Investing.com — It has been a tough start to 2025 for UK retail stocks, with worries about the UK budget filtering through to businesses and consumers. On Friday, data revealed that UK retail sales dropped in December despite expectations of a bounce over the holiday period.
Consumers in the UK pulled back on spending, with retail sales falling 0.3% in December, well below the consensus 0.4% growth. However, Jefferies analysts are “cautiously optimistic” for the rest of the year.
In their “Real-time Retail Round-Up” note, Jefferies analysts said a “slower Christmas trading trend has become apparent.”
Key retailers like Greggs (LON:), Dunelm, JD (NASDAQ:) Sports, M&S Clothing/Home, and B&M missed expectations either in like-for-like sales or profit.
Despite these misses not significantly impacting earnings estimates, the market reaction was notably significant.
The firm said the softer sales trends in Q4 2024 were reflected in their Retail Trends Barometers, which showed an average run-rate of -4% through 2023, slowing to -9% in Q3 2024, and dipping further to -13% in the final quarter of 2024.
Looking ahead, Jefferies maintains a cautiously optimistic outlook for 2025.
“While recognising that the sector does have challenges to face into (opex/NIC, consumer confidence), particularly in the near term, we think that the positive demand backdrop and cyclically elevated savings ratio should support a more positive 2025 than is anticipated by the market.”
Jefferies also highlighted the valuation aspect, noting that the sector is trading at approximately an 11x multiple, a 15% discount to its long-run average.
They recommend “selectively adding exposure” and identified their Top Picks for 2025 as Premier Foods (LON:), Frasers, and DFS.
