‘A Christmas profit warning is inauspicious, but retail has reasons to be cheerful about 2025’

This time next week, Christmas will be over for retailers and thoughts will turn to the year ahead.

Given how important this time of year is for the industry, the fact that there’s been a hefty profit warning at the peak of the golden quarter doesn’t exactly look auspicious for 2025.

The reasons cited by Shoe Zone for a likely halving of earnings this financial year – a year it’s only a few months into – will resonate with peers. Jittery consumer confidence, that old retail variable the weather, and higher costs following the recent Budget were all blamed.

Another rise in inflation – reported by the ONS to have reached 2.6% in November, the highest in eight months and driven by higher prices for things like fuel and clothes – will raise fears that consumers may keep a tight hold on their purses in the months to come.

However, the picture is by no means all bleak. While prices may be on the rise, wages are growing faster. That should bolster confidence which, despite all the turbulence at home and abroad this year, has been inching up.

In the City, sentiment towards retail might not be characterised as unbridled enthusiasm but it’s not a write-off either.

After a slow start, festive trading has picked up momentum, “with early peak holding up well”

Independent analyst Nick Bubb observed that yesterday “the general retail sector was up a bit overall, despite the Shoe Zone profit warning”.

The mood was perhaps helped by a note from Peel Hunt analysts, some of whom saw reasons to be cheerful about listed retailers, even though several companies’ shares have been trading on PEs only in single digits.

They wrote that after a slow start, festive trading has picked up momentum, “with early peak holding up well”.

Expectations about 2025 are “subdued”. Typically, earnings growth expectations at this point in the year would stand at 10% but consensus forecasts are pencilling in year-on-year profit growth of 7%.

Lower profit expectations are not usually a cause for celebration but Peel Hunt argues that an “in-line performance” – i.e. not too many nasty surprises – would be “greeted with enthusiasm”.

They conclude: “It’s fair to say that expectations for Christmas have not run away, to the extent that we believe an ok Christmas trading period, with forecasts held, is likely to be enough to push share prices upwards given the recent weakness ahead of peak.”

“While it may not be the best ever it shouldn’t be a disaster”

In fact, many retailers have performed well and there is no reason to expect a change in pace from industry leaders such as Tesco, Sainsbury’s, Marks & Spencer and Next.

Others that have been through the mill are also looking in better shape. The John Lewis department stores business, for instance, seems to have a spring in its step once again and a renewed sense of confidence.

Online fashion specialist Asos has flagged that some of the heaviest lifting needed for turnaround has been achieved. It can now focus on “delivering experiences that delight” customers rather than getting the internal mechanics of the business in working order.

And The Body Shop, a high-profile casualty this year after collapsing into administration, looks to be on the up. The Guardian reported that it is back in the black under new ownership, albeit only over a short period.

The Body Shop chief executive Charles Denton told staff in a message seen by the newspaper: “I am so thrilled at how we are ending the year. Storm Darragh may have tried its worst, but we weathered it and some…

“Throw whatever you like at us, and we’ll come bouncing back… back for good and last month… back in profit, baby!”

Denton it seems is assured of a happy Christmas. And for many other retailers, while it may not be the best ever it shouldn’t be a disaster. Onwards and upwards in 2025.