Next was the FTSE 100’s top riser on Thursday after the retailer impressed investors with a robust set of festive trading figures and ignited a rally in the UK’s listed retail companies.

Next shares were 7% higher at the time of writing and the FTSE 100 was gaining 0.4% to 7,618.

The festive trading period is key for retailers and Next is seen as a bellwether for the UK high street. The health of the consumer has been a major concern but today’s results from Next suggest shoppers are still in a position to spend, despite rising inflation and interest rates.

Ocado, Frasers Group and JD Sports all gained substantially on hopes they would also reveal similarly upbeat results to Next.

Greggs and B&M European Value also reported resilient numbers today. However, analysts cautioned that the location of these companies’ outlets may have favoured travel conditions and their sales may not be evident in retailer with a city centre focus.

“Next, B&M and Greggs are united by having a presence on retail parks where business has been better than expected in general. Widespread train strikes will have prevented a lot of people from going to city centre shops, which means retail parks with their plentiful parking spaces have been the preferred alternative shopping destination,” said AJ Bell investment director Russ Mould.

JD Sports are set to release their Christmas trading statement 11th January and Ocado 17th January.

China strength

The miners were once again higher after a strong session in Asia overnight.

“Asian stocks have fared well over night with Chinese indices doing particularly well with the Shanghai composite up 1.8%. Hong Kong’s Hang Seng was up 0.9% as news emerged that the border with China is soon to open. The Hang Seng is now at its highest level since the end of October 2022,” said Derren Nathan, Head of Equity Research, Hargreaves Lansdown.

Pearson was the FTSE 100’s biggest loser after the education material provider was cut to underperform with a price target of 865p. Pearson shares were down 4.4% to 911p.

Greggs have marked a significant bounce back from the headwinds of the pandemic in 2022 with sales rising 23.0% to £1,513m.

The ‘on-the-go’ nature of Greggs bakery business model meant the company was always set to suffer during a period people worked from home and travelled less due to COVID-19. Greggs 2020 sales sank to £811m from £1,167m in 2019 as the pandemic rocked the economy.

However, as the UK economy reopened, Greggs recorded £1,229m revenue in 2021 and in 2022 revenue surged once more to levels well in excess of pre-pandemic sales.

Like-for-like sales were 17.8% higher while the baker opened an additional 186 stores.

“Greggs is seeing increased usage of its app loyalty rewards scheme, as customers flock to value during the cost-of-living crisis. The bakery-chain’s pricing is being held as a key area of strength in current conditions, and has meant that together with cost savings, margins have held up for the full year. Specifically, demand has been helped by a strong reaction to Greggs’ festive goods, including the Festive Bake and vegan options,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown

“Greggs is so confident its strong trading will continue, it’s planning to open 150 shops this year, and is continuing with extended opening hours at over a fifth of its sites. Later-day trading is proving popular as the group rolls out click and collect options.”

The combination of a greater adoption of online engagement and a softening in the economic backdrop is supportive of Greggs sales going into 2023.

“While restaurants might be suffering as more people eat from home, a £1.20 sausage roll ‘on the go’ is still seen as an acceptable purchase even if money is tight, hence why Greggs is standing proud,” said AJ Bell investment director Russ Mould.

Nonetheless, Greggs shares were broadly flat on Thursday as investors choose to focus on a benign earnings outlook hampered by rising costs.

Next shares were surging on Thursday morning after the group produced a bumper festive trading period, despite concerns about the health of the UK consumer in the face of a cost of living crisis.

In the nine weeks to 30 December, Next sales rose 4.8% compared to the year prior, paying testament to Next’s strategy and the resilience of the UK economy.

Next were helped by plunging temperatures in December which saw sales jump after a fairly flat November.

“This is another impressive performance from the bellwether of the UK High Street, reinforcing Next’s reputation as one of the best run UK retailers,” said Charlie Huggins, Head of Equities at Wealth Club.

“The group benefited from a cold snap in December, which has boosted demand for winter clothing, as well as the absence of pandemic restrictions, aiding store performance. Nevertheless, this shouldn’t take away from Next’s stellar execution. Many other retailers have struggled in the current environment, but Next’s proposition is clearly resonating with the UK consumer.”

The results were robust enough for the Next board to increase full year profit before tax guidance by £20m to £860m.

Despite the strong festive period, Next were still cautious on the year ahead and said they expect profit before tax to be £795m in 2023, down -7.6% compared to this year. 

Next shares were up 7.2% at 6,538 at the time of writing.

The defensive nature of the FTSE 100 was evident on Wednesday as the index gained for a second straight day, despite volatility in US markets.

Most FTSE 100 constituents were positive at the time of writing with the index gaining 0.5% to 7,592.

“The FTSE 100 shrugged off a sell-off in US tech stocks overnight to trade a smidge higher on Wednesday morning in the latest reminder of the big differences between the UK’s flagship index and its counterparts across the Atlantic,” said AJ Bell investment director Russ Mould.

“The resilience of the FTSE 100 was impressive given it was able to withstand material falls for index heavyweights BP and Shell on lower oil prices. Investors are increasingly concerned about the current Covid situation in China where a relaxation of restrictions is leading to a surge in cases.”

“Thanks to less effective vaccines and a population with much less natural immunity, China is some way behind the West in its recovery from the pandemic and this has implications for global growth and global supply chains.”

Investor Repositioning

The specific concerns around China were evident in the FTSE 100’s miners on Wednesday with Anglo America, Rio Tinto, Antofagasta and Glencore all trading negatively.

It is notable for the commodity-dominated FTSE 100 index to rise when most of the commodity shares were down on the day.

This suggests some repositioning from the commodity sector to more UK-focused domestic stocks. The index was supported by mining companies late last year as investors bought into the sector ahead of a Chinese reopening.

Now China that has eased most COVID restrictions, this trade is being faded and investors are seeking out value in consumer companies and UK-focused equities.

Ocado was the top gainer, up 8%, while Sainsburys and B&M European Value were both up over 5%.

Construction companies and the housebuilders were also gaining bargain hunter interest despite a downbeat property outlook for 2023.