPI data tomorrow, which promises to set the tone for equity trading going forward. There is also an element of profit-taking in London’s leading index after a robust end to 2023 and a lack of fresh catalysts to send stocks higher.

News that the World Bank foresees slower growth due to geo-political influences didn’t help the bull case for London’s leading stocks as worries about global growth dented sentiment.

“With the World Bank forecasting that geo-political crises will drag global growth back to the slowest pace since the pandemic, there is little momentum for the internationally focused FTSE 100,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown

Sainsbury’s

This week is a busy one for festive trading updates with all major FTSE 100 grocers reporting festive trading. Sainsbury’s released their Christmas trading figures on Wednesday and disappointed shareholders with weak non-food sales.

The performance of food and grocery sales during the period is of paramount importance for investors. Sainsbury’s did well in this area. Food sales rose 9.3% in Q3 and 8.6% over the Christmas period.

However, it was the non-food sales that proved to be the headache for traders and shares fell over 5%. Christmas General Merchandise and Clothing declined, suggesting the group’s focus on food was at the expense of other areas of the business.

“Sainsbury’s has a ‘food first’ strategy and the big question from its Christmas trading update is whether management is guilty of neglecting the other parts of the group,” said AJ Bell’s Russ Mould.

“Non-food sales were very disappointing, implying that Sainsbury’s is either leaving areas like clothing and Argos’ general merchandise offering to wither away or it simply isn’t pushing the products that people want.

“Sainsbury’s partially blames tough comparative figures from the previous year, yet it does feel as if Argos, in particular, has been bumped down the list of priorities for the group since Simon Roberts took over as chief executive.

“One has to question if the Argos brand is still the right fit for the grocery seller over the long term. If food is the priority, would the shop floor space currently occupied by Argos concessions be put to better use?

“Many fashion retailers suffered from the wrong kind of weather in 2023 to support the stock on their shelves. The sector has also been awash with promotions to shift items, meaning retailers have had no choice but to cut their prices if rivals are offering similar goods more cheaply. Naturally this is bad for margins. Sainsbury’s has been exposed to both factors.

Greggs had a good year and a good fourth quarter. On Wednesday, Greggs shares jumped 6% as the company reported that full-year sales for 2023 were up 19.6%, while Q4 like-for-like sales were up 9.4%.

Full-year sales totalled £1.8 billion, with like-for-like full-year sales rising 13.7%.

The good news sent Greggs shares flying 6% higher at the time of writing on Wednesday.

“A solid final quarter means Greggs can tick off 2023 as a year of real progress. Double-digit growth in like-for-like sales was down to extended opening hours, more delivery options, improving supply chain capacity, and a fresh new suite of tasty treats. Festive Bakes and Chocolate Orange Muffins lead the way over Christmas, but bears may point to sales growth slowing over the year, and the fourth quarter was the lowest of 2023,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

“That’s largely because Greggs was able to limit price hikes as inflation cooled. Longer-term, that’s a net positive. One of Greggs’ key strengths is offering a lower-value treat, and keeping that proposition intact is key, especially when consumer incomes are stretched. The most important thing is to see volumes trend higher, and that remains the case,” he added.

Greggs has also declared plans to open 140–160 net new shops in 2024.

“The job’s not done. Expect to see more progress over 2024 as investment continues into the digital offering, delivery partnerships, and expanding the store estate,” Britzman stated.